By William G. Whitehill In In re Merrill Lynch & Co., Inc. and Merrill, Lynch, Pierce, Fenner; Smith Incorporated, __ S.W.3d __ (June 25, 2010 slip op.), the Texas Supreme Court conditionally granted mandamus relief in favor of Merrill Lynch, staying litigation against it by a non-signatory company when that company’s sister company that was a signatory to an arbitration agreement was also asserting identical claims that were potentially subject to a class action carve out from its arbitration agreement with Merrill Lynch, the defendant in both cases. The signatory company had been a party to a class action suit that was dismissed. The possibility remained, however, that the class action could be revived. Until that issue was resolved, it would not be possible to determine whether the signatory’s claims would be required to be arbitrated. If the signatory’s claims were to be arbitrated (i.e., there was no class action), the non-signatory’s suit could not proceed until after the arbitration. (Conversely, if the signatory’s claims were to proceed in a class action, the carve out would apply and the non-signatory could proceed with its litigation proceeding.) In so holding, the Texas Supreme Court relied on its prior decision in In re Merrill Lynch Trust Co., 235 S.W.3d 185, 195 (Tex. 2007) in which it held that where “the same issues must be decided in both arbitration… and in court … the latter must be stayed until the former is completed.” In so holding, the Supreme Court further held that when an issue is pending in both arbitration and litigation, the Federal Arbitration Act generally requires the arbitration to go forward first; arbitration ‘should be given priority to the extent it is likely to resolve issues material to this lawsuit.’ This has been the practice in all the federal courts. (footnotes omitted). In the present case, the court observed that the only factual difference from its prior decision was the class action carve out provision and the fact that whether the signatory would participate in a class action suit remained an undecided issue. Nonetheless, the Supreme Court based its mandamus relief on the fact that the class action issue necessarily would be resolved in the future and that protecting Merrill Lynch’s bargained for arbitration right took priority over the non-signatory’s desire to proceed with its litigation claim. Both cases reflect the trend among the majority of U.S. courts to enforce arbitration agreements based on traditional contract law principles. William G. Whitehill is a trial partner at Gardere Wynne Sewell LLP. Mr. Whitehill has represented an offshore drilling contractor, a national pipe and fittings foundry, a food products manufacturer, a natural gas producer, and other companies in substantial antitrust claims. Mr. Whitehill has also represented a plaintiff’s class in a successful trial and appeal of substantial pension benefit claims. He holds a B.B.A. in Finance from The University of Texas at Austin and a J.D. from Southern Methodist University. Mr. Whitehill may be reached at bwhitehill@gardere.com.

By U.S. District Judge W. Royal Furgeson, Jr. Dear Friends: I have read with interest “Why Isn’t ADR More Popular? A Report from Harvard.” From my perspective as a judge, I would recommend that lawyers be very careful about inserting mandatory arbitration language into their client’s contracts. First, I see a great deal of buyer’s remorse in cases where there is a mandatory arbitration clause that leaves a party no choice but to arbitrate. Mandatory arbitration is no panacea. It is costly. Indeed, I hear anecdotally from lawyers that it is becoming more costly than trials. The rules of procedure and evidence are not clear. The arbitrator can be wrong on the law and the facts and his/her decision almost always must be given full effect by courts. There is in actuality no review process under the FAA. Second, if mandatory arbitration is such a good thing, then why not wait till the dispute arises. The parties are free to agree at that time. Third, if the goal is to avoid juries (which is a wrong headed goal, by the way), then the parties can just as easily agree in their contract to waive a jury and try any dispute to a judge. Fourth, if the parties still insist on putting mandatory arbitration language into a contract, they should draft the language very carefully, setting out clear procedures about how to select an arbitrator(s) and about how to conduct the arbitration. This should be thoughtfully considered, at the outset, rather than just some statement that there will be arbitration. Best wishes, Royal Furgeson E-mail: Royal_Furgeson@txnd.uscourts.gov The Honorable W. Royal Furgeson, Jr. received a B.A. from Texas Tech University in 1964 and a J.D. from the University of Texas School of Law in 1967. He was a United States Army Captain from 1967 to 1969 and an assistant county attorney in Lubbock, Texas in 1969. From 1969 to 1970 he was a law clerk for the Honorable Halbert O. Woodward at the U.S. District Court for the Northern District of Texas. Furgeson was in private practice in El Paso, Texas from 1970 to 1993. Furgeson currently serves as a federal judge on the U.S. District Court for the Northern District of Texas. He was nominated by President Bill Clinton on November 19, 1993 and confirmed by the United States Senate on March 10, 1994. Technorati Tags: law, ADR, arbitration

The article below was published this week on the Program on Negotiation at Harvard Law School website. Many scholars have noted that the business community would greatly benefit from third-party dispute resolution services. JThe authors note that disputants use arbitration and mediation less frequently than their preferences on surveys would predict and than rational parties would.

By Kent B. Scott and Cody W. Wilson Every mediation is unique. The mediator will work with the parties and counsel to devise the appropriate format for the mediation. In general, however, mediation has four stages: Opening joint session The mediation usually begins with a joint session. At this session, the parties will be seated and the mediator will introduce everyone to each other. The mediator will also set out some rules of appropriate conduct. Next, the mediator will explain the mediation process and its goals. This discussion will be general in nature. The mediator will also explain the mediator’s role. After this, the parties usually make their opening statements. Opening statements generally explain what the dispute is about, its affect on the party and the party’s desired outcome. The opening statement should be directed to the decision maker for the other side, not to the mediator. In most cases, the attorneys make these presentations. Clients can participate in the opening statement, but should they? The answer is usually “no” and “never” when the parties are very hostile to each other. But if personal hostility is not a problem, a very articulate, sophisticated client could make an effective opening statement. Private caucuses Private sessions with each party make up the guts of every mediation. This is where each party can feel safe in talking about the dispute. The mediator may caucus with each party several times, if needed. These sessions have three functions: information gathering, negotiation and consensus building. It is important to the success of mediation that the mediator discuss with each party the strengths and weaknesses of its case, its interests and needs, and its desired outcome. The mediator will engage in some reality testing causing the parties to reevaluate their positions on certain issues. The mediator will also focus them on possible ideas for settlement. When this information gathering is completed, the mediator shifts the focus to opening negotiations and the exchange of offers and counter-offers. A question that every client wants to know is this: Who makes the first move in mediation? Some parties feel that making the first move signals weakness. But this perception has no foundation. Someone has to make the first move and the mediator, an expert facilitator who knows the strengths and weaknesses of each side’s case, will know what each side must do to move toward a mediated resolution. Usually, the mediator will first seek a consensus on the easy issues and then work toward an agreement on more difficult matters. Negotiations cannot be rushed. Once there is some movement, the mediator will try to keep productive discussions going. As the only person who has been in both caucus rooms, the mediator is the only person who knows how much flexibility each side has to negotiate and what it will take to achieve closure. The mediator may ask the parties to consider making a concession that is important to the other party but has limited value to them. The mediator will also recognize when it is necessary to “sweeten the pot” to complete the deal. Some deal sweeteners include offering to pay for settlement document preparation, writing a letter of apology, agreeing to continue to do business with the adversary, having one side or the other pay for the total amount of the mediator’s fee, or trading something of value. When impasse happens In many mediations the parties reach an impasse in negotiations. Sometimes this occurs because a party is frustrated and decides it does not wish to settle. Trying to overcome impasse is a challenge for everyone involved in mediation. The mediator might decide to bring the parties together in a joint session to explore means and methods for overcoming impasse or, if experts are involved, to have the experts go over the issues point-by-point to determine where they agree, where they disagree, and the basis for these opinions. This can help narrow the issues. The mediator also might ask counsel for permission to speak privately with the parties, singly or together, out of counsels’ presence, in order to develop new ideas or even add a new twist to old information that would assist in eliminating the impasse. Invariably, the mediator will remind the parties what is likely to happen if a settlement is not achieved—developing a litigation budget and calculating the resources that will be needed for a long, drawn out, costly trial. If the client is a public corporation it also means carrying this as a potential liability on its books. Settlement, recess or termination of mediation If the parties reach a settlement, the mediator may orally summarize the main terms. The attorneys for the parties will prepare a draft summary of the settlement terms, which the parties and attorneys must sign. No one should be allowed to leave the mediation until this is accomplished. Later, one of the attorneys usually prepares a more detailed settlement agreement. This agreement is likely to state who pays the mediator’s and attorneys’ fees, and the interest rate that will apply on unpaid sums. Because disputes could later arise as to what the settlement terms were or what they mean, settlement agreements often contain a dispute resolution clause providing first for mediation and then arbitration. The parties may want to consider appointing the same mediator to handle the mediation if a dispute arises out of the settlement agreement. When a settlement is reached during mediation, counsel and client should discuss the client’s reactions the next day. Some parties experience what is known as “buyer’s remorse.” When this happens, counsel should remind the client of the many reasons for mediating in the first place, including the ability to get back to business and move forward with life. If the parties do not agree to a settlement, the mediator will review the progress the parties made during mediation and advise them of their options. One option is for the parties to gather and exchange additional information, and meet again later for further mediation or […]