Today, April 26, 2010, the U.S. Supreme Court will hear an arbitration case. Chicago, has its own with overlapping issues. On February 15, 2010, I FILED 10cv1013 in the United States District Court for Northern, Illinois. See Falconer v. Gibsons Restaurant Group et. al. My opponent (Gibsons) has argued that the federal court lacks subject matter jurisdiction to decide if the arbitration clause is unconscionable (see its Pacer documents 12 & 13). Gibsons position is that the filed suit is not in Diversity and it that involves because the parties signed the contract in Illinois, federal law does not apply. This 42 U.S.C. 1981 based lawsuit has two parts. The first part represents counts against individuals for 42 USC 1981 violations. The second part asks the court to provide Declaratory Relief. The issues in the instant case for which the plaintiff seeks declaratory relief are: First, whether or not the Gibsons arbitration agreement is unconscionable—if, the plaintiff is required to pay half of the arbitration costs; and second, whether or not the arbitration agreement is unconscionable when the employer can seek injunctive relief in the federal court but that the agreement prohibits the plaintiff/employee from seeking injunctive relief in any court. In response to Gibsons motion to dismiss, I have argued that the Defendant’ shows (in its documents 12 and 13) a gross misunderstanding of the purpose of 28 U.S.C. § 2201; and that Defendant Gibsons misunderstands that plaintiff uses the statute as a basis to ask (within his Complaint, esp., pp.10-17 of the Complaint) the court to make a declaratory judgment as to validity and enforceability of the Gibsons employer group arbitration agreement. It is my position that the federal Court does not lack subject matter jurisdiction for reasons which include that the Plaintiff is alleging a violation of a FEDERAL statute. That statute is 42 U.S.C. 1981. Second, the arbitration agreement in issue commits adhere to the Federal Arbitration Act (FAA). Section 4 Para. a of the ACT reads: “The Federal Arbitration Act shall govern this Agreement, including any actions to compel, enforce, vacate or confirm proceedings, awards, orders or arbitrator, or settlements under this Agreement.” This statement represents to me that the employer (Defendant Gibsons) accepts that its arbitration agreement is governed by 9 U.S.C. §§ 1-14. This means that federal court has jurisdiction to declare whether terms of the Gibsons arbitration agreement (or the agreement in its entirety) are enforceable. Furthermore, the United States Supreme Court has ruled that challenges to the validity of a contract containing an arbitration clause are to be decided by the arbitrator. Conversely, a claim that only the arbitration clause itself is void—as in Falconer v. Gibsons, et. al. is to be determined by a court. Buckeye Check Cashing, Inc. v. Cardegna make the former and latter absolute and clear. The Gibsons Arbitration Agreement (PF. Exh. 1) in Section 4, Para. ““a)”” reads: ““The Federal Arbitration Act shall govern this Agreement including any actions to compel, enforce, vacate or confirm proceedings, awards, orders of the arbitrator, or settlements under this agreement.”” This requirement should be read in conjunction with ““Rule 1”” of the American Arbitration Rules which reads in part: ““Applicable Rules of Arbitration: The parties shall be deemed to have made these rules a part of their arbitration agreement whenever they have provided for arbitration by the American Arbitration Association (hereinafter “AAA”) or under its Employment Arbitration Rules and Mediation Procedures or for arbitration by the AAA of an employment dispute without specifying particular rules.*”” AAA Rules at http://www.adr.org/sp.asp?id=32904. Since the AAA rules require of Defendant Gibsons that it accept that an employee’s arbitration costs are capped at $175.00 and that Gibsons has agreed (in its own Arbitration Agreement) that it is bound by AAA rules and FAA, then there should be no conclusion other than one that holds that Mr. Falconer is not responsible for half of the arbitration costs (and that he can ask the court to help him stop the defendants immediately from calling him Nigger, Gigaboo and Blackie). A tangential point, I am convinced those alleging civil rights violations in an employee-employer relationship should not be precluded by arbitration agreements from filing in court. It would be helpful if there is more recognition in the legislative community that many employee-employer arbitration agreements in the U.S. have been drafted in such a way that it becomes impossible for a aggrieved employee to have his\her disputes addressed because the costs of the arbitration process make arbitration inaccessible to the employee (or former employee). The decision by the New York Court of Appeals in Brady v. The Williams Capital Group, L.P., 2010 WL 1068163 (N.Y. Mar. 25, 2010, NY’s Highest Court Requires Ability-to-Pay Hearing Before Enforcing Fee-Splitting Provision in Arbitration Agreement) should cause us to note that some employer mandated arbitration agreements not only take away an employee’s right to sue the employer in court, but as well, impose arbitration costs\expenses on the employee. The employee who lacks funds is unable to make use of the arbitration process. There is something very wrong with any arbitration provision that makes it almost impossible for a consumer or former employer to challenge an arbitration clause due to financial reasons. Christopher C. Cooper, ESQ., JD, Ph.D. Law Office of Christopher Cooper, INC. 3620 WEST 80TH LANE MERRILLVILLE, IN 46410-0000 TEL: 312 371 6752 TEL: 219 228 4396 Fax: 866 334 7458 cooperlaw3234@gmail.com

The United States District Court for the Southern District of Texas, Houston Division held that an arbitration agreement naming the National Arbitration Forum (NAF) as the arbitrator was unenforceable because NAF (now unavailable) was an integral part of the arbitration provision. In Ranzy v. Extra Cash of Texas, No. H-09-3334, 2010 U.S. Dist. LEXIS 22551 (S.D. Tex. March 11, 2010), the arbitration clause at issue stated, AGREEMENT TO ARBITRATE ALL DISPUTES: You and we agree that any and all claims, disputes, or controversies between you and us and/or the lender, any claim by either of us against the other and/or the lender (or the employees, officers, directors, agents or assigns of the other or the lender) and any claim arising from or relating to your Credit Services and Loan Application, any LOC [Letter of Credit] issued by the CSO [Credit Services Organization] on your behalf, the loan documents that govern your obligations for any loan that you obtain or have previously obtained or later obtain, this CSO Agreement, this Agreement to Arbitrate All Disputes, collection of any loan or loans, collection of any LOC that the CSO issued on your behalf, or alleging fraud or misrepresentation, whether under the common law or pursuant to federal, state or local statute, regulation, or ordinance, including all disputes as to the matters, subject to arbitration, or otherwise, shall be resolved by binding individual (and not class) arbitration by and under the Code of Procedure of the National Arbitration Forum (“NAF”) in effect at the time the claim is filed. This agreement to arbitrate all disputes shall apply no matter by whom or against whom the claim is filed. Rules and forms of the NAF may be obtained and all claims shall be filed at any NAF office, or on the World Wide Web at www.arb-forum.com, by telephone at 800-474-2371, or at “National Arbitration Forum, P.O. Box 50191, Minneapolis, Minnesota 55405-0191.” Your arbitration fees may be waived by the NAF in the event you cannot afford to pay them. The cost of a participatory hearing, if one is held at your or our request, will be paid for solely by us if the amount of the claim is $ 15,000 or less. Unless otherwise ordered by the arbitrator, you and we agree to equally share the costs of a participatory hearing if the claims is for more than $15,000 and less than $ 75,000. Any participatory hearing will take place at a location near your residence. This arbitration agreement is made pursuant to a transaction involving interstate commerce. It shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16. Judgment upon the award may be entered by any party in any court having jurisdiction. The first issue decided by the court was whether section 5 of the Federal Arbitration Act (FAA) authorizes the court to name a substitute arbitrator. The court stated, Although the FAA was designed “to overrule the judiciary’s long-standing refusal to enforce agreements to arbitrate,” it “does not require parties to arbitrate when they have not agreed to do so.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989) (citations omitted). The FAA “simply requires courts to enforce private negotiated agreements to arbitrate, like other contracts, in accordance to their terms.” Id. The FAA does, however, provide for the court to appoint an arbitrator under certain circumstances. Section 5 of the FAA provides: If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if no method be provided therein, or if a method be provided and any party thereto shall fail to avail himself of such method, or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or infilling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall act under the said agreement with the same force and effect as if he or they had been specifically named therein; and unless otherwise provided in the agreement the arbitration shall be by a single arbitrator. In determining whether NAF was an integral part of the arbitration agreement, the court concluded: In the present case, the court need not determine whether § 5 is applicable when a chosen arbitrator becomes unavailable because the NAF was clearly an integral part of the arbitration provision. “Arbitration agreements are subject to the same rules of construction used to interpret contracts.” Harvey v. Joyce, 199 F.3d 790, 794 (5th Cir. 2000). However, any ambiguities must be resolved in favor of arbitration. Id. To determine whether a named arbitrator is an integral part of the arbitration agreement, the court must look to the “essence” of the arbitration agreement. Grant, 678 S.E.2d at 439 (citations omitted). In this case, the plain language of the arbitration provision in both the Note and the Arbitration Agreement explicitly states that all disputes “shall be resolved . . . by and under the Code of Procedure of the [NAF].” Dkt. 15, Exs. 1, 2. Additionally, “all claims shall be filed at any NAF office,” or on the NAF web site. Id. This is mandatory, not permissive language and evinces a specific intent of the parties to arbitrate before the NAF. See Reddam, 457 F.3d at 1059-61 (outlining criteria for courts to use in determining whether the selection of a specific arbitrator is integral to the arbitration clause and noting, that at a minimum, the arbitrator must be expressly named); Carideo v. Dell, No. C06-1772JLR, 2009 U.S. Dist. LEXIS 104600, 2009 WL 3485933, *4 (W.D. Wash. Oct. 26, 2009) (arbitration provision that provided that disputes “shall be resolved exclusively and finally by binding arbitration administered by the NAF” was sufficient to find the NAF […]

It has been a long road for Mr. and Mrs. Cull. Here are the facts of the case: In 1996, the Culls bought a home from home builder Perry Homes and warranties from Home Owners Multiple Equity, Inc. and Warranty Underwriters Insurance Company. In 2000, the Culls sued the warranty companies over problems with their house foundation and construction. They claimed that their home had defects that caused its appraised value to plummet from more than $233,000 when they bought it in 1996 to $41,000 by 2001. Days before the case was scheduled for trial, however, the Culls moved to compel arbitration (pursuant to an arbitration clause in their warranty agreement). This was 14 months after the suit. The trial court reluctantly granted the motion to compel arbitration in December 2001. So, the case was submitted to arbitration. After a year in arbitration, on December 24, 2002, the arbitrator awarded the Culls $800,000, including restitution of the purchase price of their home ($242,759), mental anguish ($200,000), exemplary damages ($200,000), and attorney’s fees ($110,000). After the arbitrator found for the Culls, Perry Homes and the other defendants claimed that the couple had waived their right to arbitrate and resisted confirmation of the award. The district and appellate courts ruled against Perry Homes. Perry Homes appealed the judgment to the Texas Supreme Court. In 2008 the Texas Supreme Court ruled in favor of Perry Homes and vacated the arbitral award. Perry Homes, et al. v. Robert E. Cull and S. Jane Cull. (find our discussion of the case here) The case made the headlines (read more here and here) because rarely do arbitration awards get vacated and all Texas Supreme Court Justices had received campaign contributions from Perry Homes. So, the case was sent back to the court system. On March 1, 2010 a 236th district court jury (in Fort Worth, Texas) awarded the Culls more than $58 million in damages, including $44 million in punitive damages. Cull and Cull v. Perry Homes, et al. (read more here, here and here). So, the case was sent to court-ordered mediation. In mid-March, 2010 the mediation post-verdict failed and no settlement was reached between the Culls and the companies. (read more here) The next step is a hearing to enter the judgment. At the time of this writing, the case has not been appealed. Stay tuned to Disputing for more updates on this case. Technorati Tags: law, ADR, arbitration

Need CLE credits? The Houston Bar Association and the Frank Evans Center for Conflict Resolution at South Texas College of Law will host their Annual Conference on ADR on Friday, April 30, 2010. The all-day conference will take place at South Texas College of Law. The program looks very interesting. Peter S. Vogel, trial partner at Gardere Wynne Sewell LLP and contributor of this blog will present “eMediation and Special Masters in eDiscovery: A New Role for Mediation.” The brochure with more information is here. Technorati Tags: law, ADR, arbitration