By Peter S. Vogel The mandatory mediation provision of the software development agreement seemed like a good idea to me since a mediation conference was required before litigation could be filed. However, it turned out to be a ploy. The California software vendor had a contract for software development for the implementation of a new Enterprise Resource Program (ERP) system for a large company in Mississippi. Unfortunately as things turn out about 65% of the implementation of ERP systems fail, so it was not a surprise to me that the Mississippi customer demanded a refund of the monies paid. In response, the software vendor invoked the mandatory mediation provision. For the mutual inconvenience of everyone the mediation was in Houston, so I traveled from Dallas, the software vendor from California, and the customer from Mississippi. Mediation As Normal I should have known something was up since the software vendor did not bring a lawyer, rather showed up with just the CEO and VP of Operations. The customer brought the President, Information Technology folks, and their outside counsel. Each side made an opening statement in our joint session, and each made a demand. The customer wanted their money back or roughly $1 million, and the vendor wanted to be paid the balance of the contract which was also about $1 million. Mediation Not So Normal When I broke the parties into two rooms I met first with the customer, who explained their view of the case and was willing to pay the vendor a modest sum to terminate the contract so they could move on. So I explained to the software vendor the customer’s explanation of its position and its offer to pay a modest amount to the software vendor, and what happened next was astonishing to me. The software vendor refused to budge one cent, and the CEO told me that he had no intention of ever settling but now he understood the customer’s issues. He went on to tell me that he routinely used mediation conferences as a form of discovery, and that he had an E&O policy that would cover the cost the attorneys’ fees to defend the customer’s claims so it would not cost him anything. It seems to me that the point of requiring a mediation conference before litigation should not be to get some advantage, but rather a way for the parties to avoid continued litigation. I was extremely disappointed about the software vendor’s business model and sorry that he took advantage of the mediation conference solely to help him in litigation, never intending to settle at the mediation conference. Technorati Tags: ADR, law, mediation Peter S. Vogel is a trial partner at Gardere Wynne Sewell LLP where he is Chair of the Electronic Discovery Group and Co-Chair of the Technology Industry Team. Before practicing law he worked as a computer programmer, received a Masters in Computer Science, and taught graduate courses in information systems. For 12 years he served as the founding Chair of the Texas Supreme Court on Judicial Information Technology which is responsible for helping automate the Texas court system and putting Internet on the desktops of all 3,200 judges. Peter has taught courses on the Law of eCommerce at the SMU Dedman School of Law since 2000. Many of Peter’s topics are discussed on his blog www.vogelitlawblog.com.

The July 2009 issue of the Defense Litigation Journal, published by the International Association of Defense Council had an interesting article: Trends in Litigating Arbitration: Using Motions to Compel Arbitration and Motions to Vacate Arbitration Awards, 76 Def. Couns. J. 338 (2009), written by our blog contributor Don Philbin. Check it out. Technorati Tags: ADR, law, arbitration

Via the Business Conflict Blog, we learned of the recent ABA Resolutions and Report with respect to the Arbitration Fairness Act of 2009 (for background, click here and here) and its implications to international commercial arbitration. This is the summary: The American Bar Association should support the use of international commercial arbitration and legislation or regulation that recognizes and aids in the enforcement of international commercial arbitration agreements and awards, oppose the passage of any legislation or regulation that would discourage such arbitration, or that would invalidate pre-dispute arbitration agreements in international commercial transactions, or that would alter the current law as to the allocation of authority between the court and the arbitrators to determine the jurisdiction of the arbitral tribunal in international commercial disputes or that would alter the timing of such determinations, or that would protect discrete classes as an amendment to Chapter 1 of Title 9, i.e., the Federal Arbitration Act (“FAA”). The resolution and the report take no position as to the optimal treatment of disputes concerning consumers, employees, civil rights claims by individuals or purely domestic franchise disputes. Read more here. Technorati tags: arbitration, ADR, law,

The United States Court of Appeals for the Fifth Circuit held that a contract containing a choice of law and forum clause effectively waives the right to remove to federal court under the New York Convention. In ENSCO International Inc. v. Certain Underwriters at Lloyd’s et. al. (No. 08-10451) (5th Cir. Aug. 12, 2009), plaintiff ENSCO International, Inc. is an offshore drilling oil and gas company and defendants are several insurance underwriters (the “Underwriters”). The Underwriters insured an oil rig owned by ENSCO, which insurance policies (the “Policies”) contain a choice of law and jurisdiction clause stating that: “The proper and exclusive law of this insurance shall be Texas law. Any disputes arising under or in connection with it shall be subject to the exclusive jurisdiction of the Courts of Dallas County, Texas.” During Hurricane Katrina, the oil platform suffered serious damage and a dispute arose between the parties about the scope of the coverage of the Policies. ENSCO sued the Underwriters in Dallas County, consistent with the forum selection clause. However, the Underwriters removed the case to federal court, claiming removal rights under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (a.k.a. the New York Convention). See 9 U.S.C. § 205. ENSCO moved to remand, arguing that the forum selection clause waives the right to remove. The district court sided with ENSCO and the Underwriters now appeal. At issue in this case is whether the Policies contain a waiver of the right to remove the case to federal court. The Fifth Circuit first highlighted the legal standard for waiver: For a contractual clause to prevent a party from exercising its right to removal, the clause must give a ‘clear and unequivocal’ waiver of that right….There are three ways in which a party may clearly and unequivocally waive its removal rights: [1] by explicitly stating that it is doing so, [2] by allowing the other party the right to choose venue, or [3] by establishing an exclusive venue within the contract. After a discussing at length City of New Orleans v. Mun. Admin. Servs., Inc., 376 F.3d 501 (5th Cir. 2004) and McDermott International, Inc. v. Lloyds Underwriters, 944 F.2d 1199 (5th Cir. 1991), the court concluded that the third basis for waiver (the contractual specification of jurisdiction) applies here, because the Policies “fixes ‘exclusive’ venue for litigation in ‘the Courts of Dallas Country, Texas.’ “ Accordingly, the court held that the Underwriters have waived their right to remove and affirmed the order to remand. Technorati Tags: arbitration, ADR, law, Fifth Circuit