This week, the Fifth Circuit decided Woodmen of the World Life Insurance Society/ Omaha Woodmen Life Insurance Society v. JRY, No. 08-30405 (5th Cir. Mar. 23, 2009). The defendant-appellees (“JRY” and “TSY”) are parents suing on behalf of the Estate of their minor son (“BMY”) and the plaintiff-appellant Woodmen of the World (the “Society”) is a non-profit fraternal society that provides life insurance and other benefits, including access to a Woodmen Youth Camp via a Certificate of Insurance. This certificate incorporates the Woodmen Constitution, which provides that disputes between members and the Society should be resolved by arbitration. The parents of BMY sued the Society in Louisiana state court claiming that BMY was sexually assaulted by fellow campers while attending the Woodmen camp and alleging that the camp staff were negligent in failing to properly supervise the campers. The Society filed a motion to compel arbitration. The district court held that the dispute fell outside of the arbitration agreement and the Society appealed. The Fifth Circuit set out a two-step analysis that a court should follow to decide whether to compel arbitration under the FAA: Whether the parties agreed to arbitrate the dispute in question. Whether legal constraints external to the parties’ agreement foreclose the arbitration of those claims by deciding: (a) whether there is a valid agreement to arbitrate between the parties and (b) whether the dispute falls within the scope of the arbitration agreement. Since the parties did not dispute the validity of the arbitration agreement, the court only considered the issue of whether their tort claims were encompassed by the arbitration agreement. The court cited the federal policy of favoring arbitration and stated that “ambiguities in the language of the agreement should be resolved in favor of arbitration.” The court concluded that the arbitration clause was “at minimum susceptible of an interpretation that covers the asserted dispute” and remanded with instructions to grant the Society’s motion to compel arbitration. Technorati Tags: Arbitration, ADR, Law, Arbitration of Tort Claims

So much has been said lately about the “evils” of arbitration, but so little attention has been given to studies regarding arbitration. In this article, from the Vol. 18, No. 1 of the Alternative Resolutions newsletter, John Allen Chalk, Sr. summarizes recent studies on the subject of arbitration, including studies on arbitration participants, attorney surveys, employment arbitration, and consumer arbitration. The article concludes that the findings do not support the current criticisms of the arbitration process. Similarly, this ABA Journal post, this Wall Street Journal post, and this National Arbitration Forum Blog post comment on an arbitration study by the Northwestern Law School. The study concluded that consumers won more than half of the arbitrations. The full report is here. Interestingly, some critics have questioned the forum partiality and methodology of these studies. For example, the Northwestern School of Law study refers to only one arbitration firm. Technorati Tags: arbitration, ADR, law, studies on arbitration

Following is a list of recent bills related to Alternative Dispute Resolution filed during the 81st Texas Legislature. H.B. 2256. Relating to mediation of out-of-network health benefit claim disputes concerning enrollees, facility-based physicians, and certain health benefit plans; imposing an administrative penalty. The bills history is here. H.B. 2095. Filed by Rep. Farrar, relating to the regulation of claims against residential home builders. This bill would, among other things, prohibit charging homeowners with fees in connection with a state-sponsored inspection or dispute resolution process and arbitration required under the same title. Status: referred to subcommittee on 03/16/2009. H.B. 2896. Filed by Rep. Leibowitz, relating to forms to be used by builders in contracts for the sale or construction of a new home. This bill provides that a contract form requiring the parties to submit to binding arbitration can not be adopted. Status: referred to the Committee on Business & Industry on 03/17/2009. H.B. 3426. Filed by Rep. Hernandez, relating to the notice required by certain mortgage servicers before foreclosing on real property. This bill provides mediation rules for foreclosure disputes. Status: referred to the Committee on Pensions, Investments & Financial Services on 03/19/2009. H.B. 3482. Filed by Rep. Coleman, relating to the notice required by mortgage servicers before foreclosing on real property. This bill is similar to H.B. 3426. Status: referred to the Committee on Business and Industry on 03/19/2009. S.B. 1475. Filed by Senators Ellis, Van de Putte, and Watson, relating to the notice required by mortgage servicers before foreclosing on real property. This bill is identical to H.B. 3426 and similar to H.B. 3482. Status: referred to the Committee on Business & Commerce on 03/17/2009. Technorati Tags: arbitration, ADR, law,

Last week we blogged about the U.S. Supreme Court ruling on Vaden V. Discover Bank, No. 07-773, (U.S. Mar. 9, 2009). Justice Ginsburg delivered the opinion of the Court, joined by Scalia, Kennedy, Souter, and Thomas. Chief Justice Roberts concurred in part and dissented in part and was joined by Stevens, Breyer, and Alito. Here is a summary of the case. Discover Bank sued cardholder Vaden in Maryland state court to recover past due charges ($10,610.74 plus interest and attorneys fees). Discover’s pleading raised only state law issues and the parties did not qualify for diversity-of-citizenship jurisdiction (the amount in controversy did not exceed $75,000). Vaden answered with the affirmative defense of usury and filed several class-action styled counterclaims. Right after, Discover filed to compel arbitration in federal court, based on a clause in the credit card agreement providing for arbitration. The district court granted Discover’s request for arbitration and Vaden appealed. The Fourth Circuit remanded the case for determination on whether the controversy presented “a properly invoked federal question.” On remand, the district court held that the controversy presented a federal-question jurisdiction and ordered arbitration once again. The case was appealed to the Fourth Circuit for the second time and the Fourth Circuit affirmed. Now the U.S. Supreme Court granted certiorari and examined two questions concerning subject-matter jurisdiction over a petition under section 4 of the FAA: Whether a district court, if asked to compel arbitration, should “look through” the petition and grant the relief if the court would have federal-question jurisdiction of the controversy. The Court held that a court may “look through” a section 4 petition to make this determination. Whether a district court should exercise jurisdiction over the petition when the petitioner’s complaint rests on state law but an actual or potential counterclaim rests on federal law. Here, the Court held that a federal court may not entertain a section 4 petition based on the contents of a counterclaim, when the whole controversy between the parties does not qualify for federal-court adjudication. Thus, the Court refused to compel arbitration because the federal court did not have jurisdiction over the whole controversy. However, the Court noted that Discover may still petition a Maryland state court to enforce the arbitration agreement. The dissent argued that the “controversy” to be decided by the Court should be the subject matter of the arbitration. Whether Discover Bank charged illegal finance charges, interest, and late fees, which is controlled by the Federal Deposit Insurance Act. Not the complaint based on state law that Discover filed initially. It is worth noting an issue barely discussed on footnote 13. It was Discover who first sought court adjudication of the dispute, and it was not until Vaden countered with class-action allegations, when Discover invoked the arbitration clause contained in the cardholders’ agreement. Usually, it is the defendant party the one who files to compel arbitration to avoid litigating the dispute. Generally, courts find “forum-shopping” distasteful and some courts have held that a party has waived its right to arbitrate based on their invocation of the judicial process. See a recent case here. Technorati Tags: arbitration, ADR, law, U.S. Supreme Court, Vaden v. Discover Bank, federal question jurisdiction, arbitration jurisdiction, well-pleaded complaint