Yesterday, the Workplace Prof Blog pointed out in a post that the Fifth Circuit had issued an opinion, back on May 18, 2006, in which it refused to compel arbitration (link is to .pdf file of the opinion). Obviously, this is a big deal and an unusual event in the Circuit, so apologies for us having missed the opinion. The reason for the omission, for the curious, is the Court’s decision to not publish the opinion. We are frankly not as diligent about checking unpublished opinions as we are published ones. However, the opinion is important even if it’s not precedential, so I’m glad Prof. Bales spotted it. This also raises an interesting issue as to how one tracks these opinions. Prof. Bales obviously searches Westlaw regularly for opinions which reference arbitration; the link he provides is to the Westlaw opinion, and not the Court’s opinion, and thus would require a Westlaw contract to read it. I have been searching opinions from the Court’s site directly. I simply read all the published opinions from the Fifth Circuit and blog about the ones which pertain to arbitration or which are otherwise interesting. Since this blog discusses legal issues other than arbitration, it seems like the way to go; a search for “arbitration” would miss the interesting non-arbitration cases, and I don’t know how to search for “interesting law”. However, as noted above, I do not read all the unpublished opinions, so cases like the one I’m about to discuss (I promise) can slip through the cracks (although I guess it did not really slip through the cracks, but you know what I mean). Anyhoo, enough about us. The case in question involves an interesting employment arbitration scheme which had already been invalidated by other circuit courts around the country. Ryan’s Family Steakhouses had a contract with an outfit called Employment Dispute Services, Inc. (“EDSI”), whereby EDSI would arbitrate disputes between Ryan’s and its employees. Each Ryan’s employee would then have a separate contract with EDSI, whereby they were compelled to use EDSI to arbitrate disputes with Ryan’s. Ryan’s and its employees, however, did not have direct arbitration agreements in place. The problem the recent case presents stemmed from the fact that the contract Ryan’s had with EDSI was different from the contract EDSI had with the Ryan’s employees. Ryan’s itself could opt-out of its agreement to arbitrate employment disputes by giving EDSI ten days’ notice; Ryan’s employees had no such option. Thus, despite EDSI’s and Ryan’s representations to Ryan’s employees, Ryan’s had no real obligation to arbitrate. The analysis was made a bit more complicated by the fact that Ryan’s and its employees were each third-party beneficiaries of the other’s contract with EDSI and not direct contractual partners with each other. The Fifth Circuit affirmed the district court’s decision to refuse to compel arbitration, on the basis that no consideration existed for the employees’ agreement to arbitrate with EDSI. EDSI’s promise to provide neutral arbitration services to the employees was illusory, since the employer could opt-out, and since EDSI could alter its rules that would govern the arbitration at its pleasure. Incidentally, this rule-alteration argument escapes me, as I was under the impression that many arbitration clauses contain language like “arbitration subject to the AAA rules for Arbitration of Commercial Disputes in effect at the time,” which to me means that the AAA can change its rules as well. But maybe I’m missing something, and the opinion does not discuss it at length. At any rate, although the opinion was not published, and although it involved a convoluted three-party arbitration scheme, it is an important one as it demonstrates at least one fact pattern that, in the Fifth Circuit, does not allow for an arbitration clause’s enforceability. However, it is important to note that the Court’s problem was not with Ryan’s ability to escape arbitration (that is, the lack of mutuality of the arbitration agreement), but with the fact that the agreement was based on a false premise on Ryan’s part. Ryan’s and EDSI represented to the employees that all employment disputes would be arbitrated, when in fact Ryan’s had no such obligation. A failure of consideration, therefore, rather than an unconscionably one-sided agreement. Something to chew on. Finally, it is interesting to review the FAQ section of EDSI’s website, which states in relevant part: EDSI uses a stand-alone pre-dispute agreement that has been sustained by five United States District Court decisions. Decisions made by EDSI’s three-member arbitration panel have never been appealed. Period. So questions of bias have not been an issue. I could not find any discussion of the Goins case, or the others it cites, on the EDSI website, but in all fairness I do understand from the opinion that EDSI has “fixed” its arbitration clauses to avoid this problem in the future. Goins v. Ryan’s Family Steakhouse, Cause No. 05-51549 (5th Cir. 2006) (not released for publication). Technorati Tags: arbitration, ADR, Fifth Circuit, law

The Fifth Circuit handed down an opinion (link is to .pdf) today which discusses the qualifications required of a “non-public” arbitrator under the NASD rules. The opinion reverses a trial court decision to vacate an arbitral award on the basis that one of the three arbitrators did not meed NASD standards for arbitrator qualifications. In big cases arbitrated under the NASD rules, a panel of three arbitrators is required, two of whom are “public” and one of whom is “non-public.” The non-public arbitrator is supposed to be a securities industry veteran or “insider” (as the Court puts it) and is supposed to be an attorney, accountant or other professional who has spent at least 20% of their time in the past two years representing clients in the securities industry. In 1994, Mary Beth Marshall was accepted to the NASD’s roster of non-public arbitrators. In 2003, Marshall was appointed to a panel of arbitrators who decided an NASD case. The losing party argued successfully that the district court ought not to confirm the award as Ms. Marshall had retired from the practice of law and thus was not qualified to serve as a non-public arbitrator under NASD rules. The trial court found that Ms. Marshall’s failure to meet the NASD’s own requirements prevented confirmation of the award under Section 10(a)(4) of the Federal Arbitration Act. The Fifth Circuit, however, took a broader view of the NASD rules. It found that since the NASD’s requirements allow non-lawyers to be non-public arbitrators, the fact that Ms. Marshall no longer practiced law did not preclude her from being qualified under NASD rules. The Court also found that regardless of Ms. Marshall’s qualifications, she was in fact still a member of the NASD’s roster of non-public arbitrators. That being the case, her service as a non-public arbitrator did not technically violate the NASD rules, which call for a non-public arbitrator on each panel in a large case, even if she were technically not qualified to be a non-public arbitrator in the first place. In other words, Ms. Marshall perhaps should not have been entitled to be a non-public NASD arbitrator, but she was one in any event, and the NASD could continue to appoint her to cases, as the NASD was the arbiter of its own arbitrator list. For a vacatur, the moving party would have had to prove that the NASD violated its own rules, which it did not do since the person it appointed was in fact on the right list. Put yet another way, being on the list is ultimately more important than meeting the requirements to be on the list, according to the Fifth Circuit. The problem with this logic, of course, is that the non-public arbitrator requirements are also part of the same rule that mandates the panel composition. Ms. Marshall, if she did not meet the requirements, simply was not a non-public arbitrator, whether she was on the list or not. The rule does not say “non public arbitrators are arbitrators on the non public arbitrator list”; the rule sets out with specificity the requirements those folks must meet. All of this, if you’re interested, can be found in NASD Rule 10308. The Court also found that any deviation from NASD procedures was likely trivial and thus not worth of vacatur. Finally, the Court noted that the parties likely waived their right to object to Ms. Marshall’s qualifications when they did not do so during the arbitration proceeding, although it refrained from actually ruling on that point. All in all, an interesting and curious opinion, especially in light of the Court’s decision to revisit its Positive Software arbitrator disqualification opinion en banc. Bulko v. Morgan Stanley, ___ F.3d ___ (5th Cir. 2006), Cause No. 05-10242 Technorati Tags: arbitration, ADR, Fifth Circuit, law

On Friday, the Texas Supreme Court confirmed that Texas law is in line with Federal law holding that a trial court’s order compelling arbitration is final and appealable, and not interlocutory. The opinion is short and provides little in the way of opportunity for pithy commentary, but is useful nonetheless. Childers v. Advanced Foundation Repair, Cause No. 05-0831 Technorati Tags: arbitration, ADR, Texas Supreme Court, law

Late last week, the Fifth Circuit Court of Appeals handed down another opinion holding that a federal statutory cause of action was subject to binding arbitration (link is to .pdf file). This time, the Court ruled that in enacting the Uniform Services Employment and Reemployment Rights Act (“USERRA”), Congress did not intend to preclude employers from requiring military employees to arbitrate their statutory rights. The case itself is fairly straightforward, factually. A Marine reserve office was fired by Circuit City immediately before being called up to active duty. He sued, claiming that the firing was in violation of his rights pursuant to USERRA. Circuit City moved to compel arbitration, and the Marine objected, stating that arbitration would deprive him of his statutory rights under USERRA. The Fifth Circuit explained the analysis that litigants must undertake in these cases, holding that to avoid arbitration a would-be litigant must show a clear intention on Congress’ part to exempt a statutory cause of action from the potential of arbitration: Because the parties agreed to arbitrate the dispute at issue, the agreement is enforceable unless Garrett can demonstrate that Congress intended to preclude arbitration. Congressional intent “will be discoverable in the text of [USERRA], its legislative history, or an ‘inherent conflict’ between arbitration and [USERRA]’s underlying purposes.” Internal Citation Ommitted. The Court found that none of these factors was present, and it ordered the case to arbitration. While not everyone may have an active USERRA practice, the Court’s opinion will be important in any case in which a statutory cause of action runs across an arbitration clause. Garrett v. Circle C. Stores, Inc., ___F3d ___ (5th Cir. 2006) (Cause No. 04-11360). UPDATE: Michael Fox, one of the other Austin lawyers who blogs, offered his own commentary on the case over on Jottings by an Employer’s Lawyer. Being that he blogs over the weekend, he beat us to the punch. Mr. Fox, as his blog’s title indicates, is an Austin attorney who represents employers in employment disputes. Being that arbitration cases are often also employment cases, I would guess we will see more overlap in the future between our blog and Mr. Fox’s. Technorati Tags: arbitration, ADR, Fifth Circuit, law