Entries Tagged as 'Arbitration'

A-Rod, MLB and Games of Chicken

New York Yankees third baseman Alex Rodriguez is no stranger to controversy.  A-Rod, although never positive on a drug test, has admitted to past steroid use and is now being investigated by Major League Baseball for obtaining performance enhancing drugs from Biogenesis.  Milwaukee outfielder Ryan Braun already accepted a 65 game suspension, presumably from his dealings with Biogenesis and its owner Anthony Bosch, and according to reports, several other players will accept 50 or so game suspensions later today or tomorrow.

A-Rod’s case makes for a good study on case analysis and settlement.  Reports indicate that MLB wants to make an example of A-Rod  by giving him a lifetime ban because he allegedly lied to MLB investigators.  A lifetime ban from the game would invalidate his current highest-in-baseball contract with $90 million remaining after this season.  A-Rod always has a right of appeal to an arbitrator or Baseball Commissioner Bud Selig depending on which rule MLB issues the suspension (though the latter is less likely given that MLB issued the suspension in the fist place).  The punishment, absent a deal, is reported to be handed down tomorrow.

So what is each side looking at?  A-Rod has a few choices:

  • Let MLB issue whatever sort of suspension it chooses then appeal.  The appeal could go either way or simply be reduced and an arbitrated ruling is not appealable in Court (with limited exceptions).  So if it is a lifetime ban, A-Rod risks never playing again and losing millions in salary.
  • Cut a deal with MLB, negotiations for which are apparently underway.  Reports say the negotiated deal would be a suspension for the balance of this season and all of next season.  This would cost him about $36 million in salary (his salary declines in the later years of the contract).  He would then try to make a comeback after nearly 2 years off — adding in his injury time — and at the age of 39 when most players are in decline.  But he would still collect the remaining money on his contract, or at least try to.  A-Rod would have some certainty.
  • He could take an injury retirement today before any punishment is handed down.  Presumably, MLB cannot suspend a retired player or invalidate such a contract after the fact.  If they tried, he could appeal or sue.  Reports indicate that A-Rod’s rehab from two hip surgeries have left him a shell of a player.  The Yankees would allegedly be happy that his controversy is gone and most of the balance of the contract would be covered by insurance — and they lose a diminished player earning a high salary.  A-Rod would miss out on a chance for greater glory in the all-time home run standings where he is currently in 5th place, along with millions in potential performance bonuses under his contract.

MLB also has a few choices as well:

  • Issue the lifetime ban and let the appeals process play out.  That could take a long time and it is not clear whether A-Rod could play during the appeal. If baseball loses the appeal, its ability to suspend players without any positive drug test is severely hampered.  On the other hand, if so many players are willing to accept 50 game bans without a positive test, Anthony Bosch’s credibility and Biogenesis’ records (the proofs against the players) must be very good.
  • Cut a deal.  This is probably the best outcome for baseball since it guarantees certainty and meets the interests in suspending all these players (namely game integrity and its perception).

In a mediation, these would be the types of things discussed privately with both sides and we would work towards a deal that works for everyone.  Ultimately the decision is up to A-Rod and MLB, as it is in their direct negotiations.  Most people are risk adverse — they don’t like taking risks.  And most people like certainty.  It will be interesting to see how this plays out.

If you’re in a dispute and can not work things out, mediation is a good way to try and gain a resolution.  Contact me to find out more.

SEC Approves FINRA’s Proposal for All Public Arbitration Panels

I’ve written previously about the Financial Regulatory Authority (FINRA) proposals for allowing consumer complainants in arbitrations to use all public arbitration panels.  Non-public (or industry) panel members are those who work within the financial services industry.  Claims for over $100,000 are heard by a panel of three arbitrators.  Studies have shown a perception among complainants that the FINRA arbitration process, often mandated by brokerage agreements, is biased against consumers at least in part by the participation of industry panelists.  Thanks to an approval from the Securities and Exchange Commission (SEC), claimants can now opt for a full public panel.

The recently enacted Dodd-Frank Act mandated that the SEC study the fairness of the “mandatory” securities industry arbitration process.  Whether this change will move the opinion of the SEC is open to debate.

FINRA to Propose Making All-public Arbitration Panels Permanent

Over two years ago, I wrote about a pilot program FINRA established to test all-public arbitration panels.  FINRA, the financial industry’s regulatory arm, will be submitting to the Securities and Exchange Commission a rule change proposal next month to make this option for claimants permanent.

The current pilot program involves 14 firms that agreed voluntarily to a set number of investor cases that did not involve individual brokers. The proposed rule would apply to all investor disputes against any firm and any individual broker. It would not apply to arbitration disputes involving only industry parties.

Roughly 60% of participants opted for the all-public panels.

Stock Market Arbitration Filings up 43% in 2009

Filings for arbitration at the Financial Industry Regulatory Authority (FINRA), the self-regulation body of Wall Street, are up 43% in 2009 over the previous year.  Nearly all brokerage agreement specify FINRA arbitration as the only way to resolve a dispute between a client and broker or an employee and broker.  In years where the stock markets are down, arbitration filings tend to increase as investors seek redress for their losses.  The average time from filing to award decreased from 13.0 months in 2008 to 11.5 months in 2009 — a 12% decrease. Investors received a monetary or non-monetary award in 45% of the cases in 2009, up from 37% in 2008.

FINRA also has an mediation program.  Filings in their mediation program were also up (23%) and average turnaround time dropped 33% from 135 days in 2008 to 91 days in 2009.

I arbitrate cases for FINRA, among other bodies.

Are Judges and Juries like Referees and Umpires? Are Referees and Umpires Fair? Why lawsuits are crapshoots.

Analogies between a finder of fact (a judge or jury) and referees or umpires (the arbiter of a game’s rules) are often made.  It is open to debate whether the analogy firmly holds.  However, it is often interesting to discuss whether any “neutral” decider of an outcome (game rules or rules of law) have biases.

When a party enters the courthouse or arbitration room, each party expects (and hopes) that the person(s) making the decision as to who is “right” is being impartial and fair. It is certainly open to debate how to define fair, which is usually in the eye of the beholder.  Each time I went through arbitration training (to be a private judge), the class is asked to perform an exercise.  The class is broken up into groups of three people.  One person plays the arbitrator, one person the complainant and the other the respondent.  Each group is given the same exact fact pattern and the parties make their cases.  After a specified period of time, the arbitrator makes their ruling which is turned into the person running the training.  Every single time I’ve done the exercise, the distribution of rulings in the room fall out from one  end of the possible spectrum to the other with everything in between.

Why?  Everyone had the same exact case to argue.  Shouldn’t “justice” be consistent?  In reality, several things happen.  First, not every party presents the case the same exact way.  Some people are more effective than others, just as some lawyers are better skilled than others. In a real case, anyone who speaks (lawyers, witnesses) can have good and bad days.  Trials are performances.  Second, every single human being has biases.  We grow up with things we like or don’t like.  We have all had good and bad experiences with things, people and scenarios.  These create the filters through which we see the world.  There is also a theory many attorneys ascribe to which states that whomever the jury or arbitrators likes better in terms of attorneys and litigants will win the case. Likability trumps “rightness”.

Getting back to the sports (referee) analogy, there have been some recent studies showing bias in referees.  And I am not referring to the Tim Donaghys of the world who seek personal gain from their on-the-court rulings.  In the Netherlands, two professors discovered that soccer (the other football) referees are more likely to call ambiguous fouls on taller players.  A study out of England showed that referees favored home teams in their calls, especially in disciplinary sanctions (yellow and red cards).  From the world of Tae Kwon Do, referees tend to award more points to competitors wearing red uniforms.

In the U.S., college basketball referees tend to also favor the home team by calling fewer fouls.  The college refs also try to level the playing field for the teams by issuing “make up” calls, calling more fouls on the team in the lead, and trying to even up the number of fouls between the teams regardless of the aggressiveness of the level of play of each team.  A 2007 study also found that white NBA referees tend to call more fouls on black players than white players.

Even just looking at the games you watch, do you agree with each decision the referee or umpire makes regarding your team?  How about instant replay, the analogy of an appeal in court?  Does the referee get it right even when they have a TV with 20 angles and slow motion to look at each play?  Sometimes not.

So what does all of this tell you?  Try to resolve the case without having someone else decide it for you.  That’s what mediation helps the parties accomplish.  The outcome is on your terms and is unaffected by the biases of others.

Please contact me if you would like to further discuss how mediation can help facilitate a resolution to your lawsuit, divorce or family dispute.

Aribtration Vacature Request Denied and Counsel Fees Charged to Filing Party

Arbitration is an alternative to a court making a decision on an issue in dispute by having an arbitrator, or private judge, make a decision on a matter. The benefits of arbitration include a quicker and less expensive trail to a decision. The disadvantage is that the ruling of the arbitrator cannot be appealed, except on very narrow grounds. Those grounds include an award procured by fraud, corruption, or undue means; evidence of partiality or corruption among the arbitrators; the arbitrator(s) were guilty of misconduct that prejudiced the rights of a party; or the arbitrators exceeded their powers. Some parties try to argue “manifest disregard of the law” as a way to vacate an arbitration award, but this ground is not specifically mentioned in the Federal Arbitration Act (FAA), which governs arbitration award vacature by courts.

The US Supreme Court recently ruled in Hall Street Associates LLC v. Mattel Inc. that manifest disregard is not among the grounds for vacature and thus cannot be used to vacate an award of an arbitrator — even if the parties agree to allow this ground for vacature by a court in their private arbitration agreement.

In November 2009, the 10th Circuit handed down an opinion which not only upheld Hall Street, but also awarded counsel fees as a sanction to the respondent of the appeal. The case is DMA International Inc. v. QWest Communications International, Inc. The court said, in part, “[U]njustified, protracted attempts to vacate arbitration awards destroy the ‘promise of arbitration’ and will not be tolerated….Thus, one who ‘assumes a never-say-die attitude and drags the dispute through the court system without an objectively reasonable belief that it will prevail’ does so at the risk of being sanctioned.”

The take-away: understand that an arbitrator’s award is likely final and has limited grounds for appealing a decision you do not agree with. If you want to limit your risk, build in a high-low scenario which limits awards in both directions or an upside-downside.

Credit Card Industry in Disarray

Most credit cardholder agreements contain a provision that upon default, the dispute will go before an arbitrator (a private judge) for a decision.  As with home mortgages, many consumers in default on their debt will ignore the notices for the arbitration hearing.  The arbitrator then rules on the matter with whatever evidence has been presented.  Once an arbitrator rules in favor of the credit card company, the company can then sue in court to enforce the arbitration award.  These arrangements have come under criticism because consumers cannot negotiate these terms in the card holder agreements (it becomes a contract of adhesion).  Also, the credit card companies hire the arbitrator so the perception is that they work for the credit card company.

Now, the two largest players in the credit card arbitration market — National Arbitration Forum and the American Arbitration Association — have announced they are leaving the field.  NAF was sued by the Minnesota Attorney General’s office for failing to disclose ties to the collections industry.  Their departure from consumer arbitration is to settle that lawsuit (they admitted no wrongdoing).  AAA is waiting for new guidelines to be established (odd, given that AAA rules are widely used for arbitrations and they have long been considered industry leaders).  Meanwhile, the federal government is looking at the matter of mandatory arbitration clauses in consumer agreements.

I suspect the courts will now be overburdened with credit card default filings with such a huge void in the consumer credit arbitration market.  I mediate a good number of these cases for the NJ courts and most of them resolve.  Credit card companies would rather be paid and consumers would rather not have bank levies and wage garnishments done to them — plus pay the bank’s legal fees.  Anyone can voluntarily enter mediation at any time.  Keep that in mind should you find yourself in this situation.  The earlier cases are resolved, the less expensive it is for all parties.

Take arbitrations seriously or you can lose $4.1 Billion

A California court recently upheld an award by an arbitrator for an amount in excess of $4 billion.  Paul Thomas Chester had sued his former employer, affiliated companies and company founder Timothy Ringgenberg for wrongful termination.  The case ended up in front of an arbitrator (a private judge).  How did an award like this end up being so large for a single plaintiff?  A number of compounded mistakes by the defendant.

First, the defendant apparently terminated a high level employee without cause and after he sued, moved to compel arbitration.  Then the defendant did not participate in discovery as requested.  Then the defendant decided to fire his attorney and represent himself and his companies (court rules require companies to be represented by counsel, but this was not the case in a private arbitration).  Finally, the defendant opted not to attend the arbitration nor meaningfully participating in his defense.

Since the arbitrator — a retired judge — had no defense information to work from, he essentially had to fill in the gaps with the information he did have.  Most of this was done adversely to the defendant.  The plaintiff’s employment agreement provided for a commission which was 5% of gross sales. The agreement also stated that if he was terminated without cause, he would be entitled to the commission on a permanent basis.  So the arbitrator had to guess what the on-going sales of the company would be — in absence of any information from the defendant.  The defendant had sent a letter to shareholders claiming revenue in one month being $535,000 with expected growth rates of 20 or 10 percent a month.  Assuming a 10% per month growth rate in perpetuity, the damages came out to about $1 billion with triple that in punitive damages. Hence a $4billion award.

Arbitration awards can only be appealed on very narrow grounds (essentially fraud).  Thus, the court upheld the award.

The takeaway:  arbitrations are just like trials and equal seriousness should be given to arbitrations as to trials.  Don’t ignore arbitrations.

What are your chances at trial? How well do plaintiffs and defendants do in state civil courts?

The U.S. Department of Justice’s Bureau of Justice Statistics has released the “Civil Justice Survey of State Courts, 2005“.  The 2005 CJSSC was the first time that the series examined general civil trials concluded in a national sample of urban, suburban, and rural jurisdictions.  Past reports only looked at the 75 largest counties in the U.S.

Highlights of the report:

  • 26,950 general jurisdiction cases in state level courts were disposed of in 2005.
  • Among jurisdictions that provided totals for both trial and non-trial general civil dispositions in 2005, trials collectively accounted for about 3% of all tort, contract, and real property dispositions in general jurisdiction courts.  (Note: only 1.8% of state cases in New Jersey end in a trial.)
  • A jury decided almost 70% of the general civil trials disposed of in 2005.
  • About 60% of the general civil trials included in the survey involved a tort claim and about a third involved contractual issues.  The rest primarily involved real property.
  • Plaintiffs won in 56% of trials overall.  A higher percentage of plaintiffs won in contract (66%) than in tort (52%) cases.
  • The median damage award for plaintiffs who won monetary damages in general civil trials was $28,000.  Contract cases in general had higher median awards ($35,000) than tort cases ($24,000).
  • Punitive damages were awarded to 5% of plaintiff winners in general civil trials in 2005.  It was sought in 13% of cases.
  • In the nation’s 75 most populous counties, the number of general civil cases disposed of by jury or bench trial declined by about 50% from 1992 to 2005.
  • Bench trials (57%) had a higher percentage of business litigants than jury trials (39%) and were likely to be decided in less time than jury trials. Judges were more likely than juries to find for plaintiffs. Plaintiffs won in 68% of bench trials, compared to about 54% of jury trials.
  • The median damage awards in 2005 were statistically similar for both jury and bench trials overall.  Contract cases tried before a jury ($74,000), however, had significantly higher median final awards than contract cases decided by a judge ($25,000).
  • Almost half (47%) of all civil bench and jury trials in 2005 had multiple defendants, and more than a quarter (29%) had multiple plaintiffs.
  • Among tort trials, plaintiffs were most likely to win in cases involving an animal attack (75%), followed by motor vehicle accident (64%), asbestos (55%), and intentional tort (52%) cases. Plaintiffs had the lowest percentage of wins in medical malpractice trials (23%), product liability trials that did
    not involve asbestos (20%), and false arrest or imprisonment trials (16%), compared to plaintiffs in other tort cases.
  • In contract cases, plaintiffs won in the majority of trials for all case types except subrogation (28%), which involves an insurance company seeking to recover the amount paid on behalf of a client. Mortgage foreclosure cases, in which the plaintiff was either a mortgage company or other financial lending institution, had the highest percentage of plaintiff winners (89%) of all tort and contract cases in 2005.
  • Almost two-thirds (62%) of all plaintiff award winners were awarded $50,000 or less. A small  percentage (about 4%) of all plaintiff award winners were awarded $1 million or more.
  • In 2005, jury trials for general civil cases lasted almost four days on average. Bench trials lasted almost two days.
  • Cases heard before a jury took more time from filing of the complaint to rendering of the verdict than those heard before a judge. On average, the processing of a case required an additional half year for a jury trial (26 months), compared to a bench trial (20 months).
  • Appeals were filed with the trial court in 17% of general civil trials concluded in 2005.  Plaintiffs filed appeals in 5% of general civil trials in which they prevailed, and in 15% of civil trials in which they did not win any monetary award. Defendants gave trial court notice of appeal in 12% of civil trials with a plaintiff winner, and in 2% of trials in which the plaintiff did not receive an

Incidentally, 4 New Jersey counties were used in the study: Bergen, Essex, Middlesex (all in the 75 largest nationwide) and Union.

What’s the take-away for disputants?

  • Your case is unlikely to see a trial.  If it does, your case will drag out for 2+ years and…
  • Your chances of winning (as plaintiff or defendant) is a roughly 50-50 crap shoot (factoring in a margin of error for sampling error).
  • Then there is a 1/5th chance the case will continue on appeal.
  • The chances of winning punitive damages or a windfall are very small despite the aspirations of plaintiffs.

Obviously, each case is unique to a large degree, but in every case that comes before me as mediator or arbitrator, both parties think they are right and will prevail.  The statistics do not bear that out (and it’s impossible for both sides to win at trial as it’s not set up to find win-win outcomes as mediation tries to do).

The litigation process is changing, which lends itself to mediation or arbitration.  Mediation and arbitration gets the case resolved in a shorter period of time for less money while retaining the due process each person is entitled to.  It’s your day in court outside of court.

If you’re looking to resolve your dispute less expensively and more quickly than going to court, please contact me to see how I can help you.

Can you sue for a raise?

Two interesting cases have come up in NJ neighbors dealing with raises for judges.  In New York, judges have not been granted a raise in salary by the legislature and governor in 10 years.  Their salaries were tied to the fate of those of the legislators and governor who have not been given a raise in that same period.  The primary argument being used is that this violates the doctrine of separation of powers, where raises are tied to the other branches and consequently other political activities such as campaign finance reform.

But this whole concept of suing for a raise raises an interesting question (pun intended).  Who is making this decision and ruling?  The judges potentially impacted.  Doesn’t this present a huge conflict of interest which should disqualify every state level judge in the NY?  Is there no confirmation bias going on here?  Have judges been quitting because of the low pay (or not running for re-election)?  (The answer it seems is no.)  Has the judiciary’s independence been infringed by lack of legislative and executive action?  Apparently not given a state court judge ruled in the judiciary’s favor.  The case has been appealed (and the ruling stayed) and will be heard on November 17.  Stay tuned.

Meanwhile, across the Delaware in Pennsylvania, the exact opposite has happened.  The legislature passed a pay raise bill for itself, executive branch officials and judges back in 2005 only to repeal it 4 months later in response to public backlash.  In September 2006, the state’s Supreme Court ruled that the legislature could not legally cut a judge’s salary and invalidated the repeal for the judiciary.

However, one state superior court judge, Joan Orie Melvin, did not want to accept the raise.  She was forced to sue when the state would not adjust her paycheck to reflect the old amount.   Commonwealth Court judges said she could not, claiming it would be illegal for her to take less than the full salary because it could establish a ”two-tiered system of judicial compensation.”  Without holding any hearings, the Supreme Court justices – in a one-sentence order – have backed the lower court’s decision.  The judge can donate the extra salary or return it to the state, but she must accept it – and pay taxes on it, the court said.