Arbitration Law Memo March 2006
by Ross Runkel at LawMemo
Arbitration Law Memo - March 2006
by LawMemo - World's Best
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Anheuser-Busch (Illinois 03/23/2006)
The employer mailed a new arbitration program to employees, saying that if they continued to work they would be deemed to have accepted. Melena signed a form saying she received and understood the mailing, and she continued working. Later, Melena sued the employer claiming she was discharged because she had filed a workers compensation claim. The Illinois Supreme Court said she was bound by her agreement to arbitrate. The court rejected Melena's argument that she did not make a "knowing and voluntary" waiver of her right to a jury trial, and stated that "knowing and voluntary" consent is not required because that is not a requirement that applies to contracts generally. The general rule is that if you sign it, then you are bound by it. The court pointed out that there is broad disagreement among the courts as to whether consent to arbitrate must be "knowing and voluntary." The court also found that there was no inconsistency between arbitration and the state workers compensation statute.
re Dillard Dept Stores (Texas 03/03/2006)
The Supreme Court of Texas held that an at-will employee was bound by her employer's arbitration policy. Reversing the trial court's finding of fact, the court found that the employee attended a meeting where the arbitration policy and an acknowledgement form were distributed. Although there was no proof that the employee signed the form, she accepted the policy by continuing to work. The employee argued that the employer's promise to arbitrate was illusory because the arbitration policy, like her at-will employment, was terminable at any time. The court rejected that argument because the policy was not dependent on continued employment, and was designed to deal with claims connected with the employee's separation.
MD - Arbitration agreement enforceable even though employer retained the right to change or rescind it (5-2).
v. Circuit City Stores (Maryland 03/13/2006)
Holloman sued claiming sexual discrimination by her former employer. The trial court ordered arbitration under the terms of an arbitration agreement contained in Holloman's job application. An intermediate court affirmed; the highest court of Maryland affirmed. Holloman argued that there was no consideration for her promise to arbitrate because the employer's promise to arbitrate was illusory in that the employer could change or rescind the arbitration agreement. The court rejected this argument. The employer was obligated to give 30 days notice before changing the terms of the arbitration agreement, so the employer was bound to its agreement to arbitrate for at least 30 days. That constituted consideration. The DISSENT argued that the agreement was so one-sided that it was unconscionable because there was no issue about which the employer had an interest or a need to arbitrate.
v. Signator Insurance (4th Cir 03/13/2006)
Patten sued to vacate an arbitration award; the trial court refused to vacate the award; the 4th Circuit (2-1) reversed.
Patten and Hancock Mutual agreed to arbitrate any claims arising between Patten and Hancock or any of Hancock's affiliates. Later Patten went to work for Signator (a Hancock affiliate) and entered into a new arbitration agreement that superceded the Mutual agreement. Signator discharged Patten, and he demanded arbitration of his claims for age discrimination, wrongful discharge, and breach of contract. The arbitration demand was filed 14 months after the discharge. The old Mutual agreement contained a one-year limitation period; the newer agreement was silent as to a limitation period. The arbitrator dismissed Patten's claims on the ground that he did not file within one year. The 4th Circuit ordered that the arbitrator's award be vacated for two reasons: The arbitrator acted in manifest disregard of the law; and the award did not draw its essence from the contract. The arbitrator improperly looked to the superceded agreement for guidance on the question of a limitation period. The governing agreement said it was governed by Massachusetts law, which would allow either a three-year or six-year limitation period for Patten's claims. The DISSENT agreed that the arbitrator's interpretation was "clearly erroneous," but argued that "clear error alone is insufficient to vacate an arbitrator's award."
TX - Tortious interference claim against employer's parent company was subject to arbitration agreement.
re Vesta Insurance Group (Texas 03/17/2006)
An insurance agent sued his employer's parent company for tortious interference with contract after his contract was terminated. The trial court refused to compel arbitration pursuant to an arbitration clause in the contract; the court of appeals affirmed; The Texas Supreme Court reversed.
The court recently held that Texas law, consistent with the federal law of direct-benefits estoppel, requires a nonparty to a contract to arbitrate a claim "if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provision." The court observed that "[w]hile the boundaries of direct-benefit estoppel are not always clear, nonparties generally must arbitrate claims if liability arises from a contract with an arbitration clause, but not if liability arises from general obligations imposed by law." The court further observed that "[t]ortious interference claims do not fall comfortably within either category." Since a person must be a stranger to a contract to tortiously interfere with it, "liability for tortious interference arises from the general law, [while] nonliability arises from connections with the contract."
The court concluded, "[f]or several reasons, we hold that tortious interference claims between a signatory to an arbitration agreement and agents or affiliates of the other signatory arise more from contract than general law, and thus fall on the arbitration side of the scale." The court noted that "many Texas courts of appeal have held that a tortious interference claim against a signatory's employees or affiliates must be arbitrated, even though the latter are nonsignatories."
Entertainment v. Lepinski (Louisiana Ct App 03/08/2006)
The employer sued Lepinski, seeking enforcement of an employment contract and stock option agreement. Lepinski moved to compel arbitration. The trial court granted the motion in part, compelling arbitration and staying proceedings relating only to the employer's claims for monetary damages arising from the employment agreement. The court affirmed, stating "we decline to disturb the trial court's denial of a stay of the claims not subject to arbitration." The court noted that "[c]learly, ... claims pertaining to injunctive relief are not arbitrable."
Management v. Coulter (Ohio Ct App 03/17/2006)
The employer sued Coulter for unpaid rent, and he counterclaimed for unpaid wages. The employer then moved to dismiss the counterclaim pursuant to an arbitration agreement. The court denied the motion, and awarded the employer its unpaid rent and Coulter his unpaid wages. The court affirmed, concluding that the employer waived its right to arbitrate by ignoring the arbitration agreement and filing suit.
Coloplast Corp (Georgia Ct App 03/23/2006)
arbitrator award found that Malice violated restrictive covenants in his release
and settlement agreement. The trial court confirmed the award. The Georgia Court
of Appeals affirmed. Applying the Federal Arbitration Act (FAA) and federal law,
the court stated that the award could be reversed if it was made in manifest
disregard of the law. Malice argued that the law the arbitrator manifestly
disregarded was Georgia's public policy against restraint of trade. The court,
noting that this was not a contract of adhesion and that Malice had substantial
bargaining power, found that the restrictive covenants were enforceable because
they were founded on valuable consideration, were reasonably necessary to
protect the employer's legitimate business, and did not unduly prejudice the
Mutual Insurance v. Office and Professional Employees (7th Cir 03/16/2006)
The employer brought an action seeking to vacate a grievance arbitration award rendered in the union's favor. The trial court granted summary judgment in favor of the union and awarded sanctions under Fed.R.Civ.P. 11. The employer appealed only the Rule 11 sanctions. The 7th Circuit affirmed. The court noted that there exists a "long line of Seventh Circuit cases that have discouraged parties from challenging arbitration awards and have upheld Rule 11 sanctions in cases where the challenge to the award was substantially without merit." In particular, in Dreis & Krump Manufacturing Co., v. Int'l Assoc. Machinists District 8, 802 F.2d 247 (7th Cir 1986), the 7th Circuit observed that "[a] company dissatisfied with the decisions of labor arbitrators need not include an arbitration clause in its collective bargaining contracts, but having agreed to include such a clause it will not be permitted to nullify the advantages to the union by spinning out the arbitration process unconscionably through the filing of meritless suits and appeals. For such conduct the law authorizes sanctions that this court will not hesitate to impose." The court concluded ultimately, "[w]e find that [the employer's] claims were meritless and were very unlikely to succeed in the lower court based on the straight-forward case law relevant to these claims." [Other recent cases on sanctions: http://www.lawmemo.com/arbitrationblog/2006/03/sanctions_for_a.html ]
of Dayton v. Dayton Public Service Union (Ohio Ct App 03/17/2006)
The employer sued the union seeking a declaratory judgment whether the grievance was subject to arbitration. The trial court denied the employer's request for a declaratory judgment. The Ohio Court of Appeals affirmed. The court found that whether an involuntary transfer to another division constituted a layoff under article 21 of the collective bargaining agreement (CBA) involved the interpretation or application of the CBA, a question for the arbitrator to decide.
Electric v. Utility Workers Union (6th Cir 03/14/2006)
The union filed a grievance, on behalf of its members and retirees, relating to the company's change in health care provisions and providers. The company's position was that the grievance was not arbitrable as to the retirees, and that question was submitted to the arbitrator. The arbitrator ruled that the union had standing to seek arbitration on behalf of the retirees, and that the retiree's consent was not necessary. The company sued to vacate the arbitrator's award. The trial court held that the union had standing to represent the retirees, but that the retirees' consent was necessary. The 6th Circuit affirmed. (1) The issue of arbitrability was submitted by both parties to the arbitrator, and his decision drew its essence from the collective bargaining agreement. (2) It was necessary for the retirees to consent to union representation because they had statutory rights to the benefits which they could pursue against the company, and those could be lost in arbitration.
Electric v. Intl Brotherhood of Electrical (6th Cir 02/28/2006)
The union filed a grievance over an employee's discharge for violation of the employer's no-smoking policy. The union prevailed at arbitration, and the award was confirmed by the trial court. The 6th Circuit reversed. The arbitrator determined that, pursuant to an agreement with the union, the employer forfeited its right under the collective bargaining agreement (CBA) to unilaterally change its work rule regarding the no-smoking policy at its plant. The court reasoned that this determination contradicted "the express terms of the CBA regarding the method of modifying that document."
Sheriffs v. County of Albany (New York App Div 03/23/2006)
arbitrator awarded a return to work at full status without retention of
seniority rights. The trial court vacated that part of the award that denied
seniority rights. The New York Supreme Court, Appellate Division affirmed the
trial court. Because the arbitrator based his decision on the general definition
of seniority in the collective bargaining agreement (CBA) rather than the
provision related to seniority during absences caused by a work related
disability, the court concluded the arbitrator's decision on seniority was not
supported by any reasonable construction of the CBA.
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