« February 2006 | Main | April 2006 »
Arbitrator awards sales commissions; court affirms
March 31, 2006 by Ross Runkel at LawMemo
An arbitrator ruled that the parties' contract for sales commissions did not apply, and awarded the salesman a commission anyhow. The 9th Circuit upheld the award. Schoenduve Corp v. Lucent Technologies (9th Cir 03/22/2006).
Lucent and Schoenduve had a contract authorizing Schoenduve to solicit orders for Lucent's wireless communication products. Schoenduve courted Apple Computer, and two days before Lucent signed a deal with Apple, Lucent terminated its contract with Schoenduve.
Schoenduve went to arbitration, seeking commissions. Schoenduve won.
The arbitrator ruled that the Lucent-Schoenduve had been lawfully terminated because that contract expressly allowed termination. Therefore, there could be no commissions awarded under the terms of that contract. Then the arbitrator awarded commissions on the basis of "quasi-contract." ("Quasi-contract" is a non-contract legal theory that often is called restitution for unjust enrichment.)
Lucent claimed that the arbitrator's award should be vacated on the grounds that the arbitrator went outside of the submission agreement and modified the express language of the contract.
The 9th Circuit upheld the award on the following reasoning:
The arbitration clause in the contract was broad enough to cover non-contractual claims. It applied "if a dispute arises out of or relates to this Agreement."
The submission agreement was broad enough to include non-contractual claims. Schoenduve's demand for arbitration asked for damages for "breach of contract and other claims." Lucent did not object to this statement of the issues.
The 9th Circuit also made it clear that "the arbitrator's interpretation of the scope of his powers is entitled to the same level of deference as his determination on the merits."
My view: The court got it right. The parties used broad language in describing the disputes that were covered by the agreement to arbitrate. It was no stretch for the arbitrator to decide that the language included claims for commissions based on quasi-contract.
|
|
Knowing and voluntary consent not required
March 27, 2006 by Ross Runkel at LawMemo
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. Melena v. Anheuser-Busch (Illinois 03/23/2006).
| Employment Law Memo notified its readers about this case on 03/27/2006. |
Two interesting things from this case:
"Knowing and voluntary" consent.
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." More discussion on this point at Workplace Prof Blog: Illinois Supreme Court Rejects "Knowing & Voluntary" Standard for Employment Arbitration.
Whether arbitration is compatible with state statute.
The court wasted a lot of energy by analyzing whether there was any inconsistency between arbitration and the state workers compensation statute. In the end, the court found no inconsistency, so it upheld the agreement to arbitrate.
That analysis is proper (as in Gilmer v. Interstate/Johnson Lane (US Supreme Court 1991)) when the question is whether a federal statute is inconsistent with the Federal Arbitration Act (FAA). The analysis is simply an attempt to be sure Congress did not mean to exclude a particular federal statutory claim from arbitration.
However, that analysis has no place when the FAA is applied to a state claim. The simple reason is that the FAA preempts state law. If the state statute expressly says there can be no arbitration, that just does not matter. The state's anti-arbitration stance is preempted. The supremacy clause of the US constitution makes federal statutes supreme over state statutes. The discussion should begin and end there.
|
|
Rule 11 sanctions for attacking award
March 20, 2006 by Ross Runkel at LawMemo
An interesting trend: Courts awarding sanctions against parties who lose in arbitration and then attack the award in court.
The latest: CUNA 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: Sanctions for attacking arbitration awards.
Last week the ABA Journal eReport carried this article (including fairly accurate quotes from yours truly): NO PITY FOR 'POOR LOSERS' The 11th Circuit threatens sanctions against some litigants appealing arbitration rulings.
|
|
Terminable arbitration agreement was enforceable
March 14, 2006 by Ross Runkel at LawMemo
Lots of courts have held that an employee-employer arbitration agreement cannot be enforced if the employer retains the right to terminate the agreement or to change the agreement. This is because of the contract-law doctrine of "consideration."
Each side has to promise something to the other. If one side "promises" something that really is nothing, then that is aptly called an "illusory promise." And an illusory promise cannot constitute consideration.
So a typical analysis is that if the employer promises to arbitrate under an agreement that the employer has the right to change, then that promise is illusory, it can't be consideration, and the whole agreement fails.
What if the employer's right to change the agreement is prospective only, can be done only once a year, and can be done only after giving 30 days notice? That was the case in Holloman v. Circuit City Stores (Maryland 03/13/2006) (5-2).
The court said 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.
Rick Bales talks about this case at Workplace Prof Blog.
|
|
Union had standing to represent retirees in arbitration
March 14, 2006 by Ross Runkel at LawMemo
The message: If both the union and company submit to the arbitrator the issue of whether the union has standing to represent the interests of retirees, then the arbitrator's decision on that question will be upheld.
Cleveland 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.
When 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.
- The issue of arbitrability was submitted by both parties to the arbitrator, and his decision drew its essence from the collective bargaining agreement.
- 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.
I didn't see any mention of whether the union had standing to represent the retirees in the court action, which was brought under Section 301. See Machinists v. Goodrich (5th Cir 05/18/2005), in which a union sued under Section 301 to compel the employer to arbitrate an issue involving retiree benefits. The court held that the union had standing in court because the retirees had signed consent forms. That's the only case I ever heard of in which a union could sue under Section 301 on behalf of non-employees simply because the non-employees consented.
|
|
Three useful cases
March 13, 2006 by Ross Runkel at LawMemo
Rick Bales at Workplace Prof Blog tells about three recent arbitration decisions:
- Court confirmed an arbitrator's award for employee on employer's claim that employee breached a non-compete agreement.
- Court held that consumer's agreement to arbitrate was enforceable even though it provided that the arbitrator “shall not apply any federal or state rules of civil procedure or evidence”
- Court applied an employee-employer arbitration agreement to a post-employment claim that the employer falsely accused the employee of theft.
|
|
Arbitrator improperly imposed a one-year limitation period.
March 13, 2006 by Ross Runkel at LawMemo
Here is what the 4th Circuit says is "manifest disregard for the law" and failure to draw the essence of an award from the contract. Clearly wrong, in my view.
Ralph Patten and his employer, 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 arbitrator reasoned that the newer agreement necessarily contained an implied limitation period, and he looked to the superceded agreement "for guidance," and set the limitation period at 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. Patten v. Signator Insurance (4th Cir 03/13/2006) (2-1).
The court said that 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 court seemed to suggest, but did not actually say, that the arbitrator had to use a statutory limitation period.
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."
My view: Let's assume the arbitrator was wrong in his interpretation of the contract. That simply is not a legitimate ground for vacating an award.
The 11th Circuit has warned that it will impose sanctions on parties who try to get the courts to vacate arbitration awards simply because the arbitrator was wrong. See Sanctions for attacking arbitration awards.
What will lawyers do now? In the 4th Circuit, argue that the arbitrator was really really wrong. In the 11th Circuit, take your lumps and go home.
|
|
Sanctions for attacking arbitration awards
March 01, 2006 by Ross Runkel at LawMemo
Two courts have said they've had enough of appeals from parties who have lost at arbitration, have no legal basis for attacking the award, and take it to court anyhow.
Sanctions against the "never-say-die" litigants and lawyers?
The 11th Circuit has issued a warning:
"this Court is exasperated by those who attempt to salvage arbitration losses through litigation that has no sound basis in the law applicable to arbitration awards. The warning this opinion provides is that in order to further the purposes of the FAA and to protect arbitration as a remedy we are ready, willing, and able to consider imposing sanctions in appropriate cases."
The quote is from B.L. Harbert Intl v. Hercules Steel (11th Cir 02/28/2006), in which one of the parties did not like the way the arbitrator interpreted a contract, and fought it all the way up to the federal court of appeals. (For those who don't know, the fact that an arbitrator was "wrong" in his or her interpretation of a contract is not a ground for having the arbitrator's award overturned by a court.)
A California court of appeal did award sanctions, saying:
"Courts have repeatedly instructed litigants that challenges to the arbitrator's rulings on discovery, admission of evidence, reasoning, and conduct of the proceedings do not lie. [citations omitted.] Plaintiffs' crude attempt to characterize their claims so they would fall within acceptable bases for an appeal is an artifice we condemn. Further, most of plaintiffs' claims are patently disingenuous."
The quote is from Evans v. Centerstone (California Ct App 11/21/2005). The sanctions: (1) Attorney fees and (2) an equal amount as a sanction.
Earlier reports on the 11th Circuit case: Workplace Prof Blog (by Paul Secunda) and How Appealing (by Howard Bashman). Thanks Paul and Howard!
|
|
|
Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
|
