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#4 of 5 - Kristian v. Comcast Corp - attorney fees and costs
April 30, 2006 by Ross Runkel at LawMemo
Kristian v. Comcast Corp (1st Cir 04/20/2006) may apply to arbitration clauses in employment agreements, especially as to who pays attorney fees and costs.
This is #4 in a series of 5 on the Kristian case.
Background: Kristian was an antitrust case brought by cable TV subscribers against their cable provider. The provider moved to compel arbitration as required in the subscriber-provider contract. The 1st Circuit held that arbitration was required.
Making plaintiff responsible for attorney fees and costs: The contract provided:
The Company will pay for all reasonable arbitration filing fees and arbitrator's costs and expenses except that YOU ARE RESPONSIBLE FOR ALL COSTS THAT YOU INCUR IN THE ARBITRATION, INCLUDING, BUT NOT LIMITED TO, YOUR EXPERT WITNESSES OR ATTORNEYS.
Holding: The court held that the applying the above clause would burden the plaintiffs with "prohibitive" arbitration costs, preventing them from vindicating their statutory rights. However, the clause was severable.
Reasoning:
- First, before reaching the issue of costs and attorney fees, the court had already decided that (1) the case could proceed as a class action and (2) expert witness fees could be in the range of $300,000 to $600,000 and attorney fees could be $1 million.
- Second, the contract conflicts with both state and federal statutes, both of which provide for recovery of costs and attorney fees. The court rejected Comcast's reading of the contract, which was that it merely provided that plaintiffs must pay these items up-front but still can recover them if they prevail. The court found this argument "implausible."
- Third, the likely costs and attorney fees are so high that requiring plaintiffs to pay them would be such a great financial burden as to prevent them from vindicating their statutory rights.
- The court severed this clause from the contract and allowed the arbitration to proceed without it.
Applied to employment cases: Costs and attorney fees in most employment cases will not be as high as in this case, although they potentially could be in a large class-action case. Whatever the dollar amount, the test is whether the financial burden is so great that it will prevent a plaintiff from vindicating statutory rights.
My view: The court was really dealing with a clause that prevented cost-shifting and fee-shifting, and not with payment of the costs of the arbitration proceeding itself (such as arbitrator fees and administrative fees). Cost-shifting and fee-shifting is a remedy that the antitrust statutes allow, and that is allowed in many employment statutes. In my opinion, this issue should be covered by the following proposed rule: The arbitrator must have the authority to award whatever remedies a court could award.
#3 of 5 - Kristian v. Comcast Corp - limits on damages in arbitration
April 29, 2006 by Ross Runkel at LawMemo
Employment arbitration agreements that put a limit on awardable damages could be affected by Kristian v. Comcast Corp (1st Cir 04/20/2006). This is #3 in a series of 5 on the Kristian case.
Background: Kristian was an antitrust case brought by cable TV subscribers against their cable provider. The provider moved to compel arbitration as required in the subscriber-provider contract. The 1st Circuit held that arbitration was required.
Ban on treble damages: The contract specified that an arbitrator could not award treble damages.
Holding: The court held that the contract did not bar federal statutory treble damages, and that an arbitrator should decide the effect on state statutory treble damages.
Reasoning: The court separately analyzed the no-treble-damages clause as it applied to plaintiffs' state law claim and federal law claim. This was because the state statute said treble damages "may" be awarded, and the federal statute said treble damages "shall" be awarded.
The federal claim:
- First, the federal statute uses the word "shall." Thus there is a clear conflict between the contract's damages limitation and the statute. There is no ambiguity for an arbitrator to deal with, so this is a question of "arbitrability" for the court to decide rather than a question of "procedure" for the arbitrator to decide.
- Second, the federal statute's treble damages provision cannot be waived.
- Third, the contract's savings clause provided that claimants were entitled to seek remedies that could not be waived. Therefore, as the court interpreted the contract, the contract actually allowed treble damages. Thus, the contract's damages limitation did not apply to the federal claim.
The state claim:
- First, the state statute says treble damages "may" be awarded.
- Second, it is not clear whether waiver of treble damages is allowed under state (Massachusetts) law. In other words, the state law is "ambiguous" on this point.
- Third, because there is "an underlying legal ambiguity," the arbitrator must decide the underlying legal question.
Applied to employment cases: Treble damages are rarely available in employment cases. However, some statutes provide for punitive damages or "liquidated" damages. One would think that the court would use the same analysis for these statutes.
My view: The court seems to take the position that it is for arbitrators to interpret "ambiguous" things - both contractual and legal. And it is for courts to step in when the contract or the law is "plain" and non-ambiguous. I think this is unworkable. Every lawyer knows that "ambiguity" is in the eyes of the beholder. It will be better in the long run to have a bright-line rule that determines whether an issue is to be decided by a court or an arbitrator. "Ambiguity" is not a bright-line rule, and will only lead to more litigation.
I propose this rule: The arbitrator must have the authority to award whatever remedies a court could award.
#2 of 5 - Kristian v. Comcast Corp - limitation period
April 28, 2006 by Ross Runkel at LawMemo
Should employment lawyers care what Kristian v. Comcast Corp (1st Cir 04/20/2006) says about contractual limitation periods? This is #2 in a series of 5 on the Kristian case.
Background: Kristian was an antitrust case brought by cable TV subscribers against their cable provider. The provider moved to compel arbitration as required in the subscriber-provider contract. The 1st Circuit held that arbitration was required.
Limitation period: The contract required that subscribers "contact" Comcast within one year of an even giving rise to a dispute. State and federal antitrust statutes have a four year statute of limitations.
Holding: The court held that any potential conflict between the contract and the statutes of limitations must be decided by the arbitrator.
Reasoning:
- First, unlike previous cases in which a similar issue was for an arbitrator to decide, this is a case where the contract's limitation period "conflicts" with statutory limitation periods.
- Second, the subscribers are claiming an "ongoing injury" that could operate to toll a statute of limitations under certain circumstances.
- Third, the question of tolling raises factual issues which are the province of an arbitrator.
- Fourth, a statute of limitations is raised as an affirmative defense, and does no0t raise an issue of "arbitrability."
Applied to employment cases: I see no reason for the court to have any different reasoning in an employment case.
#1 of 5 - Kristian v. Comcast Corp - class action arbitration
April 28, 2006 by Ross Runkel at LawMemo
What does Kristian v. Comcast Corp (1st Cir 04/20/2006) have to do with employment law? This is #1 in a series of 5 on that question, with the focus on anti-class-action clauses.
Background: Kristian was an antitrust case brought by cable TV subscribers against their cable provider. The provider moved to compel arbitration as required in the subscriber-provider contract. The 1st Circuit held that arbitration was required.
Class action waiver: The contract prohibited class-action and consolidated arbitrations.
Holding: The court held that this clause had to be removed before enforcing the agreement to arbitrate.
Reasoning:
- First, the issue was for the court to decide, not for an arbitrator. The court distinguished Green Tree Financial v. Bazzle, 539 US 444 (2003), in which the Supreme Court held that an arbitrator must determine whether class-action arbitration was forbidden by a contract. Here, the contract clearly did forbid class arbitration. The issue, therefore, is one of "arbitrability" rather than arbitration "procedure." And that issue is whether "the prospective litigant effectively may vindicate its statutory rights in the arbitral forum."
- Second, enforcing the anti-class-action clause would prevent the plaintiffs from vindicating their statutory rights. Antitrust actions are extremely complex factually and legally. The value of each individual claim is small. It is unlikely that any consumer would litigate such a small claim on an individual basis when the up-front costs (attorney fees, expert witnesses) are so great. No sensible claimant or attorney would take on such a case. Only through the use of class-action will consumers be able to effectively vindicate their statutory rights.
- Third, the offending anti-class-action clause should be severed from the agreement, and arbitration should go forward without it. The contract contained a severance clause.
- Fourth, no point in discussing state unconscionability law (which follows similar reasoning), because federal law analysis takes care of the issue.
Distinguishing contrary authority: The court distinguished cases from four other Circuits which had allowed anti-class arbitration clauses. These were all cases brought under the federal Truth in Lending Act. In those cases, the facts are simple and the law is clear. In antitrust cases, expert fees alone can run $300,000 to $600,000, and lawyer time can run into the millions of dollars.
Applied to employment cases: The court's focus was on the relationship between the small value of the individual claims vs. the high cost of proving a claim (due to factual and legal complexity). Typical discharge cases and harassment cases should not fall into this category. There may be some cases in which the Kristian analysis will prevail, such as small-amount FLSA claims.
Caution: The issue of anti-class-action clauses can be raised as a matter of state law (unconscionability, violation of public policy). State law varies from state to state, so there is an element of unpredictability. Even if you conclude that the Kristian court was wrong, you still have the sate law question to deal with.
Class-action arbitration allowed in antitrust case
April 23, 2006 by Ross Runkel at LawMemo
Cable TV subscribers sued their cable provider claiming antitrust violations, and the provider moved to compel arbitration in accordance with subscriber-provider agreements. The subscribers had several problems with the agreement, and tried to block the arbitration.
The court ordered the arbitration to go forward, that's the main thing.
Kristian v. Comcast Corp (1st Cir 04/20/2006).
Here's how the court treated five items:
- Class action. The contract prohibited class and consolidated arbitrations. The court found that it was unlikely for any consumer to bring a private antitrust action without a class-action, and held that removing the prohibition was necessary for plaintiffs to be able to vindicate their statutory rights.
- Limitation period. The contract required consumers to "contact" Comcast within one year of an event giving rise to a dispute. Federal and state antitrust statutes have a four year statute of limitations. The court held that the conflict between statute and contract must be decided by the arbitrator.
- Treble damages. The contract excluded treble damages. Both federal and state statutes provide for treble damages.
- Federal. The contract directly conflicts with the "shall" language in the federal statute, the antitrust statute's remedies cannot be waived, and therefore the court severed this clause from the contract (as it applied to the federal claim).
- State. The state statute says "may." That created an ambiguity that the court said must be resolved by the arbitrator.
- Attorney fees and costs. The contract said "you are responsible" for attorney fees and costs. Both federal and state antitrust statutes allow these items to be recovered by successful plaintiffs. The court disallowed this clause.
- Discovery. The court found no problem with limits on discovery.
Workplace Prof Blog has a discussion of this case here: First Circuit Issues Major Arbitration Decision
Class-action arbitration and interlocutory appeals
April 19, 2006 by Ross Runkel at LawMemo
(1) Court orders arbitration. (2) Arbitrator interprets agreement as allowing class-wide arbitration. (3) Court upholds arbitrator.
No big surprise, as the arbitrator is the one who is supposed to interpret the contract and to decide "procedural" matters such as class-wide proceedings.
The surprise was that the court entertained an "appeal" from the arbitrator's procedural ruling before the arbitration had been completed. Call it an interlocutory appeal, if you will.
My view: Seems to me that entertaining such interlocutory appeals of arbitrators' procedural rulings does not advance the process. Correct on the merits.
Timeline:
- January 1, 2005: Court orders arbitration.
- February 7, 2005: Arbitration begins.
- October 12, 2005: Arbitrator rules on class-action issue.
- April 6, 2006: Court approves arbitrator's decision.
Roughly a five months delay.
Genus Credit Mgmt. Corp. v. Jones (D. Md. 04/06/2006)
Sarbanes-Oxley whistleblowing - Arbitrator to decide arbitrability
April 12, 2006 by Ross Runkel at LawMemo
An alleged Sarbanes-Oxley whistleblower has to let an arbitrator decide whether his claim will be arbitrated, says the 2nd Circuit.
Who decides the question of arbitrability? Court or arbitrator?
- General rule: Courts decide whether parties have agreed to arbitrate a specific dispute.
- Exception: Arbitrator gets to decide the issue if the arbitration agreement clearly says so.
But there's some confusion when the arbitration rules are the NASD rules and the underlying issue is Sarbanes-Oxley whistleblowing.
The facts in Alliance Bernstein Investment v. Schaffran (2nd Cir 04/12/2004): Schaffran claimed his employer fired him in violation of the Sarbanes-Oxley Act whistleblower provision. The employer said he quit. Schaffran filed a demand for arbitration under the NASD arbitration rules. The employer resisted. So Schaffran went to court to compel the employer to arbitrate.
The employer cited an NASD rule that says a statutory "employment discrimination" claim can be arbitrated only if both parties agree to arbitrate it.
Schaffran argued that his claim was not an "employment discrimination" claim and that it came under the NASD rule that requires arbitration of all disputes.
So somebody has to interpret the NASD rules to decide where Schaffran's claim fits. Does a court do this? Does an arbitrator do this?
The answer is easy. The NASD rules themselves say that it is for the arbitrator to "interpret and determine the applicability of all provisions" of the NASD rules.
The parties agreed to be bound by the rules. The rules say the arbitrator interprets the rules. So it's for the arbitrator to decide the question of whether this case comes under the rules' general requirement to arbitrate or whether there is an exception because it's an employment discrimination case.
Union can't assign judicial review right to employee
April 09, 2006 by Ross Runkel at LawMemo
After a town fired a firefighter, the union took the matter to arbitration and lost. The union then assigned to the individual firefighter the union's right to seek "judicial review" of the award. The New Hampshire Supreme Court held that this right was non-assignable.
| Dillman v. Town of Hooksett (New Hampshire 04/07/2006). Employment Law Memo notified its readers about this case in the April 10 issue, emailed on April 9. |
Two reasons the union could not assign its rights to the employee:
(1) Contrary to public policy (harmonious relationships between employers and employees, and orderly operation of government).
(2) It would materially change the duty of the obligor (the town) under Restatement of Contracts Section 317.
Tort was not arbitrable
April 08, 2006 by Ross Runkel at LawMemo
The federal policy favoring arbitration applies only after a court decides that the parties have agreed to arbitrate a particular dispute. Agreeing to arbitrate a contract claim does not necessarily mean the parties have agreed to arbitrate a tort claim that may have some relationship to the contract.
An investor set up some accounts at Prudential Securities, and Prudential assigned employee Trumbo to be the broker on these accounts. After Trumbo was "permitted to resign" from Prudential, he took the accounts with him and allegedly mismanaged them.
The investor sued Prudential claiming Prudential breached its fiduciary duty by failing to warn of Trumbo's troubled history, and claiming this caused the investor to suffer losses.
A trial court ordered arbitration, and the arbitrator ruled against the investor.
Back in court, the investor sought to vacate the award, and lost, but the Florida Court of Appeals reversed, holding that the tort claim was not covered by the arbitration agreement.
| Episcopal Diocese v. Prudential Securities (Florida Ct App 04/07/2006). |
There were two arbitration agreements:
- I agree that all controversies which may arise between us concerning any transaction (whether executed or to be executed within or outside of the United States), my account or this or any other agreement between us, whether entered into prior, on, or subsequent to the date indicated on the signature page, shall be determined by arbitration.
- The undersigned agrees, and by carrying an account for the undersigned you agree, all controversies which may arise between us concerning any transaction or the construction, performance or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration.
The court held that the breach of fiduciary duty tort was not covered by these agreements to arbitrate. The alleged tort took place after the contract was terminated, the investor's complaint did not rely on the investor-Prudential agreements, and the resolution of the tort claim is not dependent on the construction of those agreement.
The message: The arbitration agreement controls what disputes are arbitrable. In this case the dispute was too far removed from what the parties agreed to arbitrate.
Consolidation issue goes to the arbitrator
April 06, 2006 by Ross Runkel at LawMemo
"Procedural" is the label being used to identify some of the issues that are to be decided by an arbitrator rather than by a court.
Consolidation of two arbitrations into one is one of those issues.
Take these facts:
There were two companies. There were two agreements between them. Each agreement had an arbitration clause. Both companies acknowledge they are required to arbitrate.
One company demands that there be a consolidated arbitration. The other insists on two separate arbitrations. Both of the two agreements were silent on the question of consolidation. And a lawsuit followed.
The first issue for a court to decide is not whether there should be a consolidated arbitration.
The first issue for the court is to decide who decides.
The answer is clear, although the 7th Circuit felt a need to write a 17 page opinion.
The answer is that consolidation (or not) is a "procedural" matter for the arbitrator to decide.
| Employers Ins Co v. Century Indemnity Co (7th Cir 04/04/2006). |
The court relied on Howsam v. Dean Witter Reynolds, 537 US 79 (2002), which held that an arbitrator, not a court, is to decide a question dealing with a time-limit rule in the NASD rules.
The court cited decisions from other circuits holding that it is for an arbitrator to decide an issue of consolidation, and an issue of whether there should be one rather than three arbitrators.
It's really a matter of "what kind of arbitration proceeding" the parties agreed to, which is a question of contract interpretation, which is a question for the arbitrator.
Interesting that the court did not rely on Green Tree Financial v. Bazzle, 539 US 444 (2003), which involved the issue of whether there could be a class action arbitration when the agreement was silent on the question. The court did not rely on Green Tree because the Supreme Court's decision resulted in multiple opinions and no one opinion commanded a majority. (Note that the 5th Circuit has held that Green Tree should be read to mean that the arbitrator decides on the validity of a class action, absent evidence that the parties intended the issue to resolved by a court. Pedcor Mgt Welfare v. Nations Personnel, 343 F3d 355 (5th Cir 2003).)
Common law grounds for vacating arbitration awards clarified
April 05, 2006 by Ross Runkel at LawMemo
The Nevada Supreme Court has made clear how difficult it is to overturn an arbitration award.
Nevada recognizes two common-law grounds for vacating arbitration awards. Saying they are "common law grounds" really means these are grounds that the legislature did not include in its list of reasons for overturning an award.
The case itself was routine. The arbitrator upheld the non-renewal of a school teacher's contract. The Nevada Supreme Court held that the award should not be vacated. Clark County Education Assn v. Clark County School Dist (Nevada 03/30/2006).
| Employment Law Memo notified its readers about this case on 04/05/2006. |
The court had previously recognized that an arbitration award may be vacated under two grounds: 1) where the award is "arbitrary, capricious, or unsupported by the arbitration agreement;" or 2) where "the arbitrator manifestly disregarded the law."
The court said:
- "Under the first ground, we clarify that the reviewing court may only concern itself with the arbitrator's findings and whether they are supported by substantial evidence or whether the subject matter of the arbitration is within the arbitration agreement."
- "Under the second ground, we conclude that the reviewing court may only concern itself with whether the arbitrator knew of the law and, if so, consciously disregarded it, not whether the ... arbitrator's interpretation of the law was correct."
