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August 03, 2005

NASD Discovery Arbitrator Pilot

NASD - National Association of Securities Dealers - announces a pilot program "to address concerns about the discovery process in arbitration." Here is the full text of the announcement:

Discovery Arbitrator Pilot

Overview
On August 1, 2005, NASD Dispute Resolution will launch a voluntary, two-year discovery arbitrator pilot to address concerns about the discovery process in arbitration. A single Discovery Arbitrator will be appointed to resolve all discovery disputes prior to the hearing. These Discovery Arbitrators will not be a part of the panel assigned to hear the merits of the case; they are appointed solely to resolve the parties' discovery disputes.

The pilot, which will run for two years, will be conducted in the Southeast and Western Regional Offices, and will be available in all of the hearing locations overseen by these regions. At the end of the two-year period, we will evaluate the results of the pilot before deciding whether to extend it to the other regions.

As a voluntary pilot, only those parties that sign a Stipulation agreeing to authorize the use of a Discovery Arbitrator may avail themselves of the program. Also, only those parties represented by counsel are eligible for the pilot. After the parties sign the Stipulation, they may not unilaterally withdraw from the pilot; however, all parties may agree in writing to discontinue use of the Discovery Arbitrator.

Selection of Discovery Arbitrator
The Discovery Arbitrators are pre-selected public arbitrators currently on Dispute Resolution's roster who are lawyers with experience in resolving discovery-related disputes. After the parties sign the Stipulation agreeing to participate in this program, the Director of Arbitration will appoint an arbitrator from this roster of Discovery Arbitrators. Once the Discovery Arbitrator is assigned to a particular case, the parties may only file a Challenge for Cause or a Director's Authority to Remove to challenge the appointment of the Discovery Arbitrator.

Authority of Discovery Arbitrator
Once the hearing commences, the Discovery Arbitrator's authority ceases. At that point, the panel appointed to hear the merits of the case will decide any new discovery issues. Until the hearings commence, the panel may not review any decision rendered by the Discovery Arbitrator. Thereafter, the panel may only review the Discovery Arbitrator's prior rulings on the basis of new facts or circumstances that arose after the commencement of the hearings.

Posted August 03, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.

July 14, 2005

Forum clause controls which court can order arbitration

An arbitration agreement specified Washington, DC as the place for arbitration, but one of the parties asked a Colorado federal court to order arbitration. Held:

• Can't order them to arbitrate in Colorado, because the agreement requires arbitration in Washington, DC.
• Can't order them to arbitrate in Washington, DC, because FAA Section 4 requires a geographical nexus between the arbitration forum and the district court issuing the order.

So says the 10th Circuit in Ansari v. Qwest Communications (10th Cir 07/12/2005).

It's all about Federal Arbitration Act (FAA) Section 4, which deals with federal district court orders to compel arbitration:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action . . . of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.

It turns out courts have taken three different approaches when deciding whether a district court may compel arbitration when the arbitration agreement states that arbitration shall take place in another district:

• One is the 5th Circuit: A district court may compel arbitration in the district specified in the arbitration agreement, even though that district is outside its own district. Dupuy-Busching Gen. Agency, Inc. v. Ambassador Ins. Co., 524 F.2d 1275, 1276, 1278 (5th Cir. 1975). Wrong, says the court, because "no statutory language supports this approach."
• Two is the 9th Circuit: A district court can compel arbitration in its own district and ignore the forum specified in the arbitration clause. Unlimited, Inc. v. A..BMH & Co., 240 F.3d 781, 783 (9th Cir. 2001). Wrong, says the court, because Section 4 says "the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement."
• Three is the majority rule: Where the parties agreed to arbitrate in a particular forum only a district court in that forum has authority to compel arbitration under Section 4. Correct, says the court, finding in Section 4 a "mandate that arbitration and the order compelling arbitration issue from the same district."

My view:

• A court cannot order arbitration at a venue different from the one chosen by the parties. Section 4 is clear on that.
• Section 4 is less clear on whether one district court can order arbitration in another district. Still, it's a good idea not to.
• I like the outcome. It creates a bright line, and prevents forum-shopping.
• What does the Colorado District Court do with the fact that a law suit has been filed there, yet that court cannot compel arbitration? Simple. Just stay the court proceedings pending a decision in the District of Columbia as to whether the matter is arbitrable. That's what happened in the Ansari case.

Posted July 14, 2005 by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.

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