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April 15, 2013

E DISCOVERY IN ARBITRATION

By Steven C. Bennett

Prehearing discovery procedures vary greatly in arbitration, depending on the agreement of the parties, the sponsoring organization and its rules, the predilections of the arbitrators, and the circumstances of the case. Parties often choose arbitration in part to avoid some of the cost and burden of discovery devices in ordinary civil litigation. Certain discovery devices, such as interrogatories, bill of particulars, or requests for admission, are almost unthinkable in arbitration. Others, like depositions, are possible but rare.

What has become the norm in arbitration, at least in commercial arbitration in the United States, is the exchange of documents pertinent to a dispute. Essential documents, such as any contract or correspondence between the parties, invoices, and payment records pertaining to the transaction, may be exchanged as a matter of course. More burdensome, time-consuming demands are rare. An arbitrator will weigh cost and delay factors involved in broad discovery more carefully than most judges and magistrates in ordinary litigation.

The AAA's "Commercial Arbitration Rules" (the "AAA Rules") do not specifically address the question of e-discovery. (The AAA's Commercial Arbitration Rules, and the other AAA Rule Sets discussed herein, are generally available at www.adr.org). Instead, the AAA Rules provide an opportunity for a preliminary conference of the parties, with the tribunal, to discuss the "future conduct of the case," which may include discovery issues. Further, the AAA Rules provide that "[a]t the request of any party or at the discretion of the arbitrator, consistent with the expedited nature of arbitration the arbitrator may direct . . . the production of documents and other information;" and "[t]he arbitrator is authorized to resolve any disputes concerning the exchange of information."

In 2008, recognizing a "genuine concern" about the growing use of conventional litigation procedures in arbitration, the International Centre for Dispute Resolution ("ICDR"), the international arm of the AAA, adopted "ICDR Guidelines for Arbitrators Concerning Exchanges of Information" (the "ICDR Guidelines"). The AAA, in announcing the ICDR Guidelines, suggested that these guidelines would be useful both for international matters, under the ICDR's administration, and for "the practice of arbitration as a whole."

The ICDR Guidelines provide that the tribunal "shall" manage the exchange of information "with a view to maintaining efficiency and economy." The tribunal and the parties should "avoid unnecessary delay and expense" while "balancing the goals of avoiding surprise, promoting equality of treatment, and safeguarding each party's opportunity to present its claims and defenses fairly."

Regarding electronic documents, the ICDR Guidelines provide that, when requested, the party in possession of such information "may make them available in the form (which may be paper copies) most convenient and economical for it, unless the Tribunal determines, on application and for good cause, that there is a compelling need for access to the documents in a different form." Requests for electronic information "should be narrowly focused and structured to make searching for them as economical as possible;" the tribunal "may direct testing or other means of focusing and limiting any search."

The ICDR Guidelines provide that, in resolving any disputes about information exchange, the tribunal "shall require a requesting party to justify the time and expense that its request may involve, and may condition granting such a request on the payment of part or all of the cost by the party seeking the information." Further, the tribunal may "allocate the costs of providing information" among the parties, in an interim order or final award.

In January 2010, JAMS also published "Recommended Arbitration Discovery Protocols for Domestic, Commercial Cases" (the "JAMS Protocols"). See www.jamsadr.com. The JAMS Protocols are meant to provide arbitrators with "an effective tool that will help them exercise their sound judgment in furtherance of achieving an efficient, cost-effective process which affords the parties a fair opportunity to be heard."

As to e-discovery in particular, the JAMS Protocols suggest that an "early order" can be "an important first step" in limiting such discovery. Such an order may provide that there shall be e-discovery "only from sources used in the ordinary course of business," not including backup information, absent "compelling need;" that production be made "on the basis of generally available technology in a searchable format which is usable by the party receiving" the ESI (not including metadata other than for email headers); and where the costs and burdens are disproportionate to the "nature and gravity of the dispute or to the amount in controversy," the arbitrator may "either deny such requests or order disclosure on condition that the requesting party advance the reasonable cost of production," subject to allocation.

In 2009, the International Institute for Conflict Prevention and Resolution ("CPR) issued its "Protocol on Disclosure of Documents and Presentation of Witnesses in Commercial Arbitration." See www.cpradr.org. The Protocol divides cases into categories (called "Modes of Disclosure") from A (no pre hearing discovery, except for the exchange of exhibits to be used by each party at the hearing) to D (relatively full-scale disclosure, which may include discovery of ESI, subject only to limits of reasonableness, avoidance of duplication and undue burden). The Protocol choices are generally for the parties to agree upon, with the recognition that arbitration is not meant to be a "no stone unturned" exercise. Rather, the CPR Protocol states that "disclosure should be granted only as to those items that are relevant and material, and for which a party has a substantial, demonstratable need in order to present its position."

The increasing importance of electronic communications in the conduct of business (and personal) affairs, coupled with these kinds of rules changes suggest that e-discovery may become an increasing feature in arbitration, as it has become in civil litigation. Considerations related to e-discovery may affect arbitration clause drafting, arbitrator selection and the conduct of hearings. Familiarity with e-discovery law and practice will, therefore, serve an arbitration practitioner well. See generally Steven C. Bennett, E-Discovery Issues: What Parties And Their Counsel Need To Know In Anticipation Of And During Arbitration, Disp. Res. J. (2009), www.apps.adr.org/ecenter; Deborah Rothman, eDiscovery: From The Arbitrator's Perspective, Cal. Lit. (2009), www.thecca.net; Richard Posell, E-Discovery In Arbitration, www.mediate.com (2010).

Steven C. Bennett is a partner at Jones Day in New York City and Chair of the firm's E discovery Committee. He teaches a course on E Discovery at New York Law School. The views expressed are solely those of the Author and should not be attributed to the Author's firm or its clients.

Mediation Privilege In New York

By David J. Spellman

As a child, I regularly read a now defunct comic strip called "There Ought To Be A Law." With regard to providing a statutory privilege for mediation, there is a law: the Uniform Mediation Act [National Conference of Commissioners on Uniform Laws, Uniform Mediation Act (August 2001) as adopted by the ABA House of Delegates (February 2002)]. Section 4 of the Uniform Mediation Act provides, in pertinent part, "a mediation communication is privileged...and is not subject of discovery or admissible in evidence in a proceeding unless waived or precluded..." To date, however, New York has not adopted the Uniform Mediation Act...and has not yet provided any other statutory privilege (apart from that found at McKinney's Judiciary Law Section 849-b which applies only to community dispute resolution centers).

The policy reasons for seeking confidentiality in mediation are self-evident: confidentiality provides for candor and privacy in mediation and enhances the process of resolving disputes apart from the courtroom.

Rule 408 of the Federal Rules of Evidence and CPLR Section 4547 make inadmissible conduct and statements from compromise negotiations...but only as to proving liability and/or damages. Among the Federal Courts, there are local rules that provide for confidentiality in mediation [such as SDNY Rule 83.9(1) and EDNY Rule 83.8(d)]. I am unaware of comparable local rules for state courts.

What have we mediators all done in response? We have all sought confidentiality in mediation by contract. Some mediators address confidentiality in the agreement to mediate. Others provide for a separate confidentiality agreement. There are mediators who do both. Over the years I have also adopted the practice of incorporating those documents by reference in any memorandum of understanding or settlement agreement. Generally, I prefer to mediate with all parties (and attorneys) together at one table. From time to time, however, I have been asked to use the "shuttle diplomacy" private caucus approach - motivated in part because of concerns about confidentiality. I also have adopted the practice of shredding my notes as soon as the memorandum of understanding or settlement agreement has been executed, and I inform the parties and counsel that I follow this practice. I encourage others to what they do to provide for greater confidentiality in mediation in New York in the comments or in a future blog post.

David J. Spellman has been admitted in New York since 1981 and mediates family and employment matters in Albany. David's website is www.AlbanyMediator.com



The Storm Sandy Mediation Program in New York Commences

By Sandra Partridge and Jeffrey T. Zaino

As of February 25, 2013, the Storm Sandy Mediation Program in New York commenced for thousands of residents and businesses. The mediation program was established by the New York Department of Financial Services as a voluntary program for insureds, including homeowners, renters, business owners, and others, who have insurance claims against a New York-licensed insurer for loss of or damage to real or personal property, other than damage to a motor vehicle, and have had their claims denied in whole or part, are disputing the settlement amount offered by the insurer where the difference in position between the insured and the insurer is $1,000 or more, or where the insurer has not offered to settle within 45 days after it has received all the documentation that it requires from the insured. To be eligible for the mediation program, the loss or damage must have occurred in the counties of Bronx, Kings, Nassau, New York, Orange, Queens, Richmond, Rockland, Suffolk or Westchester between October 26, 2012 and November 15, 2012, inclusive, whether or not it was directly related to Storm Sandy.

The Superintendent of Financial Services designated the American Arbitration Association® (AAA) to administer the mediation program under procedures and standards approved by the Superintendent.

This voluntary mediation program entails certain rights and responsibilities for insurers and insureds, including:

• Both parties may be represented by an attorney or other designated individual, including a relative or friend of the insured.
• The insurer is obligated to notify the insured of the right to mediate.
• Both parties are obligated to participate in the mediations in good faith.
• The insurer is obligated to pay for the cost of the mediation, generally speaking.
• The insurer is obligated to send to the mediation session a representative who is knowledgeable about the particular claim. The representative must bring to the session a copy of the policy and the entire claims file, including all relevant documents and correspondence with the insured.
• The insurer is obligated to send to the mediation session a representative who has authority to make a binding claims decision on behalf of the insurer.
• The insurer and the insured each have the right to bring translators to the mediation.
• The insurer and the insured do not have to agree to any settlement proposal; the mediation is a nonbinding process and participation is totally voluntary for the insured.
• A mediation session may be rescheduled if it is determined that either the insured or the insurer is not participating in good faith, and that party ultimately may be responsible for the cost of a rescheduled mediation session, which shall be no more than $400 per additional session.
• A mediation session will be rescheduled for no additional administrative fee if the insured or insurer is unable to attend the scheduled mediation for good cause, but a cancellation fee covering the mediator's compensation may apply.
• If a mediation session is cancelled less than three business days in advance of the scheduled mediation session, a cancellation fee shall be paid by the insurer if the cancellation is caused by the insurer or if the cancellation is caused by an insured showing good cause. If the cancellation is caused by an insured, without good cause shown, then the cancellation fee shall be paid by the insured.
• Prior to and during the scheduled mediation conference session(s), an insured, insurer, and their representatives shall, as appropriate to each party's circumstances, exercise their best efforts to prepare for and engage in a meaningful and productive mediation.

The mediations can be conducted face-to-face, by video conference, or by telephone conference depending upon what is agreed to by the insurer and the insured. In the event that the insurer and insured do not agree upon the manner in which to conduct the mediation, the mediation shall be conducted face-to-face within the county in which the insured's loss occurred, or at the insured's request, the mediation may take place within any other county that comes under this program.

The fee structure for the Storm Sandy Mediation Program is based on the assumption that a successful mediation can, in many cases, be accomplished with one mediation session of two hours. Accordingly, the reasonable program fees for the managed mediation, including the filing fee, the mediator's fee for one two-hour session, and the fee for administration of the program, is a total of $750.00, unless additional mediation session time is scheduled. Additional sessions as recommended by the mediator and agreed to by the parties may be scheduled in half-hour increments if it is determined that additional time would assist in mediating a claim. The mediator may reschedule a session if the mediator determines that a party is not participating in good faith and the insured wishes to continue the mediation. Cancellation fees for the mediator's time may apply. No additional administrative fees are charged for additional or rescheduled sessions.

The AAA recruited hundreds of mediators, established a Storm Sandy Mediation Panel, and conducted a mandatory orientation/training webinar for all panelists. The mediators must have approximately 5 years of experience as a mediator and 35 hours of mediation training. In addition to working with the mediators, the AAA is coordinating hearing locations for the mediation sessions. Many New York businesses, synagogues, colleges, law schools, court houses, bar associations, and towns have generously donated hearing room space for this program. The AAA wants to thank the following for donating space:

New York Supreme Court - Queens
St. John's University Law School - Queens
New York Supreme Court Civil Term - Kings
Brooklyn Borough President's Office - Kings
New York Supreme Court Civil Term - Bronx
Bronx Borough President's Office - Bronx
Staten Island Borough President's Office - Richmond
Siller Foundation - Richmond
Lester, Schwab, Katz & Dwyer - Manhattan
Office of Carol Hoffman - Nassau
OSC World - Nassau
Nassau County Bar Association - Nassau
Hofstra University - Nassau
Dowling College - Suffolk
Suffolk County Department of Labor, Licensing
Young Israel of Scarsdale - Westchester
New Rochelle Town Hall - Westchester
Pace Law School - Westchester
SUNY OCC College (Newburgh) - Orange
Rockland County Community College - Rockland
Rockland County Fire Training Center - Rockland

Also, the AAA wants to thank the Honorable Judith S. Kaye, Honorable A. Gail Prudenti, and the firm of Jones Lang Lasalle for their efforts to secure donated space. As of the writing of this blog, the claims filed with the AAA range from $1,000 to $4,160,000 with the average being $51,317.

If you or clients are eligible for this program, contact StormSandyNY@adr.org for a Mediation Request Form.


Sandra Partridge, Esq., is Vice President for the Commercial Division of the American Arbitration Association in New York.

Jeffrey T. Zaino, Esq., is Vice President for the Labor, Employment and Elections Division of the American Arbitration Association in New York.

April 22, 2013

Online ADR - Future or Fad?

By Mark Kane

In the recent past much has been written about the move toward incorporating technology into ADR, be it through e-discovery in arbitration or mediation over Skype video calls. This short piece looks at the issues associated with online ADR and hopes to highlight one of the most important questions for attorneys advising clients on the use of these new technologies to resolve disputes of any kind. That question relates to the suitability of the procedure.

First, online Mediation has been attracting some attention of late and was very recently written about on the Harvard Law School Website (http://www.pon.harvard.edu/daily/mediation/dispute-resolution-using-online-mediation/). That article gave a balanced account of the process indicating the use of email to facilitate party discussion without the potential conflict of having the disputants in the same room or building. The article highlights that although the online mediation concept has begun to make ground on its established sister, e-mediation has been around since the late 1990's. For those who remember working in that time, email was only beginning to gain on fax communication as a convenient and sound method of business communication, so although online mediation is now not so scary, it would have been cutting edge and prone to risk at that time. Much of this perceived risk has now fallen away as both attorneys and the general business community rely heavily on email for everyday activities.
The article goes on to highlight the benefits of online mediation saying "[e]arly studies of e-mediation have found it to be an effective means of resolve [sic] disputes, ... E-mediations offers convenience, allowing parties to participate when they have the time." A benefit that is not listed in the article is the cost savings made by the party paying for the mediation. In nearly all cases online mediation is a cut-price alternative to the traditional, tried and tested mediation where the cost of travel, meeting rooms and per diems are the norm.

The article finally points to the downside of online mediation highlighting "[d]isputants who engage in mediation primarily via e-mail will miss out on the cues they would receive from body language, facial expressions, and other in-person signals. Long-distance mediations are prone to misunderstandings and also lack the rapport and warmth of face-to-face talks." It is uncontroversial to say that these elements are important aspects in mediation, particularly where reconciliation and the possibility of fixing a close personal or working relationship is on the cards. The same aspects are not so important in disputes between a client and web-designer over a misunderstood design brief or late delivery of an e-commerce site. A more important concern, and one which traditional mediators are accustomed to accommodating through caucuses, is where parties try hurt each other, be that physically or psychologically. The article indicates that unfortunately similar opportunities to hurt each other are available to the parties in online mediation whereby the "[p]arties may be tempted to 'flame' each other (sending hostile or insulting messages) on e-mail or abandon the mediation entirely when frustrated."

There is a growing argument to be made for the proposition that there is a time and place for online mediation in the current ADR sphere, but an attorney would be well advised to consider whether the client and his dispute are suited to the process. If in doubt, the tried and tested mediation procedure might be a safer bet.

Arbitration by online means may be somewhat new, but is it so different to a cost effective documents-only-arbitration procedure which is used in simple low value disputes, where no hearing takes place, witnesses are dealt with through interrogatories and written advocacy is key? Potentially, there is little difference provided that the arbitrator, parties and attorneys are tech-savvy.
Assuming all are tech-savvy, the next concern is the platform used for the online arbitration. Email of documents is a traditional method and the clear current front runner to other untested platforms, such as custom built chat platforms which may pose confidentiality issues, lack technological integrity, facilitate data-mining and limit an attorney's ability to present their client's case at the same level they are accustomed to.

Finally, as arbitration is a determinative ADR procedure, the arbitrator's award will need to be enforceable locally and ideally also have enforceability internationally through the 1958 New York Convention. (http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html) Therefore the parties' attorneys will need to watch the seat of the arbitration and law governing the arbitration generally. In this regard, the arbitrator may be in India, using a website and proprietary online arbitration software hosted in London where the parties may both be based in Albany, NY. Unless the parties' attorneys pay close attention to the enforceability issue, the arbitrator's award may not be worth the paper it's written on.

Mark Kane is an International Construction Lawyer practicing primarily in Europe, in addition to serving as an Arbitrator and Mediator in construction disputes. www.constructionandlegal.com

New York International Arbitration Center (NYIAC) Opening Soon

In 2011, the New York State Bar Task Force on New York Law in International Matters called for the creation of a permanent center for international arbitration in New York. That call has now been answered.

Beginning late Spring 2013, the New York International Arbitration Center (NYIAC) will open a premier facility for the conduct of international arbitration in the heart of Manhattan, steps from Grand Central Station, Times Square, the Empire State Building and the United Nations. NYIAC will serve as a prime destination for international arbitration hearings (however administered), mediation proceedings and conferences of all kinds. NYIAC will provide world-class hearing rooms, breakout rooms and other amenities that can accommodate arbitrations of any size, including large, multi-party arbitrations and offer full technological capabilities, including high-tech video conferencing and built-in facilities for simultaneous interpretation creating a seamless experience, freeing parties and counsel to focus on the matters at hand.

In addition, the NYIAC website, www.NYIAC.org, will be a valuable resource to the international arbitration community around the world by providing links to valuable international arbitration resources such as institutional rules and model clauses, as well as published awards, guidelines and other research.


2013 Advanced Commercial Mediator Training

Trainers: Simeon H. Baum and Stephen A. Hochman
When: June 12-13 , 2013, 8:15am-5:00pm
Where: Fordham Law School, 140 West 62nd Street, New York, NY
Cost: $795.00
CLE Credits: 15.5 Skills, 1 Ethics. This course is non-transitional
Registration and breakfast begin at 8:15am

For over 15 years, Messrs. Baum & Hochman have provided focused training for New York Supreme Court Commercial Division mediators. Now, through CPR, Messrs. Baum & Hochman present their two day Advanced Commercial Mediation training.

This program is designed for mediators who have completed -- or plan to complete -- a minimum of three days of basic mediation training and who desire to enhance their commercial mediation skills. It will focus on identifying the barriers to settlement and the ways to overcome them. In addition to refining and deepening facilitative skills and orientation, the program will address ways of facilitating evaluative analyses or offering evaluative feedback to help the parties reach a resolution. This can include refining the handling of risk and transaction cost analysis, including the use of decision trees, as well as utilizing a variety of impasse breakers. The program will offer approaches to problems that arise when there are multiple parties or when one or more of the defendants has, or may have, insurance coverage with one or more insurance companies as well as ways to overcome impasse. Finally, the program will discuss the ethical issues that arise under various scenarios and how to deal with them.

Simeon H. Baum, Esq., litigator, and President of Resolve Mediation Services, Inc. (www.mediators.com) has been active as a neutral--mediator, arbitrator and evaluator--in roughly 1,000 disputes since 1992. For two decades, he has played a leadership role in the Bar relating to ADR, including service as founding Chair of the Dispute Resolution Section of the New York State Bar Association, and has served on ADR Advisory Groups to the New York Court system. He was selected for New York Magazine's 2005-2012 "Best Lawyers" and "New York Super Lawyers" listings for ADR, and as the Best Lawyers' "Lawyer of the Year" for ADR in New York for 2011. He teaches on the ADR faculty at Benjamin N. Cardozo School of Law and is a frequent speaker and trainer on ADR.

Mr. Stephen A. Hochman practiced law for over 40 years, specializing in corporate, commercial and securities law. He has mediated over 350 commercial and other types of disputes, including class actions and financial, employment, insurance, real estate, partnership and bankruptcy disputes, approximately 98% of which have settled. Mr. Hochman now practices exclusively as a mediator and arbitrator and writes, consults and lectures frequently on ADR subjects. For over a decade Mr. Hochman has trained the mediators in New York County and various other downstate counties. He also serves on the investment committees and boards of various non-profit corporations, including several hospitals and a captive insurance company.

(Certified under Part 146 of the Rules of the Chief Administrative Judge of the NYS Unified Court System)

The CPR Institute has been certified by the New York State Continuing Legal Education Board as an Accredited Provider of continuing legal education in the State of New York [July 14, 2010 through July 13, 2013]. CPR is a nonprofit organization. Under financial hardship guidelines, at its discretion, CPR may waive the fee for attorneys who demonstrate that they are not currently employed(not retirees). CPR may also provide a special discounted price to attorneys, full-time judges and administrative law judges practicing in the nonprofit and public sectors full time.

AGENDA

JUNE 12, 2013 (DAY 1)

8:15 - 8:45 Registration & Continental Breakfast
8:45 - 8:50 Introduction
8:50 - 9:50 Convening & Contracting a Commercial Mediation
(choosing processes, setting tone, disclosing style, expectations)
9:50 - 10:00 Break
10:00 - 10:45 Convening & Contracting Continued, including teaching,
training and core attributes and skills of the commercial mediator
10:45 - 12:30 Role Play (small breakout groups) focusing on a commercial scenario
12:30 - 1:15 Lunch
1:15 - 2:15 Evaluation: (Whether, When & How)
2:15 - 3:25 Forum (unique commercial matters, along with topics
such as the use of joint sessions, caucuses, and risk analysis)
3:35 - 3:45 Break
3:45 - 4:45 Ethics
4:45 - 5:00 Q & A

JUNE 13, 2013 (DAY 2)

8:15 - 8:45 Registration & Continental Breakfast
8:45 - 8:50 Introductory Remarks; Summary and Overview.
8:50 - 9:20 Decision Tree Analysis, including risk
management software
9:20 - 9:50 Risk Analysis Exercise
9:50 - 10:20 Lawyers Advocacy - Coaching Counsel
10:20 - 10:30 Break
10:30 - 12:15 Role Play (small break-out groups) focusing on a commercial scenario
12:15 - 1:00 Lunch
1:00 - 1:50 Mediator's Proposal: (Whether, When & How)
1:50 - 2:00 Break
2:00 - 3:30 Forum - (Impasse Breaking: The Art of Diplomacy - handling challenges in personalities, bargaining style,strategies,commitment level, inter-party dynamics,and messages; Mediator Self-Care)
3:30 - 3:40 Break
3:40 - 4:30 Ethics - Remaining Ethical Issues
4:30 - 5:00 Q & A

To register go to http://www.cpradr.org/Events/2013AdvancedCommercialMediationTraining.aspx

Standards for Vacating an Award for Manifest Disregard of the Law

By Gerald M. Levine

Arbitrators naturally express anxiety about vacatur of awards, but in reality it rarely happens. Awards are presumptively legitimate so long as arbitrators "manifest [no] infidelity" to their obligation to "interpret and apply" the parties' agreement. Steelworkers v. the Enterprise Wheel and Car Corp., 363 U.S. 593, 597 (1960) (arbitrators bring to bear their "informed judgment ... in order to reach a fair solution of a problem. This is especially true when it comes to formulating remedies.") In addition to the four statutory grounds for vacatur provided in the Federal Arbitration Act, 9 U.S.C. § 10(a) - "(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators . . .; (3) where the arbitrators were guilty of misconduct; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter was not made" - there is a non-statutory, common law fifth cause, namely "manifest disregard of the law."

Courts are ambivalent about manifest disregard of the law after Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 586, 128 S.Ct. 1396 (2008). However, the Second Circuit made it clear in Stolt-Nielsen S.A. v. Animalfeeds Int'l Corp., 548 F.3d 85, 94 (2nd Cir. 2008) that it agrees with other courts that think that "'manifest disregard,' reconceptualized as a judicial gloss on the specific grounds for vacatur enumerated in section 10 of the FAA, remains a valid ground for vacating arbitration awards." The Supreme Court in its own later decision on the same case (although reversing the judgment) stated that "[w]e do not decide whether 'manifest disregard' survives our decision in Hall Street ... as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10." 130 S.Ct. 1758, 1768 n. 3 (2010). Whatever the state of the law on this issue, the Supreme Court and the Second Circuit agree that to succeed on this ground a petitioner "bears a 'heavy burden'." T. Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329, 339 (2d Cir. 2010). An order vacating an award for "manifest disregard" may only be entered if "the arbitrator ignored or improperly applied clear and explicitly applicable law to the matter before it, leading to an erroneous outcome." Id.

The heavy burden on petitioner is most recently illustrated in Ometto and Adriano Ometto Agricola LTDA v. ASA Bioenergy Holding A.G.,12-civ-1328 (SDNY, Jan. 9, 2013, Rakoff, J.). Petitioner has filed an appeal, but given the factual circumstances (to the extent they are disclosed in the decision) and Judge Rakoff's analysis reversal appears unlikely. The standard for "manifest disregard" [he held] is "exceedingly difficult to satisfy." Misapplying an ambiguous law does not do it. To succeed, a petitioner seeking to vacate an award must "demonstrate[] that the panel intentionally defied the law," [my emphasis] citing Goldman Sachs Execution & Clearing, L.P. v. Official Unsecured Creditors' Comm. of Bayou Group, LLC, No. 10-5049-cv, 2012 WL 2548927, at 1-2 (2d Cir. July 3, 2012) (Unpublished). The principle applies "[e]ven if a tribunal does 'not explain the reason for [its] decision' ... if [the Court] can discern any valid ground for it." Id. "Relief is rare." Id.

Whether or not there has been "manifest disregard" of applicable law - Brazilian law in Ometto - depends on what the parties have submitted to the arbitrator: "In determining an arbitrator's awareness of the law for purposes of a manifest disregard analysis, this Court must 'impute only knowledge of governing law identified by the parties to the arbitration," citing Duferco Intern. Steel Trading v. T. Klasxveness Shipping A/S, 333 F.3d 383, 390 (2d Cir. 2003). Since Ometto "did not adequately present its legal theory to the arbitrators, [his] proposition that the arbitrators 'disregarded' that law is without merit."

Ometto presented two other claims that the arbitrator's award was in "manifest disregard of the law." The second claim related to the availability of prospective, rather than actual, damages under Brazilian law. That argument "fare[d] no better" because none of the case law submitted in support of vacatur was presented to the arbitrators. The Court held that:

As to the issue of prospective damages under Brazilian law, the majority of the tribunal, far from "disregarding" the law, responded directly to Ometto's challenges when they rebutted the dissenting arbitrator's position: "[t]he majority believes the damage occurred at closing by paying for a capacity that did not exist, not at a future time."

The third claim concerned the wording of the award. Ometto asserted that "the awards were not 'mutual, final, and definite,' 'because' the Tribunal purportedly failed to address 'a number of Ometto's key defenses." The Court found this to be "a non sequitur on its face." The arbitrators expressly stated in their 200-page decision that they had fully "considered [and resolved] all issues put before them pursuant to their terms of reference" and "[a]ny contention not specifically mentioned in our analysis has been rejected or determined to be irrelevant to our determinations."

One of the striking insights of Ometto (which I think goes to the heart of Judge Rakoff's decision and informs it) is the respondent's failure to educate the arbitrators. As a general rule, a party's silence when it is expected to speak justifies an inference that it has nothing further to add to its argument. It is stuck with the record it creates!

Gerald M. Levine is a member of Levine Samuel, LLP. He practices in New York City and is on the list of neutrals of the American Arbitration Association.

April 29, 2013

Can You Litigate Now, Arbitrate Later?

By Thomas J. Lilly, Jr.

A recurring issue in arbitration involves parties to a contract with an arbitration provision who decide, at least initially, to litigate their dispute instead of arbitrate it. That situation presents no particular problem so long as both parties see the litigation through to its conclusion. But what happens if one of the parties to the litigation changes its mind and wishes to compel arbitration instead? Has that party, by voluntarily participating in the litigation, waived its right to compel arbitration? The answer, from every federal circuit, is: it depends. What it depends on, however, varies from circuit to circuit.

The first question that needs to be addressed in such a case is: who should decide whether a party that voluntarily participated in litigation has waived its right to change course and insist on arbitration? In Howsam v. Dean Witter Reynolds, Inc., the Supreme Court said that "the presumption is that the arbitrator should decide allegations of waiver, delay, or like defense to arbitrability." 537 U.S. 79, 83 (2002). In spite of that, a broad consensus seems to have formed among the circuits that it is for the court, not the contract arbitrator, to decide if a party has waived its right to arbitrate by participating in litigation.

Turning to the question of when participating in litigation will constitute a waiver of the right to arbitrate, there is a fundamental split in the circuits. Most circuits, including the Second Circuit, have held that the party resisting arbitration must show that it was prejudiced by the other party's initial decision to litigate. See Thyssen, Inc. v. Calypso Shipping Corp, S.A., 310 F.3d 102,105 (2d. Cir. 2002) ("The key to a waiver analysis is prejudice."). Such prejudice usually consists of unnecessary delay and expense. Just how much of a showing of prejudice is required varies from circuit to circuit.

The Seventh and District of Columbia Circuits, however, do not require a showing of prejudice by the party resisting arbitration. See Zuckerman Spaeder, LLP v. Auffenberg, 646 F.3d 919, 922-23 (D.C. Cir. 2011); Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995) (Posner, C.J.). Those circuits hold that an agreement to arbitrate, like any other agreement, can be waived by inconsistent conduct. Such waivers do not ordinarily require a showing of prejudice. The District of Columbia Circuit has gone so far as to hold that a party to a litigation must raise arbitration at its first opportunity. Otherwise, it will have presumptively lost its right to arbitrate. See Zuckerman Spaeder v. Auffenberg, 646 F.3d at 922-23.

The disagreement among the circuit courts in this area cries out for resolution by the Supreme Court, which will probably happen before too long. In the meanwhile, anyone interested in an in-depth discussion of the issue can look forward to my forthcoming article in the NEBRASKA LAW REVIEW. See Thomas J. Lilly, Jr., Participation in Litigation as a Waiver of the Contractual Right to Arbitrate: Toward a Unified Theory, 92 NEB. L. REV. ______ (2013).

Thomas J. Lilly, Jr. is Assistant Professor and Coordinator, Industrial and Labor Relations Program, State University of New York College at Old Westbury.

Mediation In Bankruptcy

By Leslie Ann Berkoff

Over the past few years, in response to the burgeoning legal costs associated with bankruptcy cases, many bankruptcy courts have adopted mediation programs, recognizing this as a viable alternative to more traditional litigation. Bankruptcy mediation can be used in both commercial and consumer cases. Just like mediation in other forums, the process usually consists of two parties, although in bankruptcy sometimes the inclusion of a third party is required in the form of a trustee (chapter 13 or 7) who also needs to have a seat at the table. The process is usually a voluntary process in the smaller consumer cases and general commercial cases. Judges also do strongly "encourage" participation in the mediation programs that are available when the Court recognizes from its own experience (and perhaps view of the legal issues pending in the matter at hand) that the dispute in question can and should be worked out for the benefit of all in a consensual fashion, versus allowing it to snowball into a never ending litigation with tremendous costs.

However, over the past year or so, some of the larger commercial cases have actually implemented mandatory mediation as part of the claims resolution process or in the context of avoidance claims litigation (i.e., preference and fraudulent conveyance) as a means to reduce the economic impact on an estate and a drain on judicial resources. In these cases, hundreds of claims objections and avoidance actions that are brought by estate representatives (debtors, liquidating agents or trusts), are funneled into a mediation process that is established by separate motion practice at the start of those suits and motions. Thus, once the complaints or motions are filed, and answering papers or pleadings are served, the parties are required to undertake a good faith effort to resolve their disputes amongst themselves and, if that fails, the parties are required to choose a mediator and attempt to resolve their disputes in a meditative forum before filing any dispositive motions are filed or full blown litigation begins.

The benefits of utilizing mediation inures to all parties. This process is intended to put both the estate representative and the responding party on equal footing economically and strategically. In the more traditional litigation path, the estate representative files one set of papers affecting a multitude of claims, and/or one complaint that is modified oftentimes by way of addendum for the specifics of each transaction. The cost then is combined or reduced for the estate representative, but those who have to respond to these motions and complaints incur their own costs individually and see no benefit from the economies of scale. The time those who have to respond spend in court on any related conferences relate solely to their one matter, but the estate representative has the advantage of defraying the overall cost as one appearance can relate to multiple matters. In mediation, each side must not only submit individualized pleadings to the mediator, but must spend time on a case by case basis, instead of the omnibus hearings generally employed in the more traditional litigation path. While there is still some savings to the estate representative since he or she may be able to rely on a similar analysis for multiple matters, all parties still need to prepare for the actual calls and meetings with the mediator. Thus, both sides need to reflect on the time being expended on each individualized matter and the cost/benefit of continuing or proceeding as contrasted to the potential recovery or liability.

Moreover, mediation in this context (as in other mediation forums) allows the parties to be creative and configure a resolution that is unique to all of their needs. In fact, in the bankruptcy context the types of disputes that can be mediated are far ranging and oftentimes involve issues broader than the bankruptcy process, as often non-bankruptcy laws and non-bankruptcy litigations need to be addressed within the bankruptcy process. These can include, but are not limited to, standard preference and fraudulent conveyance actions, fixing claims, fixing the priority of a claim, plan related agreements, turnover of assets, recovery of assets, discharge and dischargability complaints, to name a few. One clear benefit of mediation in these types of cases has been the level of creativity that has been employed to address the participants' needs.

Real examples of this highlight the gains that can be achieved. In one case, involving a multitude of professionals previously employed by the debtor entity, the challenges brought by the Court-appointed trustee to seek recovery of funds paid and retainers held was not received well by the defending parties who saw this as an attack on their professional abilities. There were multiple parties involved in this litigation, as any funds recovered would first go to reimburse a lender who had not been repaid due to the liquidation of the company. In the end, the parties were able to structure a resolution allowing the professionals to continue to render certain services to assist in winding down the estate and collecting assets for the benefit of the lender and other creditors and, at the same time, get compensated for the professionals for work done (thereby ameliorating their ruffled feathers). In addition, some work would be done on a contingency basis which would allow the professionals to further show off their skills and potentially bring the lender a return they never thought possible. By giving everyone what they needed to take away from the table, i.e. saving face, saving funds and recovering assets, all parties concerned were pleased with the results. An overall savings to the estate was promoted by avoiding the need to litigate complex and thorny issues, minimizing the trustee's fees and producing a more expeditious return to stake holders.

A second example can be found in a dispute involving multiple debtor cases with overlapping claims. The cross over between the cases actually involved multiple competing bankruptcy code provisions, some of which were at odds with one another because of the different procedural postures of the two cases. After several meetings with the various parties, and consultation with the trustee in one of the cases, the parties and the mediator came to the conclusion that a result in one case, even if successful in motion practice before one court, would be completely meaningless given the need to commence another litigation and meet a second set of burdens in the second case. By bringing all participants together (albeit at different times) mediation was able to secure a result resolving the dispute for the benefit of both estates. Again, a savings for all parties concerned.

Thus, the greatest advantage that mediation offers in having a dispute determined in a consensual forum is that a mediated result can be a more customized approach, unconstrained by the precedent or process a judge must consider. Court decisions are intended to preserve current standards or maintain or create legal precedent and they cannot necessarily be truly modified to the case at hand to account for the individualized needs of the parties. In contrast, mediation can allow an individualized solution, which meets the party's needs and perhaps might not otherwise be in line with that which the Court can facilitate or achieve as a result of the bench ruling or published decision.

The growing use of mediation in the bankruptcy courts, and the development of mediation panels around the country provide new opportunities for parties and professionals to take advantage of a opportunity to resolve matters timely and economically while meeting the other needs of the participants.

Leslie Ann Berkoff is a partner at the firm of Moritt Hock & Hamroff LLP where she is the Chair of the Bankruptcy Department. In addition to her corporate practice, Ms. Berkoff serves on the Mediation panels for the Eastern and Southern Districts of the United States Bankruptcy Courts in New York, and the United States Bankruptcy Court in Delaware, as well as the Commercial Mediation Panel for Nassau County.

The Times, They are a Changin': Recent Amendments to the "No-Fault" Regulations

By: Joshua A. Adler

New York State's Superintendent of Financial Services recently issued the Fourth Amendment to 11 NYCRR 65-3 (Insurance Regulation 68-C) which governs "no-fault" claims in New York State. The amendments became effective on April 1, 2013. They address, to a large extent, the perceptions of the "no-fault" insurance defense bar that the prior regulations favored applicants, and sometimes led to inequitable results.

The amendments should be of particular interest to members of the Dispute Resolution Section, as, in increasing number, "no-fault" claims are being litigated not in court, but before arbitrators on the panel of the American Arbitration Association. Salient aspects of the amendments are discussed below.

A. Verification Requests by Insurance Carriers

One central change made by the new regulations has to do with "verification" requests. After a healthcare provider submits an invoice to the insurance carrier, the carrier must either pay or deny the claim within 30 days, or, the carrier may delay payment of the claim by requesting "verification" from the provider. For example, where an imaging facility seeks payment for an MRI, it is not uncommon for the insurance carrier to ask for a copy of the "narrative report" of the physician who ordered the MRI as a means to investigate whether the MRI was medically necessary. Alternatively, the carrier might ask the "no-fault" medical provider for a copy of the police report of the underlying motor vehicle accident.

What happens if the medical provider does not supply the requested verification? Under the old regulations, assuming the request for verification was reasonable, the claim was "tolled," meaning the insurer delayed making a decision regarding whether it would pay the claim based on the fact that verification of the claim was "outstanding." One thing the carrier could not do, however, was deny the claim on this basis, and so, claims often remained open, sometimes, indefinitely.

The new regulations fundamentally change the rules of the game. They provide that, subject to certain conditions, the insurer may deny the claim outright where 120 days have elapsed from the date of the request, and the medical provider has neither proffered the requested verification or come forward with "written proof providing reasonable justification for the failure to comply" (11 NYCRR 65-3.5[o]; 11 NYCRR 65-3.8[b]) .

The warning to "no-fault" healthcare providers is clear: respond promptly to requests for verification or risk possible outright denial of your claim for payment. Counsel should advise their clients accordingly.

B. Non-substantive, Technical, and Immaterial Defects or Omissions

Under the old regulations, when an insurer denied a claim or sent out a verification request, the carrier had to make doubly sure that that these documents were free of all defects and/or omissions, whether "big" or "small." This was a fertile ground for disagreement at arbitrations, with counsel for applicants often drawing attention to trivial "defects" in insurer- generated denials or verification requests.

Under the amended regulations, "non-substantive technical or immaterial defects or omissions" no longer (1) affect the validity of denial of a claim; or, (2) negate the applicant's duty to comply with a verification request (see 11 NYCRR 65-3.5[p]; 11 NYCRR 65-3.8 [h]).

C. Improper or Fraudulent Billing

What happens when a healthcare provider bills for services in excess of the mandated fee schedule or, worse, for services that were never actually rendered?

Under the old rules, if the insurer failed to timely deny a claim on one of those grounds, it was precluded from raising the issue at a later time. Arbitrators were often faced with awarding, for example, healthcare provider fees well in excess of the permissible fee schedule, merely because the carrier inadvertently failed to check off the "fee schedule" box on the denial form. Similarly, when the issue was not timely raised, insurers sometimes were stuck paying for services which they later learned (or suspected) were never actually rendered (a/k/a "phantom billing").

Pursuant to the amended regulations, insurers are no longer precluded from raising a "fee schedule" or "no service provided" defense, even where such defense was not asserted in a timely denial of the claim. Specifically, the new regulations provide:

"proof of the fact and amount of loss sustained pursuant to Insurance Law section 5106 (a) shall not be deemed supplied by an applicant to an insurer and no payment shall be due for such claimed medical services under any circumstances: (i) when the claimed medical services were not provided to an injured party; or (ii) for those claimed medical service fees that exceed the charges permissible pursuant to Insurance Law sections 5108(a) and (b) and the regulations promulgated thereunder for services rendered by medical providers" (11 NYCRR 65-3.8[g]).

Thus, insurers are no longer "knocked out of the box" merely because the "fee schedule" box was not checked off in the denial of claim form. Also, carriers can now challenge "phantom billing," even when the underlying facts come to light after the time period for issuing a denial has passed. Going forward, this may save insurers thousands of dollars in "no-fault" payments. Insureds (i.e., consumers) will also benefit, as their "no-fault" claim limits will not be unjustly reduced and/or exhausted as a result of over-billing and fraudulent practices.

Joshua A. Adler, an attorney licensed to practice in New York, D.C., and the State of Israel, maintains an arbitration and litigation practice in Nassau County and Manhattan. He can be reached at joshadlerlaw@gmail.com

April 30, 2013

Determining Value of "In Kind" Payments Before Issuing Satisfaction of Judgment in Full

By Gerald M. Levine

An award that allows the losing party to pay some portion of the judgment "in kind" is not a reprieve from its having to deliver the equivalent of cash to satisfy the judgment. In In re Pine Street Associates, L.P. v. Southridge Partners, 2013 NY Slip Op 02854 (1st Dept. April 25, 2013) the arbitrator rendered the following award in favor of Pine Street:

1. Notwithstanding any other provision of the Agreement, (a) within thirty (30) days from the date of this Award, [Southridge] shall redeem no less than forty percent (40%) of the balance of [Pine Street's] interest in [the Fund] in cash; and (b) within ninety (90) days from the date of this award, [Southridge] shall complete the redemption of [Pine Street's] interest in [the Fund] in cash or in kind ....

2. Within forty five (45) days from the date of this Award, [Southridge] shall provide [Pine Street] with an accounting of [Pine Street's] interest and position in [the Fund] (represented to be $8,079,457.85 [sic] as of December 31, 2008) from January 1, 2008 to said date.

In satisfaction of the award, Southridge had made the 40% payment "in cash" and delivered a promissory note and securities "in kind" for the 60% balance. It was naturally disturbed when Pine Street applied to confirm the award and for entry of judgment. Southridge argued in opposition that "the motion was belated, and that because it had satisfied the award some time before, the confirmation was unnecessary." Southridge did not affirmatively state that the in-kind payments equaled in value the 60% balance and Pine Street did not at that time dispute Southridge's representation that the award had been paid in full. The Supreme Court granted the petition to confirm the award and subsequently entered judgment.

Although silent in its confirmation application as to the value of the "in kind" payments, it was precisely their value that underlay Pine Street's application. Its ultimate goal was to collect the full amount of the judgment which required an evaluation of the in-kind payments. The dispute as to the value of securities in lieu of cash came into focus in a subsequent application by Southridge to enjoin and restrain Pine Street from seeking to enforce the judgment "unless and until the Court determined the terms and conditions of such enforcement." This, in effect, crystalized the issue. Pine Street argued that the in-kind portion paid in securities was worth "far less" than (in fact a fraction of) the $4.5 million (the remaining 60%) to which it was entitled under the award. The trial court rejected this construction of the award and granted Southridge's application. It stated that "Pine Street's interest consists of a certain amount of stock" and that "the term 'in kind' did not have to equal a certain dollar amount."

The appellate division disagreed. Such a construction would be anomalous in relieving a party of having to satisfy its full obligation. The majority concluded that it would be "patently absurd ... to give Southridge the [] choice of paying $4,792,596.11 (along with legal interest on that amount) in cash or far less than that 'in kind'." Rather:

we conclude that Southridge was given the option of redeeming Pine Street's interest by tendering either [cash] ... or an amount of whatever stock [Southridge] held that would equal [the balance due] (along with the corresponding amount of legal interest due on that amount.

The intent of the arbitral award was to give Southridge a choice to satisfy its obligation either "in cash" or "in kind" as long as their combined value satisfied the amount of the judgment.

A secondary, but related, issue concerned Pine Street's silence in responding to Southridge's representation that the cash and in-kind payments should be considered in full satisfaction of the judgment. Southridge's choice of wording, that the application to confirm the award was "belated" implies an argument that Pine Street had waited too long for a court ordered evaluation of the in-kind payments. However, the Court held it was not "too long" as long as a party acts within the statute of limitations. While a party "may very well claim that an award has not been satisfied before bringing suit or in its petition for confirmation ... it does not have an obligation to make the claim before seeking enforcement of the award," citing Matter of Bernstein Family Ltd., Partnership v. Sovereign Partners, L.P., 66 AD3d 1, 8 (1st Dept. 2009). A party's decision to contest the value of in-kind payments necessarily depends on factors that cannot be immediately determined, whether (for example) promissory notes are collectible or stock certificates worth their face value. The appellate division remanded the case for a hearing to determine the value of the note and stock tendered to Pine Street.

Gerald M. Levine is a member of Levine Samuel, LLP. He practices in New York City and is on the list of neutrals of the American Arbitration Association. Mr. Levine runs an ADR blog on domain names and cybersquatting at http://www.udrpcommentaries.com.

About April 2013

This page contains all entries posted to Resolution Roundtable in April 2013. They are listed from oldest to newest.

June 2013 is the next archive.

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