ADR CASELAW UPDATE: selected recent ADR cases of interest to Tennessee attorneys and ADR professionals (last updated June 2010) by Marnie Huff
I. FEDERAL CASES
A.
U.S. Supreme Court
U.S. Supreme Court High Court decides Rent-A-Center. Rent-A-Center, West, Inc. v. Jackson, No. 09–497, 561 U.S. ___ (June 21, 2010), an employment discrimination case, implicates First Options “gateway” and Prima Paint “severability” concepts. Respondent employee signed a separate, pre-dispute arbitration agreement as a condition of employment with Petitioner employer. In response to the employer’s motion to compel arbitration, the employee asserted that the arbitration agreement was unenforceable due to unconscionability. In a 5-4 decision, the U.S. Supreme Court acknowledged the factual difference in Prima Paint, Buckeye and Preston where “arbitration provisions” were contained in contracts unrelated to arbitration. Rent-A-Center. at 8. Nevertheless, an unconscionability attack here on the contract as a whole (even though the entire contract was itself an arbitration agreement) is an issue for the arbitrator, not the courts. Id. The Court faulted the employee for failing to challenge, pursuant to Section 2 of the Federal Arbitration Act, the precise “written provisions” in the arbitration agreement that constituted a delegation of authority to the arbitrator. Id. at 7-9. In the courts below, the employee attacked the contract as a whole, not the precise provision delegating jurisdiction to the arbitrator. Id. at 9-11. The Court declined to consider a new argument, not raised below, that the provision giving the arbitrator jurisdiction over gateway issues was now substantively unconscionable because the provision’s quid pro quo, that the employee would receive “‘plenary post-arbitration review’” was eliminated by the Hall case. Id. at 12. Justice Stevens noted in his dissent that the arbitration agreement is “one part of the broader employment agreement between the parties.” Rent-A-Center, dissent slip op. at 2. In his view, “a general revocation challenge to a stand-alone arbitration agreement is, invariably, a challenge to the ‘making’ of the arbitration itself . . . and therefore, under Prima Paint, must be decided by the Court.” Id. at 10.
Court Addresses Class Arbitration. In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. ___ (2010), the U.S. Supreme Court held that, when parties to a contract with an arbitration clause have not agreed to authorize class arbitration of disputes, imposing class arbitration is not consistent with the Federal Arbitration Act. The Court concluded that the arbitration panel in the case exceeded its powers by imposing its own policy choice regarding class arbitration, The arbitration panel erroneously thought Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 required an arbitrator (not a court) to decide whether a contract permits class arbitration when, in fact, Bazzle involved a plurality decision. It also incorrectly thought Bazzle established a rule to be applied in deciding the class arbitration question. The Court determined that "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." Stolt-Nielsen, slip op. at 20. Because of the significant differences between an agreement to arbitrate a single dispute between parties to a single contract and an agreement to a class arbitration, "[a]n implicit agreement to authorize class-action arbitration . . . is not a term that the arbitrator may infer solely from the fact of the parties' agreement to arbitrate. Id. at 21. The Court declined to decide whether the "manifest disregard" standard survived its decision in Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576 (2008), as an independent ground for review or as a judicial gloss on the FAA's enumerated grounds for vacating an arbitration award.
Court To Decide FAA Preemption Issue; Lower Court Held Arbitration Clause Barring Class Actions Was Unconscionable under State Law. The U.S. Supreme Court granted cert in AT&T Mobility LLC v. Concepcion, No. 09-893 (U.S. May 24, 2010). The case concerns whether the Federal Arbitration Act (FAA) preempts state unconscionability law. The question presented is: “Whether the Federal Arbitration Act preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures — here, class-wide arbitration — when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.” As stated in the lower court’s decision, Laster v. Conception, the case “involves a class action claim that a telephone company’s offer of a ‘free’ phone to anyone who signs up for its service is fraudulent to the extent the phone company charges the new subscriber sales tax on the retail value of each ‘free’ phone.” AT&T Mobility demanded that the plaintiffs submit their claims to individual arbitration, under the contracts’ arbitration clause, which requires arbitration but bars class actions. The 9th Circuit held that the class action waiver clause was unconscionable under California law and the FAA did not preempt California unconscionability law.
B. Sixth CircuitCognovit Clause and Arbitration Clause in Contract. In Export-Import Bank of the United States, v. Advanced Polymer Sciences, Inc., et al, No. 09-3414 (6th Cir. May 5, 2010), Export-Import Bank of the United States (“Ex-Im”), was assignee and holder of a promissory note and guaranties which included an arbitration provision and a confession of judgment clause. Ex-Im filed suit and obtained judgment against the guarantors. In their motion to vacate the judgment, the guarantors asserted, among other things, that because federal law favors arbitration, the confession of judgment clause conflicted with and must give way to the arbitration provision; otherwise the arbitration clause would be functionally useless. The Court of Appeals ruled in favor of Ex-Im, holding that the “arbitration provision does not facially conflict with the confession of judgment provision, so the guaranties are not fatally ambiguous.” Slip op. at 9.
II. TENNESSEE STATE COURT CASES
Case of First Impression in Tennessee: Pre-Dispute Contractual Waiver of Jury Trial Upheld, Even Though There Was No Enforceable Arbitration Agreement. In Gregory Poole v. Union Planters Bank, N.A., M2009-01507-COA-R3-CV (Tenn. Ct. App. April 8, 2010), a case of first impression, the Court of Appeals upheld enforcement of a pre-dispute contractual waiver of the right to a jury trial where there was no enforceable arbitration agreement. The plaintiff truck driver signed a note and 2 other documents that included a jury trial waiver. In a suit to recover damages incurred due to the bank's failure to timely provide a copy of a certificate of title, the defendant bank moved to compel arbitration and to strike the plaintiff's jury demand. The trial court declined to compel arbitration but granted the motion to strike the jury demand. Regarding one of the issues on appeal, the Court of Appeals adopted the majority view of state courts that there is no state constitutional or statutory bar to enforcement of pre-dispute jury-waiver provisions. Such pre-dispute provisions are not against public policy, are not inconsistent with Tenn. R. Civ. P. 39.01, need not be raised as a Tenn. R. Civ. P. 8.03 affirmative defense, and may be enforced on the eve of trial. Declining to decide who has the burden of proof, the court further held that the plaintiff’s waiver was a knowing waiver, regardless of which party had the burden of proof.
Mediation Agreement Not Enforced; Mediation Confidentiality Not Discussed. In the case, In the Matter of Shelby R. and Sydnee R., No. W2009-01172-COA-R3-CV (Tenn. Ct. App. May 18, 2010), the maternal grandparents and father agreed to the grandparents having emergency temporary custody of the children. Subsequently, the trial court enforced a mediation agreement signed by the father and grandparents, and awarded custody to the grandparents. The Court of Appeals reversed and remanded because the father had not knowingly waived his superior parental rights, given the following circumstances: 1) the same attorney represented the father and the maternal grandparents at the mediation; 2) during the mediation, the father expressed concern that he might not want to proceed with the mediation; 3) the attorney stated he thought a conflict of interest had arisen and asked that the mediation be terminated; 4) instead, the father and grandparents met alone in a separate room, returned crying, and said they were “still on the same page;” 5) the parties signed a mediation agreement that provided that the grandparents would “retain” custody (interpreted by the Court to mean continued joint custody by the grandparents and father), but the father thought this was only until the end of the school year; 6) the attorney’s explanation to the father centered around legal ramifications of an order being entered, not the consequences of signing a mediation agreement; and 7) after the mediation, the father refused to sign a proposed consent order. The Court of Appeals opinion does not discuss whether the parties had agreed to confidentiality of the mediation.
Fraud In Inducement Claim To Be Arbitrated, Not Decided by Court, Under Arbitration Agreement’s Terms. In Franke Elliott, et al. v. Icon in the Gulch, LLC, No. M2009-01554-COA-R3-CV (Tenn. Ct. App. May 19, 2010) purchasers of pre-construction condominium units sued for rescission of their contracts to purchase the units. The plaintiff developer filed a motion to compel mediation and/or arbitration pursuant to the contracts. Reversing the trial court’s denial of the motion and remanding the case, the Court of Appeals held that contract formation issues are not excluded from the agreement to arbitrate provision in the parties’ contracts. Tennessee law prohibits arbitration of contract formation issues, including fraud in the inducement allegations, while the Federal Arbitration Act (FAA) permits arbitration of such issues if agreed to in the parties’ contract. Here, the contract’s choice of law provision stated that Tennessee law governed, but the contract also expressly provided that the FAA applied. Under these circumstances, the contract is not ambiguous: issues of substantive law will be determined by Tennessee law, but contract formation issues will be governed by the FAA. The facts in the case are closer to those in Taylor v. Butler, 142 S.W.3d 277 (Tenn. 2004), rather than Frizzell Construction Co., Inc. v. Gatlinburg, LLC, 9 S.W. 3d 79 (Tenn. 1999) and Hubert v. Turnberry Homes, LLC, No. M2005-00955-COA-R3-CV, 2006 WL 2843449 (Tenn. Ct. App. Oct. 4, 2006).
Nursing home’s vague motion to stay proceedings results in dismissal of appeal. In Allison J. Person, as Administratrix of the Estate of Effie J. Wooten, Deceased, et al. v. Kindred Healthcare, Inc., d/b/a Primacy Healthcare and Rehabilitation Center, et al, No. M2009-01918-COA-R3-CV (Tenn. Ct. App. May 7, 2010), the administrator for decedent patient’s estate sued a nursing home. The trial court denied the nursing home's motion to dismiss or, in the alternative, for summary judgment. The trial court found the decedent was not competent to execute the power of attorney pursuant to which the decedent's daughter had signed an arbitration agreement. The Court of Appeals held that it lacked subject matter jurisdiction to hear this interlocutory appeal. In its motion in the trial court, the defendant had moved to stay “proceedings not relevant to the validity and enforceability of the alternative dispute resolution agreement at issue,” but failed to move to compel arbitration pursuant to TCA § 29-5-303. Rejecting the nursing home’s suggestion that the Court look to the “substance” of the motion to dismiss, the Court held that the appeal does not fall under the provisions of TCA § 29-5-319 (permitting immediate appeals of orders denying motions to arbitrate).
Arbitration Agreement with Nursing Home Unconscionable. In Lula McGregor, et al. v. Christian Care Center of Springfield, L.L.C., No. M2009-01008-COA-R3-CV (Tenn. Ct. App. April 29, 2010), a patient was in a great deal of pain and under medication when she signed a nursing home admission agreement. The agreement included an arbitration agreement that allowed revocation within 30 days, but the patient never received a copy of the agreement. She fell and broke her ankle and sued the nursing home. The trial court denied the nursing home’s motion to compel arbitration, holding that the arbitration agreement was a contract of adhesion and it would be unconscionable to enforce it. On appeal pursuant to TCA § 29-5-319, the Court of Appeals agreed the arbitration agreement was a contract of adhesion and substantively unconscionable. The patient, who was on Medicare and Medicaid, had no real alternative to this nursing home which presented the contract on a “take it or leave it” basis. The contract terms favored the nursing home by giving it a judicial forum of any claims it might have against the patient, while requiring arbitration of all patient claims.
Quasi-Judicial Immunity
Rule 31 provides for judicial immunity of an ADR neutral, if the neutral’s activity is in the course of a Rule 31 ADR proceeding: “Activity of Rule 31 Neutrals in the course of Rule 31 ADR proceedings shall be deemed the performance of a judicial function and for such acts Rule 31 Neutrals shall be entitled to judicial immunity.” Tenn. S. Ct. R. 31, Section 12. “Rule 31 ADR Proceedings” are defined as “proceedings initiated by the court pursuant to this Rule, including ‘Case Evaluations’, ‘Mediations’, ‘Judicial Settlement Conferences’, ‘Non-Binding Arbitrations’, ‘Summary Jury Trials’, ‘Mini-Trials’, or other similar proceedings.” Tenn. S. Ct. R. 31, Section 2(n). Some mediators who engage in private mediations (not ordered by a court) include an immunity clause in their contracts with the parties.
Mediators may want to review cases involving the scope of quasi-judicial immunity, such as Charles E. Jackson III v. Metropolitan Government of Nashville et al., No. M2009-01970-COA-R3-CV (Tenn. Ct. App. June 7, 2010). In Jackson the Court of Appeals rejected the claims of a probationer who argued that his probation officer was not entitled to quasi-judicial immunity. The Court of Appeals agreed with the trial court’s decision that the defendant was acting in her capacity as plaintiff’s probation officer when she failed to recall an arrest warrant, was performing a function essential to the judicial process, and had no discretion but to recall the warrant. The Court distinguished the case, Miller v. Niblack, 942 S.W.2d 533 (Tenn. Ct. App. 1996) (holding that paternity test lab hired by court was not entitled to quasi-judicial immunity; under contract with court, there was no discretion as to which tests to perform or order for performing them, and test results were not subject to different interpretation).
ADR Caselaw Update is by Marnie Huff, past Chair of the Tennessee Bar Association Dispute Resolution Section and Co-Chair of the ABA DR Section Ethics Committee.
For summaries of older cases, go to Tennessee ADR caseslaw archives.
Copyright 2009-2010 Margaret M. Huff. All rights reserved.
Margaret Huff Mediation
PHONE: 615.812.5557
Articles: TN ADR Caselaw Update
____________________________________________________________________________
Margaret Huff Mediation PO Box 121951 Nashville TN 37212-1951
____________________________________________________________________________
