ADR CASELAW UPDATE: selected recent ADR cases of interest to Tennessee attorneys and ADR professionals (last updated April 27, 2011)
by Marnie Huff
I. FEDERAL CASES
A.
U.S. Supreme Court
U.S. Supreme Court AT&T: FAA Preempts California Law That Had Made Consumer Contract Class Action Waivers Unconscionable. In AT&T Mobility LLC, v. Vincent Concepcion et ux., No. 09–893 (April 27, 2011), the U.S. Supreme Court interpreted the provision in the Federal Arbitration Act which makes arbitration agreements “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. §2. 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 U.S. District Court had found the arbitration provision in AT&T's consumer contract unconscionable because the contract disallowed classwide proceedings. The Ninth Circuit affirmed, holding that: 1) the provision was unconscionable under California law (the California Supreme Court decision in Discover Bank v. Superior Court, 36 Cal. 4th 148, 113 P.3d 1100 (2005), classifying most class action waivers in consumer contracts as unconscionable); and 2) the California Discover Bank rule was not preempted by the FAA.
In a 5-4 decision, the U.S. Supreme Court reversed, holding that the FAA preempts California’s Discover Bank rule. The Court noted that FAA Section 2 permits invalidating agreements through “‘generally applicable contract defenses’ . . . but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Although Section 2’s saving clause preserves generally applicable contract defenses, it does not suggest “an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives.” The California Discover Bank rule “interferes with the fundamental attributes of arbitration.” Although the California rule “does not require classwide arbitration, it allows any party to a consumer contract to demand it ex post.” As noted in the Stolt-Nielsen case, the “‘changes brought about by the shift from bilateral arbitration to class-action arbitration’ are ‘fundamental.’” Class arbitration includes absent parties and sacrifices informality (making the process “slower, more costly and more likely to generate procedural morass than final judgment”), “increases risks to defendants,” and is “poorly suited to the higher stakes of class litigation.” The absence of multilayered review by appellate courts "makes it more likely that errors will go uncorrected.” That risk of error “will often become unacceptable” when alleged damages are aggregated and decided at once. Arbitration is “poorly suited to the higher stakes of class litigation. In litigation, a defendant may appeal a [class] certification decision . . . and a final judgment as well.” In contrast, 9 U.S.C. §10 allows a court to vacate an arbitral award only on quite limited grounds. The California rule is “‘an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’” (citation omitted). Therefore, the FAA preempts the California Discover Bank rule.
Cert Granted in Arbitration Case. On Feb. 22, 2011, the U.S. Supreme Court granted cert in Stok & Associates v. Citibank, No. 10-514. The question presented is: “Under the Federal Arbitration Act, should a party be required to demonstrate prejudice after the opposing party waived its contractual right to arbitrate by participating in litigation, in order for such waiver to be binding and irrevocable?”
Amex: Will Case Return to Supreme Court? After a remand from the U.S. Supreme Court to reconsider in light of the Stolt-Nielsen case, the U.S. Court of Appeals for the Second Circuit reiterated its holding in the case, In Re: American Express Merchants' Litigation, No. 06-1871 (2d Cir., March 8, 2011). It held the class action waiver in a commercial contract with a mandatory arbitration clause was unenforceable under 9 U.S.C. § 2, given the facts of the case. The waiver was not, however, per se unenforceable. Expert proof presented to the trial court showed that it was not economically feasible to bring individual antitrust actions in the case. Enforcing the waiver would have given Amex “de facto immunity from antitrust liability.” Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000) is controlling “to the extent it holds that when a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs.”
High Court decides Rent-A-Center and Granite Rock Arbitration Cases. 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.
In Granite Rock Co. v. International Brotherhood of Teamsters et al., ___ U.S. ___, No. 08–1214 (June 24, 2010) the U.S. Supreme Court decided a case involving employer Granite Rock’s suit seeking damages and an injunction against a 2004 strike. Granite Rock asserted, and the defendant unions agreed, that the district court had federal jurisdiction over the suit under §301(a) of the Labor Management Relations Act (LMRA). The Court’s majority opinion states that the unions argued that a new collective bargaining agreement (CBA) with Granite Rock was “not validly ratified on July 2, 2004 (or at any other time relevant to the July 2004 strike)” by a vote of the local’s members, so the CBA’s no-strike clause did not provide a basis for Granite Rock to challenge the strike. Granite Rock, slip op. at 4. The district court denied the local union’s motion for an order requiring arbitration of the parties’ dispute over the CBA’s ratification date, ruling that the issue of when ratification of the CBA occurred was not subject to arbitration. After a jury concluded that the CBA was ratified on July 2, 2004, the court ordered arbitration of Granite Rock’s breach of contract claims. On appeal, the Ninth Circuit reversed the arbitration order, holding that the ratification date dispute was a matter for an arbitrator to decide under the CBA’s arbitration clause. The Supreme Court determined that the when the CBA was ratified was a contract formation issue in this case, id. at 13, and concluded that the Ninth Circuit erred in characterizing the case as involving whether Granite Rock’s claim to enforce no-strike provisions arose under the CBA. Id. at 18. It held: 1) “the parties’ dispute over the CBA’s formation date was for the District Court, not an arbitrator, to resolve,” id. at 19; and 2) the Ninth Circuit properly declined to recognize a new federal common-law cause of action under LMRA §301(a) for IBT’s alleged tortious interference with the CBA, id. at 22. Two justices dissented on the Court’s first holding, asserting that the parties had agreed to have their ratification dispute resolved by an arbitrator, given the undisputed fact that the parties signed a binding CBA in December that was retroactively effective as of May 2004. The majority of the Court did not consider this because the union had failed to raise the argument at the Court of Appeals and waived it by not raising it in its opposition to Granite Rock’s certiorari petition.
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.
B. Sixth CircuitRefusal to Participate in Court-Ordered Mediation. In Gen’l Conf. Corp. of Seventh-Day Adventists, et al. v. McGill, 617 F.3d 402 (6th Cir. 2010), a trademark infringement case, the district court entered default judgment against the defendant, after the defendant's repeated refusal to appear for a court-ordered mediation before a magistrate judge, to which he had initially consented. The Defendant claimed that compromising his faith violated his religious convictions. On appeal, the defendant failed to brief, and therefore waived, this issue.
Court Split on post-Stolt-Nielsen Ripeness Issue. In Dealer Computer Services, Inc. v. DUB Herring Ford, et al., 623 F.3d 349 (6th Cir. 2010) rehrg. and rehrg. en banc den. (2010), the Court considered the impact of Stolt-Nielsen on a ripeness issue: did the district court have jurisdiction to confirm an arbitration panel's interim award denying class arbitration? The district court, following guidance provided by the Court of Appeals in a pre-Stolt-Nielsen ruling, determined that the case was not ripe, it lacked jurisdiction, and dismissed the motion of Dealer Computer Services (DCS) to confirm the arbitrator's interim award. The majority of the Court of Appeals affirmed, agreeing that the appellant failed to demonstrate that it was subject to cognizable hardship if immediate judicial review of the interim award were denied. The dissent, on the other hand, stated that in the aftermath of Stolt-Nielsen, the Court’s prior holding in the case involving the parties was no longer the law and DCS had shown that the case was ripe.
Narrow Arbitration Clause Results in Protracted Piecemeal Litigation. In Turi, et al. v. Main Street Adoption Services, LLP, et al., No. 09-2229 (6th Cir. March 4, 2011), the Court of Appeals dismissed as premature the appeal of district court rulings on personal jurisdiction and venue, reversed the district court's retaining subject-matter jurisdiction over certain claims covered by an arbitration clause, but affirmed the district court's assertion of jurisdiction over the plaintiffs' remaining claims not covered by the arbitration clause. The plaintiffs sued an entity that facilitated adoption of foreign children on multiple causes of action. One of the issues was whether the arbitration clause in the adoption agreements foreclosed litigating the claims in federal court. The Court of Appeals held that the district court's denial of Main Street's motion, to dismiss the lawsuit and compel arbitration, was reviewable under the Federal Arbitration Act (FAA) and Fed. R. App. P. 4. Although it generally has jurisdiction only over final orders, the Court had interlocutory appellate jurisdiction because the FAA provision on appeals from refusals to stay a lawsuit or compel arbitration was intended to support a party's contract right to resolve certain questions through arbitration and avoid court proceedings. Rejecting the defendant's argument that an arbitrator must determine the question of arbitrability of the plaintiff's claims, the Court noted that the agreement to arbitrate was narrow, deliberately limited to fee disputes exceeding $5,000. In addition to fee disputes, the plaintiffs' claims involved disputes that were not related to fees, not intermingled with the fee disputes, and not even arguably covered by the arbitration clause. Since there was no ambiguity regarding subject-matter jurisdiction, there was no need for the arbitrator to decide arbitrability of any of the plaintiffs' claims.
Application of Poorly Drafted ADR Clause to Poorly Drafted Pleading. In Inhalation Plastics, Inc. v. Medex Cardio-Pulmonary, Inc., No. 08-4550 (6th Cir. June 29, 2010) (not recommended for full-text publication), the Court interpreted the scope of a poorly drafted ADR clause in the context of a poorly drafted complaint, holding that the narrowly worded clause applied to a portion, but not all, of the lawsuit’s claims.
Third Party Subject to Arbitration as Principal of a Party to Commercial Agreement. In MJR International, Inc. v. American Arbitration Association, Inc., et al. No. 09-4169 (6th Cir. Sept. 22, 2010) (not recommended for full-text publication), the Court addressed the binding effect and scope of an arbitration clause in a commercial agreement between Victoria's Collection and Oxford Investment Group. After Victoria's initiated arbitration proceedings, the arbitrator granted its request to add MJR International, Inc. as a party to the arbitration, on the theory that Oxford had signed the commercial agreement as an agent on behalf of MJR. In MJR's suit to enjoin the arbitration, the Court rejected MJR's arguments that: 1) Oxford was not acting as MJR's agent when it entered the agreement; and 2) the agreement's forum-selection clause contradicted the arbitration clause, with the resulting ambiguity precluding a finding that arbitration was the exclusive remedy under the agreement.
Arbitrability under Collective Bargaining Agreements
In Int’l Assoc. of Machinists & Aerospace Workers, AFL-CIO, Local Lodge 1943, v. AK Steel Corp., 615 F.3d 706 (6th Cir. 2010), the district court granted summary judgment to the union in its suit to compel the arbitration of grievances against the company. The parties had a Return to Work Agreement that did not have a "clear and unmistakable" provision that an arbitrator would decide substantive arbitrability of issues, but their subsequent long-term Collective Bargaining Agreement (CBA) did have such a provision. Reversing the district court, the Court of Appeals held that the district court, not an arbitrator, must: 1) determine whether the grievances arose under the parties' Return to Work Agreement; and, 2) if so, also decide the substantive arbitrability of those grievances. Any grievances falling under the CBA would go to an arbitrator.
In Teamsters Local Union No. 783 v. Anheuser-Busch, Inc., No. 09-6065 (6th Cir. November 1, 2010) (recommended for full-text publication), the union filed suit to compel arbitration of a grievance over a section of the collective bargaining agreement and its effect on pension rights and benefits. On appeal, the majority of the Court held: 1) the union's complaint was not time-barred under the 6 month statute of limitations under Section 10(b) of the National Labor Relations Act; and 2) the grievance regarding an employee's pension rights was expressly excluded from the parties' broad arbitration agreement.
In Teamsters Local Union No. 89 v. The Kroger Co., et al., 617 F.3d 899 (6th Cir. 2010), the union had filed suit to compel arbitration pursuant to a collective bargaining agreement (the Master Agreement) that contained a broad arbitration clause. The Court of Appeals rejected Kroger's arguments that: 1) employees were not eligible to invoke the the Master Agreement’s grievance procedures because the employer-employee relationship between Kroger and the local union members terminated in when Kroger subcontracted operations to other entities; 2) a Letter of Understanding between Kroger and the union was evidence that the Master Agreement's grievance procedures had ceased to apply and that any grievances arising under the Letter of Understanding fell outside the scope of the Master Agreement's arbitration provision. The Court concluded that Kroger failed to rebut the presumption in favor of arbitratility.
Waiver of Right to Enforce Arbitration Clause. In Hurley et al. v. Deutsche Bank Trust Company Americas, et al., 610 F.3d 334 (6th Cir. 2010), the plaintiff had alleged violations of the Servicemembers’ Civil Relief Act and state law claims. The Court held that the defendants waived their right to enforce an arbitration clause in mortgage documents because they took actions completely inconsistent with any reliance on the arbitration agreement for 26 months, and their delay resulted in actual prejudice to the plaintiffs.
Cognovit 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.
Enforcement of Arbitration Award. In Equitable Resources, Inc., v. United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO/CLC; Local 8-512, 621 F.3d 538 (6th Cir. 2010), the Court affirmed the district court's order enforcing an arbitration award entered in favor of a union. The Court rejected Equitable claims that the Award was defective: 1) the arbitrator did not act outside of his authority by imposing the CBA on non-parties; 2) the arbitrator did not resolve a labor representation dispute not committed to arbitration; 3) the remedy will not violate public policy in implementation; and 4) the arbitrator did not dispense his own brand of industrial justice
C. Bankruptcy Court Decision on Good FaithIn a controversial decision, In re A.T. Reynolds & Sons, Inc., No. 08-37739 (S.D.N.Y. Bankr. Feb. 5, 2010), the Court held that Wells Fargo failed to participate in good faith in a court-ordered mediation and ordered sanctions. Cf. Tennessee ADR Commission's opinion that it was not proper for a mediator to file a report that one party to a mediation did not act in good faith.
I. TENNESSEE STATE COURT CASES
See also summaries of cases interpreting the notice requirements of the Tennessee Medical Malpractice Act.
Appellate Jurisdiction under Tennessee Uniform Arbitration Act. In a case of first impression in Tennessee, Morgan Keegan & Company, Inc. v. William Hamilton Smythe, III, Individually; William H. Smythe, IV, Trust U/A/Dtd 12/29/87, William H. Smythe, Iii, Trustee; And Smythe Children's Trust #2 fbo Katherine S. Thinnes U/A/Dtd 12/29/87, No. W2010-01339-COA-R3-CV (Tenn. Ct. App. March 24, 2011), the parties had arbitrated a dispute where the investors received a substantial award on a claim that the investment company mismanaged their funds. The investment company petitioned the trial court to vacate the award, alleging that two of the arbitrators were biased. Holding in favor of the investment company, the trial court vacated the arbitration award and remanded the matter to the regulatory authority for a rehearing before another panel of arbitrators. On the investors’ appeal, the Court of Appeals dismissed for lack of appellate jurisdiction under the Tennessee Uniform Arbitration Act. First, no appeal is available under Tenn. Code Ann. § 29-5-319(a)(3) because the investors did not file a motion to confirm and the trial court did not address confirmation of the arbitration award. Second, an order vacating an arbitration award and remanding for a rehearing is not appealable under Tenn. Code Ann. § 29-5-319(a)(5). Third, the investors did not show good cause under TRAP 2 for suspending rules of finality.
Arbitration Clause Ambiguity; Arbitratility of Fraudulent Inducement Claim. Healthmart USA, LLC et al. v. Directory Assistants, Inc., No. M2010-00880-COA-R3-CV (Tenn. Ct. App. April 6, 2011) addresses enforceability of an arbitration provision in a contract and applicability of the Federal Arbitration Act. On the first issue, Healthmart argued that the following language was ambiguous: “’If we are unable to come to a mutual agreement [as to choice of arbitration service, location and choice of law forum], or if one of us refuses to participate in choosing [an arbitrator], the party filing a demand [to arbitrate] will have the right to make the choices unilaterally, as long as the filing party made a good faith effort to come to a mutual agreement [to resolve a dispute under the contract], and the non-choosing/non-participating party expressly consents to and waives any and all objections to the choices made’” (emphasis added). Rejecting the trial court’s finding, the Court of Appeals determined that the final clause in the quoted language was not ambiguous. Nevertheless, the record was not clear as to whether Directory Assistants, Inc. had made a good faith effort to come to a mutual agreement, as required by the contract. Therefore, the Court remanded the case for a ruling on this condition precedent to arbitration. On the second issue, the Court held that the FAA applied. Unlike the FAA, Tennessee law prohibits arbitration of fraudulent inducement claims. But the parties’ contract did not state whether Tennessee law or the FAA governed. The contract “‘involves commerce’” and its arbitration clause “purports to govern ‘any dispute arising out of or relating to this contract.’” Under these circumstances, the FAA (and not Tennessee law) governs. Therefore, if the parties reach arbitration, the arbitrator may decide Healthmart’s claim of fraudulent inducement.
Settlements: Lesson Learned - look at the insurance policy. In Catherine M. Love, et Al. v. Doris Lakins Woods, No. E2009-02385-COA-R3-CV (Tenn. App. Nov. 4, 2010) the surviving children of decedent had filed a wrongful death claim against the Defendant. The Defendant's attorney proposed a settlement in the amount of the insurance policy limit, which the attorney misstated to be $100,000. The policy limit was actually $50,000. The Plaintiffs’ attorney accepted the $100,000 offer. The trial court denied the Plaintiff’s motion to enforce the $100,000 settlement, finding that the settlement was not enforceable because it lacked material terms of the agreement. On appeal, the Court concluded that the trial court failed to determine whether an agency relationship existed between the Defendant’s attorney and the insurance company and also whether the insurance company is required to be a party to the litigation.
Parties Cannot Expand Scope of Judicial Review of Arbitration Award; Arnold Decision Clarified. In Pugh's Lawn Landscape Company, Inc. v. Jaycon Development Corporation, No. W2008-01366-SC-R11-CV (Tenn. Sept. 22, 2010), the issue before the Tennessee Supreme Court was whether parties may modify by agreement the scope of judicial review of an arbitrator's award. Guided by the analysis in Hall Street Assoc., LLC v. Mattel, Inc., 552 U.S. 576 (2008), the Court held that judicial review of arbitration awards is governed by the Tennessee Uniform Arbitration Act ("TUAA"). Therefore, the provision in the parties' arbitration agreement purporting to expand the scope of judicial review beyond what the TUAA allows is invalid. The invalidity of this provision in the agreement is a mutual mistake requiring rescission of the parties' arbitration agreement. The Court therefore reversed the Court of Appeals, vacated the trial court's judgment confirming the arbitrator's award, and remanded the case to the trial court. In dicta, the Court clarified its holding in Arnold v. Morgan Keegan & Co., Inc., 914 S.W. 2d 445 (Tenn. 1996), to the extent it could be read to adopt a standard of review of issues other than de novo. The Court adopted the statement of the U.S. Supreme Court in First Options of Chicago, Inc. that “‘ordinary, not special, standards’ of appellate review should apply in arbitration cases and that appellate courts need not ‘give extra leeway to district courts that uphold arbitrators.’” Pugh’s Lawn Landscape at 6 n. 4, quoting First Options of Chicago, Inc., 514 U.S. 938, 948 (1995).
Issues Not Subject to Binding Arbitration. In Elizabeth Sams Tuetken v. Lance Edward Tuetken, No. W2008-00274-SC-R11-CV (Tenn. Sept. 22, 2010), the Tennessee Supreme Court addressed the trial court's scope of review of the parties' arbitration award. It first concluded that Tenn. Sup. Ct. R. 31 did not govern the consent order at issue. Rule 31, in contrast, governs non-binding arbitrations where a party may choose to accept the result of the arbitration or choose to reject the result and return to court for a resolution of the dispute. The provision in Paragraph 15 of Appendix B to Rule 31, permitting parties to stipulate “in writing that the award shall be final and binding,” does not alter the substance and intent of Rule 31. Rather, it permits parties, after receiving the result of their non-binding arbitration, to then agree to make the result binding and entered as a judgment of the court. Here, the parties agreed to and entered into binding arbitration governed by the Tennessee Uniform Arbitration Act ("TUAA"). Reaffirming its holding in Pugh's Lawn Landscape Co., Inc v. Jaycon Development Corp., No. W2008-01366-SC-R11-CV, __ S.W.3d__ (Tenn. 2010), the Court stated that judicial review of an arbitration award is confined to the limited grounds enumerated in the TUAA. Reversing the trial court, the Court held that the provision in the parties' arbitration agreement expanding the trial court's scope of review is invalid, and the invalidity of this provision is a mutual mistake justifying rescission of the parties' agreement to arbitrate. Because the holding necessitated additional proceedings on remand, it further held that parenting issues may not be submitted to binding arbitration in Tennessee, but parties may submit these issues to non-binding arbitration.
Arbitration on Underinsured Motorist Coverage Not Available When Plaintiff Settled with Tortfeasor for more than Amount Sought in Lawsuit. In Sheila Brown v. Rico Roland, No. M2009-01885-COA-R3-CV (Tenn. Ct. App. Sept. 23, 2010), the Plaintiff, who was in an accident with another motorist, filed suit to recover an amount "under $25,000," naming the tortfeasor as the defendant. Plaintiff complied with Tenn. Code Ann. § 56-7-1206 by serving notice on her insurer of the tortfeasor’s underinsured coverage. After entering into a settlement agreement with the tortfeasor for the tortfeasor's policy limits of $25,000, Plaintiff properly served notice on her insurer of the proposed settlement and her willingness to enter into binding arbitration to settle her claim for underinsured motorist benefits, pursuant to Tenn. Code Ann. § 56-7-1206(f). Nevertheless, the trial court properly granted the insurer’s motion to dismiss the underinsured claim against it because Plaintiff was made whole when she agreed to a settlement with the tortfeasor in an amount in excess of her ad damnum and, therefore, there was no claim to arbitrate. Although Tenn. Code Ann. § 56-7-1206(h) provides that the arbitrator decides issues of liability, apportionment of fault, and the amount of damages sustained by the insured, “Plaintiff’s reliance on this statute is misplaced because the statute presumes a claim remains to be arbitrated. There is no remaining claim to be arbitrated here.”
Judicial Economy Not Valid Reason to Deny Motion to Enforce Arbitration Agreement; Melz Distinguished. In Victor J. Thomas, M.D., et al., v. Pediatrix Medical Group of Tennessee, P.C, No. E2009-01836-COA-R3-CV (Tenn. Ct. App. Sept. 14, 2010), the plaintiffs asked the trial court to declare null and void certain restrictive covenants in their employment contracts with the defendant. The trial court denied the defendant’s motion to dismiss the action and enforce the arbitration agreement contained in the employment contracts. It ruled that, in the interest of judicial economy, it - not an arbitrator - should decide the issues raised in the declaratory judgment action. On appeal, the Court of Appeals reversed and remanded, directing the court to stay the proceeding and order the parties to arbitrate the issues arising from the employment contracts. The Court distinguished River Links at Deer Creek, LLC v. Melz, 108 S.W.3d 855 (Tenn. Ct. App. 2002), appeal den. (Tenn. May 27, 2003). Unlike the unique situation in Melz, where only a few of the issues between the parties were subject to arbitration and an arbitrator would have had no guidance on proper interpretation of a recently enacted Tennessee statute, the case here does not involve novel questions of law.
Three More Post-Lawrence County Decisions on Agreements to Arbitrate in Context of Teacher Collective Bargaining Agreements.
In Wilson County Board of Education v. Wilson County Education Association and Steve Johnson, No. M2005-02719-COA-R3-CV (Tenn. Ct. App. June 30, 2010), and a companion case, Wilson County Board of Education v. Wilson County Education Association and Bill Repsher, No. M2005-02720-COA-R3-CV (Tenn. Ct. App. July 7, 2010), the Court of Appeals affirmed the trial court's decision, but on alternative grounds. The trial court held that a local school board was not required to arbitrate, as a last step in a grievance procedure with an assistant principal who was transferred to a teaching position, because “assistant principals” were statutorily the same as “principals” under Tenn. Code Ann. § 49-2-303. On appeal, the Court found that the parties’ agreement regarding arbitration contained inconsistent terms. Step 4 of the agreement provided that “ ‘[i]f dissatisfied with the disposition of the grievance at Step 3 . . . the Association may submit the grievance to either (1) panel binding arbitration or (2) regular binding arbitration.’” Johnson at 8. But both types of “binding arbitration” were “subject to provisions stating the panel or arbitrator ‘may recommend’” certain remedies. Id. There was no meeting of minds on the procedure to use as the final step of the grievance procedure. No enforceable agreement to arbitrate exists.
In Franklin County Board of Education v. Lisa Crabtree, et al., No. M2009-01940-COA-R3-CV (Tenn. Ct. App. July 1, 2010), a teacher who was also a coach was removed from her coaching position. The Court of Appeals affirmed the trial court’s decision that the teacher/coach's grievance against the county Board of Education was not subject to arbitration under the collective bargaining agreement between the Board and the Franklin County Education Association. It also affirmed the trial court’s dismissal of the teacher's counterclaim under Tenn. Code Ann. § 49-5-510 that the transfer from her coaching position was arbitrary and capricious.
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 arbitration contract not enforceable: patient not competent to sign power of attorney. Martha Duke v. Kindred Healthcare Operating, Inc., et al., No. W2010-01534-COA-R3-CV (Tenn. Ct. App. March 14, 2011) involves an arbitration agreement signed by the patient’s sister when the patient was admitted to a nursing home. The sister showed nursing home staff a power of attorney document designating her as the patient’s attorney-in-fact. The Court of Appeals affirmed the trial court’s finding, by clear and convincing evidence, that the patient was incompetent when he signed the power of attorney and, therefore, the sister lacked authority to sign the arbitration agreement on his behalf.
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).
Meaning of “And” Results in Unenforceable Arbitration Clause in Nursing Home Case. Judy Davis, as next friend of Eloise Gwinn, an incapacitated person v. Kindred Healthcare Operating, Inc., et al., No. W2010-01575-COA-R3-CV (Tenn. Ct. App. April 19, 2011), a nursing home abuse case, involved a power of attorney naming “Thomas L. Davis and Judy L. Davis” as agents of the principal. Only one of the agents signed the nursing home admission paperwork, including an ADR agreement, on behalf of the patient. In response to the defendants’ motion to compel arbitration, the plaintiff asserted that the joint nature of the power of attorney prevented enforcement of the ADR agreement. The Court of Appeals held that “unless there is language in the instrument authorizing the agents to act severally, ‘and’ should be . . . interpreted to create a joint agency relationship.” Therefore, “an instrument signed by less than all of the joint agents does not bind the principal unless the action of less than all joint agents is otherwise ratified.” Ratification was not an issue in the case. The Court affirmed the trial court’s decision denying the motion to compel arbitration,
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.
Malpractice Claim against Attorney in Arbitration Case. In Joseph C. Barna v. W. Martin Seiler, No. M2008-01573-COA-R3-CV (Tenn. Ct. App. April 19, 2011), an investor filed a claim against his stockbroker that was dismissed in a NASD arbitration. The investor then sued his attorney for legal malpractice. The majority of the Court affirmed the trial court’s summary judgment in favor of the attorney, finding the attorney’s expert affidavit sufficiently non-conclusory. The dissent, on the other hand, stated that the affidavit was insufficient because it did not even briefly describe actions taken in the course of the representation, a requirement for “clearly and completely” refuting a plaintiff’s professional malpractice claim.
Mediated Settlement Agreement Enforced. In Berkeley Park Homeowners Association, Inc., et al. v. John Tabor, et al., No. E2009-01497-COA-R3-CV (Tenn. Ct. App. July 20, 2010), the Court of Appeals affirmed the trial court’s decision granting a motion for contempt filed by a homeowners association and co-plaintiff against a construction company and its owner. The Court rejected the defendants’ claim that a purported subsequent agreement superceded a mediated settlement agreement on construction of a house being built by the defendants in a subdivision.
Intimidation Claim Insufficient to Set Aside Settlement Agreement Where Homeowner Represented by Attorney at Mediation. In Rob Matlock d/b/a Rob Matlock Construction v. Regina M. Rourk, No. M2009-01109-COA-R3-CV (Tenn. Ct. App. July 20, 2010), a homeowner and a contractor agreed to use mediation to resolve their dispute over the contractor's bill. The homeowner wanted a friend to attend the mediation in addition to her attorney, for his moral support and expertise in construction matters, but the mediator announced that third parties would not be allowed to attend. The mediation resulted in an agreement, signed by both parties and their attorneys, which provided that the homeowner would pay the contractor $14,000 and the parties would sign mutual releases. The homeowner paid $11,000, but refused to pay the rest. In a suit filed on the deficiency, the trial court granted the contractor’s motion for summary judgment. Affirming the trial court, the Court of Appeals rejected the homeowner’s argument that she did not owe the money because the mediation procedure was unfair and did not comply with Tenn. S. Ct. Rule 31. First, Rule 31 does not apply because the mediation occurred before any lawsuit was filed and was not ordered by any court. Second, it was not enough for the homeowner to state in her affidavit that the mediation process was very intimidating and that she did not know she could object to exclusion of her friend from the mediation. These statements do not suggest lack of competence, duress, mutual or unilateral mistake induced by fraud, or other legal grounds to set aside the mediated contract.
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).
Statutes of Limitations in Workers Comp Cases.
In Joe Lynn Hughes v. Robert Brent d/b/a Apartment Maintenance Specialists, et al., No. E2009- 01377-WC-R3-WC (Tenn. Workers’ Comp. Appeals Panel August 25, 2010), the Court of Appeals reversed the trial court’s summary judgment in favor of the employer. Although the employee did not file a request for a benefit review conference within one year of the date of injury, the statute of limitations, Tenn. Code Ann. § 50-6-203, was tolled by his timely filing of a request for assistance. Holland Group v. Sotherland, No. M2008-00620-WC-R3-WC (Tenn. Workers’ Comp. Panel Apr. 24, 2009) did not overrule Welsh v. Universal Fasteners, Inc., 51 S.W.3d 196 (Tenn. Workers’ Comp. Panel 2000) (interpreting a “request for assistance” as amounting to a request for a benefit review conference for purposes of tolling statute of limitations). The 2008 legislative revision of Tenn. Code Ann. § 50-6-238(a)(1), codifying Welsh result and applying to injuries occurring on or after July 1, 2008 does not mean that the statute is not tolled with regard to injuries prior to the statute’s effective date.
In Wayne Moran v. Fulton Bellows & Components, Inc., No. E2009-01923-WC-R3-WC (Tenn. Workers’ Comp. Panel Aug. 17, 2010), the employee filed suit 94 days after an impasse was reached at a benefit review conference. The trial court properly granted the employer's motion to dismiss on the basis of the 90-day statute of limitations, Tenn. Code Ann. § 50-6-203(g)(1) (2008). The report of the benefit review conference was "filed with the commissioner" of Labor and Workforce Development as required by the statute of limitations when the workers’ compensation specialist generated a Benefit Review Conference Report on the date of the impasse. The statute of limitations does not require a separate filing system physically located in the Commissioner of Labor’s office under his direct control.
For summaries of older cases, go to Tennessee ADR caseslaw archives.
Copyright 2009-2011 Margaret M. Huff. All rights reserved.
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Articles: TN ADR Caselaw Update
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