Fourth Circuit Affirms Ashley District Court Decision

In a much anticipated decision, the United States Court of Appeals for the 4^th Circuit finally issued a decision in the PCS Nitrogen v Ashley II of Charleston, 2013 U.S. App. LEXIS 6815 (4^th Cir. 4/4/13) case.

The decision, however, did not provide the clarity that many were hoping for about the controversial decision by the District Court that the purchaser of the property, Ashley II of Charleston, did not qualify as a Bona Fide Prospective Purchaser (BFPP) and receive exemption from liability because it had indemnified a responsible party and, therefore, had an improper “affiliation” with that party.   

Larry Schnapf’s always illuminating blog, Business Environmental Law and Transactional Support, has a full discussion of the ruling and many of the other issues in the case here.

I served as a mediator for the parties to assist them in resolving the allocation issues and settle the case before litigation. I will not comment about the many issues in the case or the 4^th Circuit decision – except to point out that, given the “much ado about nothing” results, as Larry described the decision, the parties could have resolved the case without litigation. Instead, no party “won” much and all parties lost something.

Certainly the cost of litigation could have funded some if not all of the costs of a negotiated settlement. 

Abraham Lincoln and the Team of Rivals; Compassion, Wisdom and Peacemaking

While the Golden Globes may not have honored the genius of Stephen Spielberg’s direction of the movie Lincoln, I hope and believe the Oscar voters will.  As anyone who has a feel for history will, I think, agree, Lincoln is a uniquely moving portrait of Abraham Lincoln and the late part of the Civil War. 

Much of Spielberg’s movie is based on Team of Rivals: The Political Genius of Abraham Lincoln, the wonderfully researched and written book by Doris Kearns Goodwin.

For those who have not read it, Goodwin tells the story of “Lincoln’s political genius revealed through his extraordinary array of personal qualities that enabled him to form friendships with men who had previously opposed him, to repair injured feelings that, left unattended, might have escalated into permanent hostility; to assume responsibility for the failures of subordinates, to share credit with ease; and to learn from mistakes.” 

  

The movie makes the people and politics of the lame duck Congress in late 1864 and early 1865 understandable to viewers of today.  Before watching the movie I had doubts that the director and Daniel Day-Lewis, the actor who plays Lincoln, could make this iconic figure into a living, breathing human being. There is no doubt they succeeded.

The movie shows how Abraham Lincoln was different from other leaders, then and now. Goodwin writes that his “decency, morality, kindness, sensitivity, compassion, honesty and empathy” were “impressive political resources.” Lincoln may have said : “I destroy my enemies when I make them my friends.” We saw him doing that in this movie.

Abraham Lincoln was a lawyer – apparent in the movie – and that was a critically important part of his career; it helped shape who he was. He was famously quoted as advising attorneys to “Discourage litigation. Persuade your neighbors to compromise whenever you can.  As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough.”

Lincoln was a good man and a peacemaker both before and during the Civil War, and his wisdom, compassion and humanity were central to his greatness. 

Federal Agencies Told to Use ADR Techniques to Resolve Environmental Issues

Federal agencies have yet again been directed to use Alternative Dispute Resolution (ADR) techniques to resolve disputes.  This time the Acting Director of the Office of Management and Budget and the Chair of the Council on Environmental Quality have directed relevant departments and agencies to

“increase the appropriate and effective use of third-party assisted environmental collaboration as well as environmental conflict resolution to resolve problems and conflicts that arise in the context of environmental, public lands, or natural resources issues, including matters related to energy, transportation, and water and land management. See Memorandum on Environmental Conflict Resolution.

Of course this is not the first time the White House has encouraged the use of ADR techniques in the federal government. For example, in 1998 President Clinton ordered agencies and departments to take steps to promote greater use of ADR techniques to resolve disputes and to negotiate regulations See Memorandum for Heads of Executive Department and Agencies

The memo sets out the use of ADR techniques to address environmental matters and directs federal agencies to use neutral facilitation to settle conflicts in issues related to energy, transportation and water and land management issues.

The memo applies to all executive branch agencies with regard to each agency’s enabling legislation, the National Environmental Policy Act (NEPA) and other laws aimed at managing and conserving the environment, natural resources and public lands. The complete memo is here.

Information about other relevant federal environmental ADR resources can be found at the Department of Justice web site the Department of Interior Office of Collaborative Action and Dispute Resolution web site and the EPA Conflict Prevention and Resolution Center site.

The National Hockey League Negotiations: Will Mediation Make a Difference?

As the NHL lockout reaches its 10^th week, it is hard from the outside to see any progress. Both the All-Star game and the Winter Classic have been cancelled and the two sides seem just as far apart as they were three months ago.

But one recent development which should delight hockey fans and ADR professionals alike is that the owners and players have finally agreed to mediation. Both sides have agreed that ongoing negotiations will be conducted under the auspices of mediators from the Federal Mediation and Conciliation Service. 

Although this may not seem like a huge development it is a step in the right direction. The owners and players union have been negotiating for months to no avail. There is hope that with the assistance of the mediator they may begin to make some progress.

Some collective bargaining disputes are very contentious; both parties play “hardball” to get the best deal for their side. They often, as here, resort to lockouts or strikes. Both tactics are designed to put economic pressure on the other party. The problem is that such tactics force the parties into ‘win-lose’ scenarios in part because the high cost of applying economic pressure compels parties to justify the costs of the pressure to their own stakeholders by ‘winning.’

This results in both sides finding it difficult to properly assess the short- and longer-term costs associated with their hardball tactics. To justify the costs and defend their actions to their own stakeholders, the owners and players engage in positional bargaining rather than thinking creatively and seeking solutions. This may be one explanation of why mediation has a lower success rate in collective bargaining disputes than in other arenas; the recent NBA and NFL lockouts are prime examples.

But even if mediation is not successful in the NHL dispute, agreeing to mediation shows that both sides are interested in being seen by their stakeholders and the public as reasonable and willing to negotiate. It shows that the parties are aware of the costs and risks of alienating their own stakeholders. The desire to be seen as reasonable may allow space for the parties, with the assistance of a skilled mediator, to engage in a serious conversation about the issues separating them.

Both sides would be wise to keep the costs of a failure to achieve a settlement in the forefront as they enter into mediation. As the mediators most assuredly will point out many times and in different ways, the costs of not settling will be high, probably higher than the costs of a settlement and will unquestionably end in a “lose-lose” situation. 

Absent settlement, the consequences are likely to be union decertification; litigation; the loss of yet another hockey season; disaffected arena owners and local businesses, subjection to the mercy of judges and, possibly, the permanent loss of hockey’s fan base, without whom, there is no sport.

This is a situation we’ll be following closely. Hopefully both sides will see the merit of mediation and can follow the precedents set by baseball  and other collective bargaining negotiations that have benefited from mediation.

Prepared with Assistance from Michael Ciccarone

Delaware Chancery Court Appeals Decision Striking Arbitration Program

I recently blogged about Delaware statute that allows Chancery Court judges to sit as private arbitrators having been found to be unconstitutional by U.S. District Court Judge Mary McLaughlin of the District of Delaware.

As the DealBook blog in the New York Times wrote, the statute was designed to “permit the Delaware Chancery Court to arbitrate private disputes confidentially without public access.” Which seems to me to be the problem with the program.

As expected, the case has been appealed to the 3^rd Circuit. The lack of transparency in this arbitration program is a significant obstacle for the appellant to overcome.  What do you think are the odds of the District Court’s decision being overturned?

To read an article that disagrees with the District Court decision and supports the private arbitration program, click here. 

Why Lawyers Have Bad Reputations

From the New York Post: Dad sues own kid in matter of ‘trust’ .

Why is it that some lawyers seem to think the courts are designed to solve every problem? Do they think suing someone – even their own children – will intimidate? Dominate? Scare? Resolve the problem?

Whatever, here is yet another story about an attorney with more bluster than brains.

As the Post put it, “This’ll make for an awkward Thanksgiving. A high-powered Manhattan lawyer has filed a $3 million libel suit — against his daughter.” 

 The daughter had the temerity to ask for an accounting of her trust fund, managed by the father. 

The merits of this case do not really matter.  Just think about this family Thanksgiving  and be grateful about your own.

According to the Post, the attorney, “who once sued a restaurant for $7 million in a dispute over a $354 tip, said he might be willing to relent” and that the family matter will be resolved. But then why did he file suit in the first place?

California Confidentiality Statute Allows Clients to be Defrauded if Done During Mediation

Does this heading get your attention?  Because it is true, even if the statute allowing this was not designed to produce this outcome.

The strict California mediation confidentiality statute allows this outcome, according to the California Court of Appeals, the second such decision upholding the absolute ban on disclosure of any information if it originated in mediation. 

In two cases with egregious facts the California courts have held that the mediation confidentiality statute means what it states – that no evidence of any statement, act or writing prepared for a mediation is admissible in any subsequent court proceeding. Period. End of story.

I’ve blogged about this before, reporting on a decision by the California Supreme Court in Cassel v.Superior Court,  in which the Court held that private communications between an attorney and client that take place during mediation are confidential – even when the client waives the attorney-client privilege and requests disclosure.

The most recent case is Hadley et al. v. The Cochran Firm Cal. Court of Appeal, 2nd Appellate Dist., 8th Div., 2012  in which the California Court of Appeals held that the statute applied even when an attorney stapled an executed signature page from a confidentiality agreement to a supposed settlement agreement to which the clients had not agreed, thereby settling the case and dismissing their claims without the clients’ authority or knowledge.  Wow, talk about alleged malpractice and fraud.

The trial court dismissed the claims in response to a motion in limine to exclude the evidence of the alleged fraud and malpractice because this all happened during a mediation. The court was apparently following precedent from the Cassel decision by the California Supreme Court and a reading of the plain language of the statute.  The appellate court upheld the decision, holding that the mediation confidentiality statute compelled such a result.

This is no way to encourage mediation or engender client confidence in the mediation process.  These decisions clearly show the dangers of unintended consequences. When the mediation community drafted and supported a statute with an absolute bar, and opposed the Uniform Mediation Act, which takes a far more nuanced approach, I am certain there was no thought given to results such as this.

Use and Benefits of Alternative Dispute Resolution

A Statistical Summary Prepared by the Department of Justice

If anyone needs statistical evidence that ADR saves money and reduces litigation, here it is. Last year the government saved over $12 million in litigation and discovery expenses, over 14,600 days of attorney time, and avoided over 1,200 months of litigation by the use of alternative dispute resolution (ADR) techniques, according to the U.S. Department of Justice. These savings were achieved primarily through the use of mediation at a cost of under $2 million. Six dollars saved for every one dollar spent is pretty good cost/benefit ratio, if you ask me.

This data is being reported by the U.S. Department of Justice Office of Dispute Resolution (ODR). The ODR was set up to develop Justice Department policy regarding the use of ADR.

These are just the government’s cost savings and, according to the ODR, are “based on detailed case reports submitted by the lead trial counsel in all cases in which a private neutral conducted an ADR process in Department litigation across the country.”

Also note that in 2011 nearly 75% of the voluntary ADR proceedings (cases in which the government and other parties agreed to ADR without being ordered by a court) were “resolved” (i.e., settled). About 50% of cases ordered into ADR, by contrast, were resolved – still a significant percentage but perhaps an indication of why voluntary ADR works so well.

This chart is pretty strong evidence of the cost-saving benefits of ADR.

Category	TOTALS
	2011	2010	2009	2008	2007
Success Rates for ADR
Voluntary ADR Proceedings	73% Resolved	80% Resolved	78% Resolved	79% Resolved	69% Resolved
Court-Ordered Proceedings	53% Resolved	46% Resolved	42% Resolved	51% Resolved	50% Resolved
Cases in Which ADR Achieved Benefits	86%	73%	83%	No Data	No Data
Quantified Benefits of ADR
Litigation or Discovery Expenses Saved	$12,185,750	$11,662,500	$5,940,287	$3,387,750	$3,001,000
Days of Attorney/Staff Time Saved	14,656 Days	12,260 Days	5,829 Days	23,010 Days	2,797 Days
Months of Litigation Avoided	1,231 Months	930 Months	849 Months	661 Months	429 Months
DOJ Support ADR
Expenditures for Mediation Services	$1,931,900	$1,547,874	$1,141,103	$1,362,320	$1,049,891
Number of Case Authorized for ADR Funding	470	718	528	522	505

Source: U.S. Department of Justice, Office of Dispute Resolution

AT&T MOBILITY LLC v. CONCEPCION

Arbitration, Legal Fees and Class Actions

I don’t generally blog about arbitration cases and law; while arbitration is certainly an Alternative Dispute Resolution technique – one of the earlier and most successful forms of ADR in the US -- there is a lot of commentary about arbitration and I haven’t had much to add.

That changed with the recent decision by the Supreme Court in the AT&T Mobility v. Concepcion case (563 U. S. ____, April 27, 2011.

The Supreme Court, in a 5 to 4 decision by Justice Scalia, struck down as a violation of the Federal Arbitration Act (FAA) a California statute that, as interpreted by the California Supreme Court (the Discover Bank rule), prohibits consumer arbitration contracts that condition the enforceability of those contracts on the availability of class action arbitration procedures if those contracts are:

[1] found in a consumer contract of adhesion[1];

[2] in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and

[3] when it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.

(See Discover Bank v. Superior Court, 30 Cal Rptr.3d 76 (2005))

I won’t go into all of the details of the case. The arbitration agreement under consideration provided that AT&T would arbitrate and pay the costs of the arbitration for any non-frivolous claim brought pursuant to the “agreement.” I put the word agreement in quotes because in this case it was really not an agreement between the parties, but a contract of adhesion. If consumers wished to do business with AT&T, they had to sign a contract that included the arbitration clause.

The dissent by Justice Breyer notes that, according to the FAA, an arbitration agreement “shall be 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 (emphasis added), and that the Discover Bank rule in California establishes circumstances in which “class action waivers” in any contract are unenforceable. In the view of the dissenters, “…the Court is wrong to hold that the Federal Act pre-empts the rule of state law.” Id.

My problem with this case is that the dissent has the better arguments on the legal reasoning of the case while the majority has the better arguments on the economic merits of the case.

While the individual consumer claims are small, the AT&T dispute arbitration clause virtually guaranteed the claimants 100% of their claim, even on “iffy” claims. As Phil Loree points out in his analysis of the case in a post on the LinkedIn Commercial and Industry Arbitration and Mediation Group:

…class action arbitration/litigation virtually guarantees that the claimant will get but a few cents on the dollar on even reasonably good claims. As you know, most class action settlements are paid out to the lawyer for the class, and companies have a very large economic incentive to settle even "iffy" claims. Class counsel therefore have a very significant corresponding economic incentive to assert and litigate "iffy" claims. Some will argue that this economic advantage works a public good in that it provides a very powerful disincentive for companies to do anything that might be construed as a violation of consumer protection laws. The reality is that, no matter how hard companies may try, the risk they will nevertheless have to pay large settlements in "iffy" class actions outweighs -- and probably dilutes the value of -- the deterrence benefit. Class proceedings results increase the costs of doing business, which ultimately raises the costs of goods and services.

As Loree notes, these types of class action lawsuits are “really a transfer of wealth from consumers to large companies, who, in turn, transfer the bulk of it to another powerful (and understandably) wealthy group of individuals and firms: class action plaintiff's counsel. And…to another group of relatively wealthy and powerful individuals and firms: class action defense counsel. There, again, the transfer is from consumers to corporations to lawyers.”:

Any system that benefits both companies and consumers by reducing the transaction costs -- the fees paid to both plaintiff and defense lawyers -- makes a lot of sense.

Assuming Loree is correct, as I do, should not the majority have pointed out the economic facts of class-action arbitration and called on Congress to change the law?

Why did a conservative majority so willingly strike down a state statute even if the Court was right about the economic effect of the law?

Perhaps this is an example of the Court majority ignoring judicial restraint in order to achieve the desired result?

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[1] i.e., a contract that that is overtly biased in one party’s favor to the disadvantage of the other party, suggesting that the terms were not freely bargained at arms’ length. A good example is the contract at the heart of Discover case, in that it is basically a “take it or leave it” proposition.