Business Conflict Blog
Mediator Mallory Stevens sends the provocative summary of a recent meeting of the World Mediation Organization, via Maria Volpe’s ListServe (reproduced with Ms. Stevens’ permission):
In early July, I was fortunate enough to attend the World Mediation Organization’s inaugural World Mediation Summit and thought some of my fellow listserv members might be interested in having a flavor of the event. The conference was held July 1 – 4, 2014, in Madrid at the Escuela Técnica Superior de Ingenieros Industriales (Industrial Engineering School) of the Universidad Politécnica de Madrid. The next scheduled, and newly renamed, “WMO Symposia” are to take place later this year in Hong Kong, Dallas and Manila, with a June 2015 WMO Symposium to be held in Berlin.
The dream of Daniel Erdmann, Ph.D., of Berlin, director general and founder of the World Mediation Organization (WMO) and professor and director of the School of Mediation at Euclid University, the concept of these symposia was designed to gather ADR professionals from around the world to connect, share their expertise and discuss topics related to conflicts of cross-border and international interest. The initial conference drew more than 100 mediators, attorneys, barristers, judges, scholars and diplomats from 18 different countries, representing Europe, North America, South America, Asia, Australia, the Middle East and the Caribbean. The four days were replete with informative presentations, panel discussions and training sessions – as well as plenty of enlightening and invigorating networking.
It appears that only relatively recently has mediation begun to be understood as “important and necessary” in Europe and other areas. Supportive legislation has even been enacted within the last few years. Here are but a few succinct, country-related highlights from some of the presentations.
• Romania: Pursuant to a 2006 law, mediation began to be organized as a profession. A 2008 European Union mediation directive has helped regulate services, quality of training, equal treatment, etc.; nonetheless, in the words of the representative from the Romanian Mediation Council, the only mediation regulatory agency in that country, “Romania is still fighting for mediation.” According to the representative, the country has 9,000 mediators, only a third of which are actually working. They’re still in the process of promoting mediation everywhere, especially in mass media. The government is said to be uninterested in mediation, though the courts are more receptive. Currently, it’s not considered constitutional to require mediation.
• Spain: Here too, the courts are beginning to appreciate the importance of mediation. A July 2012 regulation “made mediation a reality” for civil and commercial disputes. Our conference host, the Escuela Técnica Superior de Ingenieros Industriales, has formed an organization of mediation-trained engineers (Institución de Mediación de Ingenieros); thus far, 350 have been trained, all with at least 150 hours of training. Elsewhere, since 2006, there have been localized, restorative mediation activities for criminal cases. Valencia, a city of more than 815,000 inhabitants, has instituted a successful police mediation program; it’s been catapulted into a “Proyecto Europeo” (European Project), so as to share the model with other European countries, and has been working well in Italy and Greece, though not as well in Bulgaria.
• Greece: Although mediation has been practiced in Crete since the 13th century, Minoan era, efforts to institute mediation in Greece commenced only in 2007; 350 mediators have now been trained.
• Eastern Caribbean (9 states): As long as a lawsuit is filed, case management or a high court judge will refer cases to mediation; it’s not compulsory, but if the court refers you, compliance is obligatory.
• Italy: There was no real mediation until 2009, when it became compulsory, and in 2010 the Italian Ministry of Justice adopted an executive regulation that called for easy access for all professionals; it involved a “low-intensity,” 50-hour training course and minimal requirements for mediator trainers. A “chaotic” situation ensued, with lawyers divided: While some have seen this as a new professional opportunity, the majority has considered mediation as a “calamity” for their own businesses; they immediately boycotted it, even going on strike. Many other professionals expressed interest in mediation, seeing it as a way to supplement their earnings. Judges were initially confused and suspicious: “Only judges make justice. Mediators do something completely different that is not giving justice to people.” In time, they changed their minds. An October 2012 law overturned a July 2012 law that had mandated mediation, due to the government’s lack of power to impose it. Ultimately, in May 2013, the UE Commission gave its support to mediation and in August of that year enacted a new law that simply required parties to be informed about mediation prior to their initiating a claim. There is said to be poor quality of training, and increased demands from mediation with few resulting mediations.
Some other interesting presentations and workshops included (presenters’ countries indicated parenthetically):
• Mediating complex large group conflicts (Canada): Highlighted was a very challenging, client-services group conflict that involved forty employees, four managers and twenty-nine different ethnicities
• Cross-border divorce mediation and the “two-day attorney-assisted model” (USA): 98% of cases are resolved within two days
• Online dispute resolution (ODR) for mediation (India and UK): Challenges and benefits; new software and processes (ODR was frequently highlighted during the conference)
• Challenges experienced in restructuring complex programs with local governments in war zone environments (Afghanistan)
• Indigenous communities in India (Amnesty International) and other areas (Philippines and Myanmar): Circumstances, conflicts, protections
• Strategies for providing the non-violent resolution of international conflicts (Mediators without Borders): Capacity-building projects that build local organizational and peace-building skills, advocacy projects that promote the appropriate use of mediation worldwide, facilitating dialogue
• Applying psychology to conflict resolution (UK)
• The process and theory of mediation (Spain and Italy)
• Mediating complex cases for international corporations and nations (USA): Fortune 500 companies could take 4 – 9 months
• Missing children of Europe – Family mediation involving transporting children beyond borders (Belgium): Of 700+ cases studied, 47% solved through amicable solutions; must be co-mediated
• Israeli-Palestinian conflict (Egypt and Palestinian Territories)
• Brains matter: The art and science of using the mind in conflict resolution — Neuroplasticity (USA): Every time you learn something new, it changes your brain! (Admittedly, this session was one of my personal favorites!)
For more information about this valuable conference as well as upcoming WMO Symposia, you might wish to contact Dr. Erdmann directly at firstname.lastname@example.org or visit http://worldmediation.org/symposia/.
All the best,
Mallory J. Stevens
Mallory Stevens LLC
Conflict Resolution Services
The Ninth Circuit, and California courts in particular, have been very strict in maintaining the confidentiality and inadmissibility of statements made during mediation. Two recent cases have allowed such statements to be admitted, on interesting grounds. An Arizona District Court decision allowing mediation statements was affirmed by the Ninth Circuit on grounds of both federal law of evidence and theory of waiver. And a California District Court permitted evidence of mediation statements to be presented to a jury on notions not only of waiver, but of due process.
(Tip of the hat to Clinton Burke, Jacob Glasser and J.D. Hoyle, whose summaries of these and other cases appear in the Summer 2014 issue of Dispute Resolution Magazine.)
In Wilcox v. Arpaio (9th Cir. June 2, 2014), the District Court issued an order enforcing a settlement agreement of a Section 1985=3 case that had been reached during mediation. The parties relied on the memorialization of the agreement that was found in several emails between the mediator and counsel for the settling parties. One of the issues raised was whether, in examining the enforceability of a contract extinguishing both state and federal claims, state or federal privilege law should be applied by a federal court. That question was answered by the court’s finding that, where claims sound both in state and federal law, the court is not limited only to state rules of privilege.
More intriguingly, the court found that the protesting defendant had waived any challenge to the admissibility of the mediation communications by failing to contemporaneously object to their introduction at trial. Assuming that state law prevailed, it failed to argue that the evidence was inadmissible under federal law, and thus failed to preserve the issue.
In Milhouse v. Travelers Commercial Insurance Company (C.D. Cal. Nov. 5, 2013), the claimant sought payment pursuant to a policy of insurance when his residence burned for a total loss. Efforts to settle were unavailing and the insured brought suit not only for the loss but also for damages resulting from alleged bad faith, as well as attorney fees and punitive damages. The compensatory claim succeeded but the bad faith claim and punitive award failed. Both parties filed post-trial motions.
The insurer’s motion for JNOV was denied on the ground that substantial evidence supported the conclusion that it breached its contract of insurance. It granted the insurer’s motion for remittitur of damages or, in the alternative, a new trial on that question.
The claimants argued that they were prejudiced in their efforts to prove bad faith by the introduction of statements and positions taken during a mediation. The court found that, while the evidence supported Travelers’ breach of contract, it did not support Travelers’ having acted with undue delay or in bad faith. In particular, it was the claimant who delayed in responding to the insurer’s persistent efforts to settle the claim. And, most interesting to our concern, it was the claimant who demanded, in mediation, that it receive $7,000,000 on a policy limited to $519,400, and that their attorney — who had the file for about six weeks — be paid an additional $800,000 – $1,000,000. Again, two grounds were cited in denying the post-trial relief.
The first was waiver — that the claimants had failed to object to the introduction of the testimony both prior to the trial or during the trial itself. An objection first heard post-trial is untimely and ineffective.
But the court went a step further, saying that if objection had been made in a timely manner, it nevertheless would have been overruled. Throughout the trial, claimants’ counsel repeated the basis for the bad faith claim - that Travelers refused to enter into negotiations, refused to send someone with authority to discussions, refused to cooperate in good faith. In fact, the claimants’ demands during mediation were several millions over the policy limits; and at trial claimants’ counsel continued to seek such sums, saying not only that bad faith damages of $8,325,860 should be awarded, but that, in addition, “Travelers’ conduct was so reprehensible, punitive damages were required: ‘The very least you can award thus company for punitive damages… is $9,079,182.’”
Travelers’ efforts to settle the claim were thus the very issue in contest, and the court permitted evidence to be introduced to the jury supporting the conclusion that settlement was not reached, not due to Travelers’ acting fraudulently or in bad faith, but rather due to the claimants’ excessive demands. “To exclude this crucial evidence would have been to deny Travelers of its due process right to present a defense.”
The Unified Court System of the State of New York is considering a modification to its Rules that would require attorneys to include in their letters of engagement reference to the ADR options and resources available at the courts’ web site.
The proposal (available here) is subject to public comment until September 8 at email@example.com. The suggestion may be a unique one.
I know that Colorado has an ethical requirement that its attorneys advise clients of alternatives to litigation, and of course many states have court-annexed programs either encouraging or requiring mediation of litigated cases. But I am unaware of a Court Rule requiring attorneys to give notice of the availability of ADR in the course of their being engaged.
From Liz Kramer’s Arbitration Nation (via Paul Lurie) comes notice of a delightful ruling from the Texas Supreme Court vacating an arbitration award because the panel was insufficiently prejudiced.
In Americo Life, Inc. v. Myer, the Texas Supreme Court was confronted with an arbitration agreement providing that disputes were to be brought before a three-person panel, with each party naming a panelist and the third selected by the first two. It also provided that (with modifications irrelevant to this case) the panel was to conduct the proceeding using AAA Rules.
At the time the agreement was entered into, AAA Rules did not require that party-appointed arbitrators be neutral. By the time the dispute arose they did. Americo’s first choice of arbitrator was objected to as partial, and so was its second choice. The AAA struck the appointed panelist in each case. Myer didn’t challenge Americo’s third choice and the case went forward. But when Myer tried to confirm the final award, Americo successfully argued that the AAA’s striking its choice of panelist was in derogation of the parties’ arbitration agreement. The trial court vacated the award, the appellate court reversed the trial court, the Supreme Court reversed the appellate court and remanded, the trial court again vacated, the appellate court again reversed, and the Supreme Court again reversed and confirmed the vacating of the award — almost 10 years after the arbitration had begun.
The Supreme Court observed that an arbitration panel derives its authority from the agreement of the parties, and by obverse deduction an arbitration panel that was selected by a method in derogation of the agreement lacks jurisdiction. The practice of party-appointed arbitrators’ advocating with a neutral chair was “commonplace” when the parties agreed to this process, held the court.
(Indeed, I remember that when I joined CPR in 1998, one of the distinctions in its Arbitration Rules was a requirement that all arbitrators be neutral. It even had a provision by which a party could appoint an arbitrator without the arbitrator knowing which party appointed her.)
And, held the court, where the arbitration agreement indicates a term at variance with the AAA Rules, then the terms of the agreement must prevail. In light of the contemporaneous provisions of the Rules — allowing party-appointed arbitrators to be advocates — and the absence of any requirement of neutrality in the agreement, the refusal to allow Americo to appoint an arbitrator of its choice robbed it of the benefit of its agreement, and robbed the panel of its jurisdiction.
Prof. Stacie Strong of the University of Missouri sends this notice:
As some of you may know, the United Nations Commission on International Trade Law (UNCITRAL) has been holding its forty-seventh session in New York these last two weeks. During the meeting, the U.S. Department of State presented a proposal (click here) suggesting that UNCITRAL Working Group II begin work on a convention on the enforcement of settlement agreements that arise out of conciliation/mediation and that involve international commercial disputes. The Commission decided to have the Working Group consider the proposal at its spring 2015 session and report back to the forty-eighth session of the Commission regarding the feasibility of the project and what form any instrument should take.
The U.S. Department of State will be holding a public meeting of the Advisory Committee on Private International Law (ACPIL) on July 31, 2014, to discuss this project. Interested parties may attend in person or by conference call. More details about the ACPIL meeting, including details on how to RSVP, can be found in the Federal Register notice (click here).
The State Department is keen to hear from various stakeholders, so I encourage you to join into the conversation.
Deborah Masucci, Chair of IMI, has also reported on these proceedings and encouraged the ADR community to monitor them or engage itself.
Andrew Olejnik of Jenner & Block and Olivier André of the CPR Institute have co-authored an article that appears in Bankruptcy Law Reporter on the growing use of ADR tools in bankruptcy. Dating the trend from a 2009 conference convened by the American Bankruptcy Institute Law Review, the authors conclude that “many large, complex cases increasingly have turned to ADR tools as a means to resolve disputes.” The full article appears here.
In some cases the ADR phase is statutorily required. For example, the city of Stockton, California underwent a state-required “neutral evaluation process” before being eligible to file for bankruptcy in 2012. Some were quasi-contractual. It is understood that “the bankruptcy court generally does not have discretion to deny enforcement of a valid prepetition arbitration provision.” And some are aimed at judicial economy. Lehman Brothers requested and obtained ADR procedures to streamline the process of capturing the value of certain “in the money” derivatives contracts. And the court ordered mediation of certain tax disputes in the Ambac Financial Group Chapter 11 proceeding.
Along with precatory mediation plans in many federal bankruptcy courts, and the new presumptive mediation plan in the District of New Jersey, we can expect, as the authors observe, increased ADR activity in this field, which so centrally relies upon negotiated outcomes.
Straus Institute Academic Director Thomas Stipanowich reports:
The Straus Institute recently conducted two major surveys of dispute resolution professionals: a survey of experienced arbitrators with the cooperation of the College of Commercial Arbitrators, and a survey of experienced mediators with the cooperation of the International Academy of Mediators. These studies produced a wide array of new information on arbitrator and mediator practices and perspectives that we hope will contribute to debate and discussion on many current professional issues. We are presently writing these up.
The first fruit of these studies is the just-completed article Commercial Arbitration and Settlement: Empirical Insights into the Roles Arbitrators Play, which leads off the new Penn State Yearbook on Arbitration and Mediation. The role of arbitrators in setting the stage for settlement has received relatively little attention despite the fact that, as our survey shows, the rate of pre-award and pre-hearing settlement is increasing. Moreover, different arbitrators are experiencing very different rates of settlement and have different attitudes toward their roles in settlement. However, the survey shows that many arbitrators are engaged in activities that have an impact on settlement.
The survey may be download here.
The Court of Appeals for the Federal Circuit has held that “mediators have disclosure obligations which are similar to the recusal requirements imposed on judges.” This is so despite the acknowledgement that mediators have no authority whatsoever over the parties they are assisting, and despite the fact that a bad mediator can cause very little harm.
The dispute giving rise to this peculiar result is Ceats, Inc., v. Continental Airlines Inc., a patent dispute brought before the District Court for the Eastern District of Texas and appealed to the Federal Circuit. The claimant sought review of a denial of its motion pursuant to F.R.C.P. 60(b) for relief from a judgment that its patents were invalid. The basis for that motion had been that the court-appointed mediator had failed to disclose his close business and professional relationship with counsel for the defendants. This nondisclosure was also the basis for a state court’s vacating an arbitration award issued by the same neutral (in an unrelated proceeding) in which he had failed to disclose that same relationship.
The Court of Appeals “recognize[d] that mediators perform different functions than judges and arbitrators,” but also noted that “mediators still serve a vital role in our litigation process.”
Because parties arguably have a more intimate relationship with mediators than with judges, it is critical that potential mediators not project any reasonable hint of bias or partiality. Indeed, all mediation standards require the mediator to disclose any facts or circumstances that even reasonably create a presumption of bias.
Reviewing the ABA Model Standards, the court noted a similarity with the recusal requirements imposed on judges pursuant to 28 U.S.C. 455(a). It then reasoned that “parties must have absolute trust that their confidential disclosures [in mediation] will be preserved.” Partiality, reasoned the court, eroded that trust and mediators’ disclosure requirements were therefore similar to judges’ recusal requirements.
A good-old Texas mediator of my acquaintance, Jeff Abrams, always says that “the worst thing that can happen in a mediation is that you have a bad day.” The very prospect that mediators share any professional attribute to judges is difficult to entertain. Yes, of course mediators should disclose relationships before accepting an engagement. But different from judges, mediators are often sought out because they have relationships with the parties. Franchisees may seek a mediator who has worked with the franchisor. A Chinese friend once explained that an arbitrator who was the cousin of a party is often chosen by the adversary because he has guanxi with her. Certainly the intentional disclosure of confidential information is disreputable, but seems to have no logical connection with partiality.
What would happen if a partial mediator slipped into the process? Would she try to persuade the other side that it has no case? That there were no damages? That it is likely they will lose summary judgment? So what? A competent attorney in mediation makes her own assessments and agrees only to agreeable options. It really is quite difficult to imagine what harm even the most biased mediator could do. The same could hardly be said for a biased judge.
Disclosure requirements for mediators are found where they belong — in bar association “standards” and mediator provider organization “rules.” To enshrine them in the law seems to reflect an inaccurate understanding of how mediations really work, and why litigants settle.
Deborah Masucci, Chair of the International Mediation Institute, has sent around a forceful message asking the international mediation community to support initiatives to ensure that agreements reached during mediation have the status of enforceable contracts, in all jurisdictions around the world.
I write to ask that you lend your support to a proposal now pending within the UNCITRAL Commission for Working Group II (Arbitration and Conciliation) to initiate work on a multilateral convention on the enforceability of international commercial settlement agreements reached through mediation. IMI supports this effort and asks that you contact your country’s delegate to this Working Group to encourage them to support adding this task to its work. IMI believes this proposal makes eminent sense in the increasingly complex commercial world in which we operate.
She points out, quite correctly, that an agreement to resolve litigation may need to be enforced in a jurisdiction where a party who breached that agreement has assets. It is a situation with which international businesses (and international arbitrators) are familiar, and it should not require an expensive and antagonistic arbitration to get a piece of paper that someone can enforce.
The proposal will be presented by the United States and considered by the UNCITRAL Commission at its 47th Session in July in New York. I hope that we can count on your support to encourage your delegate’s agreement to add the proposal to the Working Group’s Agenda. I will be attending the Session on behalf of IMI and the Joint IBA-IMI Taskforce to support the proposal. The IMI Board and executive team are available to discuss the reasons we believe the proposed convention is ideally suited to the way business is conducted in today’s world.
The full text of the proposal is below. More information on the upcoming 47th Session of the UNCITRAL Commission is here. This looks like an issue worth pursuing, and we look forward to its progress as the work unfolds.Proposal by the United States: Future Work for Working Group II
As the draft Convention on Transparency in Treaty-Based Investor-State Arbitration will be considered by the UNCITRAL Commission at its 47th Session, Working Group II (Arbitration and Conciliation) has completed the transparency-related projects within its mandate. The Commission now needs to decide what future projects, if any, might merit the use of Working Group resources. The United States proposes that the Working Group address the enforceability of settlement agreements resulting from international commercial conciliation.
Background: The U.N. General Assembly has recognized that the use of conciliation “results in significant benefits, such as reducing the instances where a dispute leads to the termination of a commercial relationship, facilitating the administration of international transactions by commercial parties and producing savings in the administration of justice by States.” Because promoting the use of conciliation may help achieve these benefits, UNCITRAL has previously developed two important instruments aimed at increasing its usage: the Conciliation Rules (1980) and the Model Law on International Commercial Conciliation (2002). (In this paper, as in the Model Law, the term “conciliation” is used to refer to “a process, whether referred to by the expression conciliation, mediation or an expression of similar import, whereby parties request a third person or perso ns (‘the conciliator’) to assist them in their attempt to reach an amicable settlement of their dispute arising out of or relating to a contractual or other legal relationship. The conciliator does not have the authority to impose upon the parties a solution to the dispute.”  Thus, this paper does not intend to differentiate conciliation from mediation.)
When UNCITRAL completed this earlier work, it was already recognized that “[c]onciliation is being increasingly used in dispute settlement practice in various parts of the world,” and that it is “becoming a dispute resolution option preferred and promoted by courts and government agencies,” in part because of its high success rate. Since then, conciliation’s acceptance and use have continued to grow. For example, in 2008, the European Union issued a directive on mediation, requiring that its member states implement a set of rules designed to encourage the use of mediation in cross-border disputes within the EU. Increased use of conciliation can be expected as parties continue to seek options that reduce costs and provide faster resolutions.
One obstacle to greater use of conciliation, however, is that settlement agreements reached through conciliation may be more difficult to enforce than arbitral awards, if a party that agrees to a settlement later fails to comply. In general, settlement agreements reached through conciliation are already enforceable as contracts between the parties. However, enforcement under contract law may be burdensome and time-consuming. Thus, if even a successful conciliation simply results in a second contract that is as difficult to enforce as the underlying contract that gave rise to the dispute, engaging in conciliation to address a contractual dispute may be less attractive. Moreover, unlike arbitration, which generally provides a definitive resolution to a dispute, conciliation does not guarantee that the parties will reach an agreement, and even a party that agrees to a resolution may later fail to comply. Thus, in deciding whether to invest their time and resources in the process of conciliation, parties may want greater certainty that, if they do reach a settlement, enforcement will be effective and not costly. “Many practitioners have put forward the view that the attractiveness of conciliation would be increased if a settlement reached during a conciliation would enjoy a regime of expedited enforcement or would, for the purposes of enforcement, be treated as or similarly to an arbitral award.” Thus, the Commission has supported “the general policy that easy and fast enforcement of settlement agreements should be promoted.” Bolstering enforceability across borders also helps promote finality in settlement of cross-border disputes, as it reduces the possibility of parties pursuing duplicative litigation in other jurisdictions. For these reasons, i nitial consultations with the private sector have indicated strong support for further efforts by UNCITRAL to facilitate the enforceability of conciliated settlement agreements.
Proposed Convention: To further these goals, the United States proposes that Working Group II develop a multilateral convention on the enforceability of international commercial settlement agreements reached through conciliation, with the goal of encouraging conciliation in the same way that the New York Convention facilitated the growth of arbitration. Just as the New York Convention has been successful in part due to its relative brevity and simplicity, an analogous convention on conciliation should also avoid unnecessary complexity.
With respect to the scope of a convention, the United States proposes that the Working Group address the following issues, among others:
- Providing that the convention applies to “international” settlement agreements, such as when the parties have their principal places of business in different states;
- Ensuring that the convention applies to settlement agreements resolving “commercial” disputes, not other types of disputes (such as employment law or family law matters);
- Excluding agreements involving consumers from the scope of the convention;
- Providing certainty regarding the form of covered settlement agreements, for example, agreements in writing, signed by the parties and the conciliator; and
- Providing flexibility for each party to the convention to declare to what extent the convention would apply to settlement agreements involving a government.
The convention could then provide that settlement agreements falling within its scope are binding and enforceable (similar to Article III of the New York Convention), subject to certain limited exceptions (similar to Article V of the New York Convention).
Such an approach would build on existing law. To encourage use of conciliation, many legislative frameworks and sets of rules make some conciliated settlement agreements easier to enforce by treating them in the same manner as arbitral awards. For example, the UNCITRAL Model Law on International Commercial Arbitration (adopted in many jurisdictions around the world) provides in Article 30 that if parties settle a dispute during arbitral proceedings, the tribunal can make an award on agreed terms, with the same status and effect as any other award on the merits of a case. The result relies on a legal fiction: although the parties resolve the dispute themselves, rather than waiting for a neutral third-party decision-maker to impose a resolution, the settlement is still categorized as an award. This fiction gives the parties the same benefits in terms of finality and ease of enforcement that a normal award would have provided.
Other jurisdictions have gone further by treating conciliated settlement agreements equivalently to arbitral awards even if arbitral proceedings have not yet commenced. These jurisdictions thus provide parties with an incentive to settle disputes at earlier stages. For example, UNCITRAL has noted that India and Bermuda provide for settlement agreements reached through conciliation to be treated as arbitral awards. A number of U.S. states, including California and Texas, have statutes on international commercial conciliation that provide for settlement agreements to have the same legal effect as arbitral awards. Various sets of arbitration rules around the world take a similar approach. The Korean Commercial Arbitration Board’s Domestic Arbitration Rules provide that, if conciliation succeeds in settling a dispute before arbitration commences, &ldqu o;the conciliator shall be deemed to be the arbitrator appointed under the agreement of the parties, and the result of the conciliation shall … have the same effect” as an award on agreed terms. The Mediation Rules of the Arbitration Institute of the Stockholm Chamber of Commerce similarly provide that the parties can appoint the mediator as an arbitrator for the purpose of confirming a settlement agreement as an arbitral award.
A convention for conciliation modeled on the New York Convention would draw upon the approach taken by these jurisdictions, but would address the enforceability of settlement agreements directly, rather than relying on the legal fiction of deeming them to be arbitral awards. This approach would also eliminate the need to initiate an arbitration process (with the attendant time and costs) simply to incorporate a settlement agreement into an award.
Any convention along these lines would, of course, need to include a limited set of exceptions similar, but not identical, to those provided in Article V of the New York Convention. For example, an analog to Article V(1)(d) (regarding the composition of the arbitral authority or the arbitral procedure) may not be necessary. By contrast, the Working Group could consider whether to allow a party to a settlement agreement to prevent enforcement if it can demonstrate that it was coerced into signing that settlement agreement.
The Working Group could also consider several possible structural limitations on enforcement under the convention:
- Whether to provide that other courts could give effect to an originating jurisdiction’s determination that a settlement agreement is not enforceable (similar to the New York Convention’s treatment of set-aside proceedings);
- How to avoid duplicative litigation caused by simultaneous attempts to enforce a settlement under the convention as well as under contract (or other) law; and
- How to ensure respect for restrictions on enforcement chosen by the parties to a settlement (e.g., settlements containing forum selection clauses or other limitations on remedies).
Moreover, settlement agreements can contain long-term obligations regarding the parties’ conduct years into the future, and might address such issues more commonly than arbitral awards would. The Working Group should consider whether limits on enforcement under the convention would be appropriate in such cases. For example, enforcement under the convention could be made available only for a limited period of time, after which other mechanisms—such as domestic contract law—might be more appropriate (e.g., to deal with issues such as changed circumstances). Other methods of limiting the convention’s application to non-monetary elements of settlements could also be considered.
During the development of the Model Law on International Commercial Conciliation, it was noted that drafting uniform legislation regarding enforcement would be difficult because the methods for achieving expedited enforcement of settlement agreements varied greatly between legal systems and depended on domestic procedural law. However, the Working Group could minimize these difficulties by addressing enforcement via a convention that, like the New York Convention, sets forth the result that states would need to provide through their domestic legal systems (in this case, enforcement of conciliated settlement agreements) without trying to harmonize the specific procedure for reaching that goal.
Similarly, efforts to develop a convention should not seek to develop harmonized rules for the conciliation process itself, just as the New York Convention does not set forth mandatory rules for conducting arbitral proceedings. However, the Working Group could consider whether additional topics, such as the confidential nature of conciliation discussions, could be addressed through further projects after completion of an initial convention.
Next Steps: In view of the potential benefits of such a convention, as well as the background work already done by the Secretariat in the context of the development of the Model Law, the United States urges the Commission to assign this project the highest priority within the Working Group, including at its next session in September 2014. While other efforts under consideration by the Working Group (such as updating the Notes on Organizing Arbitral Proceedings) should continue, they should not delay work on this project.
 A/CN.9/812 (2014).
 A/Res/57/18 (2003).
 Model Law on International Commercial Conciliation, art. 1.3.
 Guide to Enactment of the Model Law on International Commercial Conciliation (“Guide to Enactment”), para. 8.
 Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on Certain Aspects of Mediation in Civil and Commercial Matters, 2008 O.J. (L 136).
 Guide to Enactment, supra note 4, at para. 89.
 Id. para. 87.
 Id. para. 88.
 Id. para. 91 (citing Bermuda, Arbitration Ac t 1986; and India, Arbitration and Conciliation Ordinance, 1996, art. 73-74).
 E.g., Cal. Civ. Pro. § 1297.401; Tex. Civ. Prac. & Rem. Code Ann. § 172.211.
 Korean Commercial Arbitration Board, Domestic Arbitration Rules 18.3 (2011).
 Arbitration Institute of the Stockholm Chamber of Commerce, Mediation Rules 14 (2014).
 Guide to Enactment, supra note 4, at para. 88.
 Similarly, although this convention would provide for enforcement of settlement agreements, it would not address matters related to the attachment or execution of assets, just as the New York Convention did not do so.
In AT&T Mobility v. Concepcion, the Supreme Court held that a waiver of class action that was part of an arbitration clause in a consumer contract was enforceable despite state law to the contrary. Subsequently, in Oxford Health Plans v. Sutton, it upheld an arbitrator’s ruling that a class action could be sustained in a commercial arbitration agreement, because the arbitrator’s finding had drawn its essence from interpretation of the arbitration agreement itself. And in American Express v. Italian Colors Restaurants, the Court held that class action waivers in commercial arbitration agreements are enforceable even if collective action is the only practical method to enforce a claimant’s statutory rights.
In order to assess the consequences of these cases, and their impact on the way businesses might conduct themselves, we can look to examples of disputes involving the assertion of a class waiver outside the context of an arbitration agreement. What is the result of challenges to purported class waivers that are asserted in the course of litigation, not arbitration? Does arbitration promise effective class waiver that litigation does not? Put otherwise, would a business seeking to avoid class claims gain advantages in arbitration that are not available in ordinary litigation?
The answer appears to be “probably.” Companies might be well advised to enter into arbitration agreements for the sole purpose of avoiding class action. And in the current state of the law, companies anticipating consumer, employee, and perhaps even business complaints can accomplish a protection from class actions unilaterally, without negotiation or agreement, by promulgating a “policy” pursuant to which individuals who engage with them have, by virtue of that engagement alone, entered into an arbitration “agreement” and waived the exercise of F.R.C.P. 23.
Some cases are discussed in Thomas Stipanowich, “The Third Arbitration Trilogy,” 22 Am. Rev. of Int’l Arbit. at 381 (2011). Those and others include:
- In Grant v. Convergys Corp (E.D. Mo. 2013), Plaintiff employee asserted claims of violation of the Fair Labor Standards Act, and also alleged that a class action waiver contained in the employment application was unenforceable because it violated her rights to collective action under Section 7 of the National Labor Relations Act. The court agreed that “collective and class litigation, engaged in by employees for the purpose of mutual aid and protection, is protected concerted activity under the NLRA.”
- In Copello v. Boehringer Ingelheim Pharmaceuticals Inc. (N.D. Ill. 2011), plaintiff’s class action claim was dismissed on grounds of waiver and estoppel because he had agreed, as part of the separation agreement with the former employer, to release the employer of all claims of any sort, and to opt-out of any class action asserting such claims.
- In Doe 1 v. AOL LLC (9th Cir. 2009) a contract for services containing choice of law, forum selection and class waiver provisions was found unenforceable as to California members of the class making claims under the federal Electronic Privacy Act, pursuant to California policy protecting consumers in adhesion contracts that contain class waiver, whose claims are foreseeably small, and who allege fraud.
- In In re Yahoo Litigation, 251 F.R.D. 459 (C.D. Cal. 2008), plaintiff advertisers alleged breach of an agreement that Yahoo would place their ads on “targeted” web pages. Defendant Yahoo moved to dismiss the class action, relying on the advertising agreement that provided “You agree to submit to the exclusive jurisdiction of the state and federal courts located in the County of Los Angeles, California or another location designated by Overture. Any claim against Overture arising from this Agreement shall be adjudicated on an individual basis, and shall not be consolidated in any proceeding with any claim or controversy of any other party.” The court allowed the class to continue, extending the California consumer doctrine to commercial settings where there may be evidence of unequal bargaining power.
The issue is clearly drawn by the Washington Supreme Court in Scott v. Cingular Wireless. There, in defeating a motion to dismiss class claims of violation of the state’s Consumer Protection Act (“CPA”), the court found no distinction between a class waiver in litigation and a class waiver in arbitration:
Congress simply requires us to put arbitration clauses on the same footing as other contracts, not make them the special favorites of the law. See 9 U.S.C. § 2. As we held above, contracts that effectively exculpate their drafter from liability under the CPA for broad categories of liability are not enforceable in Washington, even if they are embedded in an arbitration clause. The arbitration clause is irrelevant to the unconscionability. Class action waivers have very little to do with arbitration. Clauses that eliminate causes of action, eliminate categories of damages, or otherwise strip away a party’s right to vindicate a wrong do not change their character merely because they are found within a clause labeled “Arbitration.”
As Fricka says to Wotan in Act II of Die Walküre, “Nicht so.” However appealing the Washington Supreme Court’s rationale, it seems no longer to be the law. Class waivers in forum selection clauses anticipating litigation are subject to judicial scrutiny, while class waivers in arbitration agreements are not. And as the recent General Mills experience has taught us, you can consider the term “agreement” to be the operative equivalent of “unilateral policy.” Whether this distinction is “substantive” would appear to be conceded, inasmuch as the Supreme Court, in American Express, held it a matter of complete indifference that a class waiver effectively denied plaintiffs the ability to enforce their federal rights under the Sherman Act.
We teach, and learn, that arbitration is a mere change of forum, and that the same claims, rights, defenses and damages cognizable in court are cognizable in arbitration. Well, I don’t think we’re in Kansas anymore.
I had the recent privilege of interviewing Lord Harry Woolf of Barnes, former Master of the Rolls and Lord Chief Justice of England and Wales. We touched on the seminal Halsey Case, which levied costs against a party that had prevailed, but had unreasonably refused to mediate as urged by the counterparty, thereby burdening the courts and the parties in requiring litigation of a matter that might have been resolved earlier.
We discussed the onus upon judges to “put teeth into” orders or suggestions to mediate, but Lord Woolf (surprisingly) backed off a bit from Halsey. He cited the difficulty of distinguishing between parties who, pursuant to court order, mediate “in good faith or no faith,” and noted that a small but growing area of litigation was arising from the question. And so it is in the United States, as two recent court decisions illustrate.
In Grenion v. Farmers Insurance Exchange, (E.D.N.Y. March 14, 2014), plaintiff was awarded costs of its expenses in participating in a court-ordered settlement at which the defendant insurance company had allegedly acted in bad faith. The court had ordered each party to be represented at the settlement conference by a person “who has full authority to settle the matter. Having a client with authority by telephone is not an acceptable alternative.” The representative of Farmers stipulated that “the decision has been made that we don’t want to make an offer to settle,” and that he was “not in a position today to change the decision of the company that it will not pay any money on the case.” The court held that, while it is “axiomatic that a court may not try to coerce parties into settlement,” the troublesome issue was not whether the defendant made an offer to settle, but rather “whether defendant failed to participate in good faith in a mandatory settlement conference.”
The holding: “Where, as here, a corporation produces a representative who lacks authority to change the settlement position of the corporation, sanctions may be imposed” pursuant to Rule 37.
The second case of note is the outcome of an appeal from a previously posted case from the U.S. Bankruptcy Court for the Southern District of New York, In re A.T. Reynolds & Sons, Inc. There the lower court had sanctioned Wells Fargo for failing to comply with a mediation order. Wells Fargo and its counsel had taken a no-pay position and the mediator had reported to the court [sic] that they had failed to “go through risk analysis, [and] simply reiterate[d] the position they walked into the room with.”
Upon review, the District Court reversed. “Contrary to the Bankruptcy Court’s determination, Wells Fargo was within its rights to enter the mediation with the position that it would not make a settlement offer. It was also within its rights to predetermine that it was not liable and to insist on being dissuaded of the supremacy of its legal position” (internal quotes removed). It is not required that a party undergo risk analysis where “it determined that it was not liable and adhered to this position at the mediation; such conduct is entirely consistent with a rational analysis of risk.”
Lord Woolf was right to note that Halsey — and indeed all court-annexed ADR — is a “double-edged sword.” Courts require (or strongly encourage) mediation because, as the court in Grenion observed,
Most cases settle. The juncture at which voluntary resolution is reached has a significant impact upon the parties and the public; prolonged litigation processes impose significant litigation expense, disruption and, in some cases, distress on litigants and increase the cost to the public of managing congested dockets. In response, courts have created mechanisms — including streamlined discovery and court-supervised settlement discussions — designed to facilitate early settlement.
In purely voluntary mediation or settlement negotiation, no one seeks judicial relief for “bad faith negotiation,” yet in court-annexed mediation entire standards of law are being promulgated to apply consistent measures to the bevy of claims that are asserted. Litigating “bad faith negotiation” was a nonsense until the courts became involved in requiring parties (and counsel) to talk to each other.
How ironic that judicial efforts to reduce litigation have had the effect of promoting it!
(The interview with Lord Woolf is available as a podcast to members of the ABA Business Law Section.)