Can an Arbitrator Conduct Independent Legal Research? If Not, Why Not?, 81 New York State Bar Association Journal (May 2013)
Abstract: Do arbitrators have authority to undertake independent legal research without authorization by the parties? Or, are they prohibited from doing so, as many arbitrators believe? These are vexing questions. For answers, this article looks for guidance in the Federal Arbitration Act (FAA), state arbitration statutes, case law, and the rules of several arbitration institutions, as well as the Code of Ethics for Arbitrators in Commercial Disputes. The takeaway is that if an arbitrator wants an award that will withstand an attack based on “evident partiality,” “misconduct” or the “exceeding of powers,” there are good reasons to refrain from unauthorized legal research. This may seem counter intuitive. Arbitration is a creature of contract and the implications that flow from that conclusion heavily impact the answers to the questions being proposed.
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Abstract: In 2009 the National Arbitration Forum withdrew from the field of consumer arbitration. An investigation by the Minnesota State Attorney General uncovered a surprising fact. The Forum, a major provider of arbitration services tailored to accommodate lawyers seeking awards against dead beat credit card users, was shown to be owned by the very attorneys who were seeking the awards. In other words, the Attorney General had uncovered a serious conflict of interest drawing into question the validity of literally hundreds of thousands of arbitrator awards entered in court houses around the United States. As a result, tens of thousands of matters were immediately removed from arbitration and redirected to court houses around the country. This wave of matters placed great strains on an already over taxed judicial system. And it gave new and urgent emphasis on the efforts of consumer rights groups to seek an amendment of the Federal Arbitration Act to bar mandatory arbitration in matters involving consumer contracts and employment agreements. This article looks at the details of what went on behind the scenes at National Arbitration Forum and offers a series of suggestions for attorney representing banks and credit card companies and employers about how to advise clients grappling with the confusion created by the controversy.
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When Discovery Seems Unavailable, It’s Probably Available, 80 New York State Bar Association Journal 44 (October 2008)
Abstract: Many attorneys are surprised to learn that discovery is available in arbitration. The guideline is that the amount of discovery must be reasonable within the context of a given case. This article looks at the discovery rules of the four (4) major providers of commercial arbitration and concludes that even if an arbitrator proves uncooperative and is unwilling to order discovery, a series of tools are available that can serve in the place and stead of transitional discovery.
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Arbitration Awards: Understanding the Limitation of Vacatur and the Possibilities for an Appeal, 33 Westchester Bar Journal 68 (2007)
Abstract: Few realize that an arbitrator’s award is not always final. By right, whether applying the Federal Arbitration Act or individual state law, awards can be reviewed by courts to insure that the arbitrator’s actions were free of misconduct and within his or her authority. But a second avenue may exist, one that is rarely considered, some form of an appeal either to a court or to another arbitrator. No matter which type of appeal is deemed appropriate, it can only come about by agreement between the parties. There is no statutory right to an appeal. Each of these three routes have risks. In this article discusses these risks and benefits within the context of the Federal Arbitration Act, the laws of New York and the rules of the major providers of arbitration services such as the American Arbitration Association, JAMS, CPR and National Arbitration Forum. The general principles discussed have application to the arbitration laws of all the states.
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Determining if Mandatory Arbitration is “Fair”: Asymmetrically Held Information and the Role of Mandatory Arbitration in Modulating Uninsurable Contract Risks
Abstract: In this article Marrow posits that mandatory arbitration serves to neutralize a class of business risks rarely considered by those who want to eliminate it.
Business entities enter into business relationships based on the best available current information they have about those with whom they do business. Unfortunately, that information can degrade over time due to undisclosed evolving circumstances thereby leaving the business entity at a distinct disadvantage. In other words, asymmetrically-held information can create “new” risks, risks that weren’t anticipated when the original relationship came into being.
These “new” risks are particularly pronounced in situations involving consumer credit, employment and franchises. And for the most part they are uninsurable. For those providing credit the risk involves the deterioration of credit worthiness; for an employer it involves morale and business interruption; and for the franchiser it involves the reputation of the franchise.
Once discovered, survival requires a business entity to search for any and all measures to defuse the “new” risk and restore the equilibrium. Mandatory arbitration is one such measure because by design it is flexible, cost efficient and speedy. Mandatory arbitration makes it possible for the business entity to quickly secure an award with relief appropriate to the circumstances. It not only levels the playing field but it acts as a partial substitute for insurance because it transfers the impact of the “new” risk away from the business entity.
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The “Circle of Assent” Doctrine and the Mandatory Pre-Dispute Arbitration Clause: When the Unconscionable Contract Analysis Just Won’t Do, 68 Dispute Resolution Journal 1 (2014)
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Policing Unfair Arbitration Clauses: Two Theories Worth Considering, co-author Craig E. Penn, New York Law Journal, October 6, 2014
Abstract: Until recently it was almost universally assumed that the Federal Arbitration Act (FAA) allowed courts to refuse enforcement of an arbitration clause found to be unconscionable as a matter of law. A.T.& T. Mobility v. Concepcion, 131 S. Ct. 1740 (2011) suggests that given the subjective nature of the doctrine of unconscionability, courts may no longer be able to use it to police arbitration clauses. Assuming this to be the case, we argue that there are two “reasonable expectations” doctrines available as alternatives. These are “The Circle of Assent” recognized only by the courts in Tennessee and the “Darner Motor” doctrine recognized by the courts in Arizona. These doctrines, applicable to any term that is non-negotiable, shift the burden of establishing unfairness from the party upon whom an arbitration clause is imposed to the draftsman who must establish that the other party would reasonably expect to find the term said to be unfair. In addition, because these doctrines do not involve unconscionability, they are not subject to Section 2-301(1) Uniform Commercial Code which allows for judicial modification to avoid an unconscionable result.
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A Practical Approach to Affording Review of Commercial Arbitration Awards: Using and Appellate Arbitrator, AMERICAN ARBITRATION ASSOCIATION HANDBOOK ON COMMERCIAL ARBITRATION, 2nd Edition, p. 485, 20
Abstract: Arbitration awards are supposed to be final. But that finality is sometimes more of a curse than a benefit because it drives parties away from the arbitration process. In this article I discuss ways to address this concern within the arbitration clause itself. I argue that under the commercial rules of the American Arbitration Association it is possible to craft a clause that permits an appeal on issues of law to a panel composed of arbitrators and I offer a series of practical suggestions. I also discuss the idea within the rules of CPR and JAMS. The article also includes a discussion of the impact of the recent U.S. Supreme Court decision in Hall v. Matell, 552 U.S. 576 (2008) on the ability of parties to an arbitration clause to include provisions for review by an appellate arbitrator.
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Abstract: The rules of many arbitration administrators (for example JAMS and FINRA) permit arbitral sanctioning by excluding evidence. There is a tension between these rules and Section 10(a)(3) of the Federal Arbitration Act. The Act provides for vacatur where “the arbitrators were guilty of misconduct in … refusing to hear evidence pertinent and material to the controversy…” Courts have drawn a line that arbitrators must respect. If excluding evidence prejudices the party against whom the sanction is imposed, the arbitrator is “guilty of misconduct” and any resulting award is likely to be vacated. The tension creates a dilemma for an arbitrator confronted with a disruptive behavior. Two recent decision by the same federal judge in the Southern District for New York suggest that prejudice trumps the desire of an arbitrator to rein in misbehavior. This article examines the two cases in depth and suggests that while well intended, the rulings unfortunately fail to consider the prejudice that misbehavior has on the other parties involved in the arbitral process. These two cases involved spoliation. The destruction of evidence can cause the inability of a party to prove a case, a result that is unquestionably absolute and prejudicial. The article suggests room for a rule allowing an arbitrator (and eventually a court) to weigh the respective rights of all parties when considering the impact of disruptive misbehavior of any kind. The judge’s rulings in both cases missed an opportunity to fashion such a rule.
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