Andrea Tantaros, has sued Fox News for sexual harassment. I wrote about that suit here. Now, Fox News has asked that her case be sent to arbitration with the American Arbitration Association. In effect, it is asking that her case be sent to the secret, Star chamber of American society. But, in so doing, they first lodge some pretty strong attacks against her. In its motion to refer to arbitration, the news outlet accuses her of not recalling the specific instances of sexual harassment; it claims the men involved all denied her claims; it claims she did not allow Fox News to review the cover of her book before she published it; and it claims her lawsuit is littered with falsehoods. It is ironic that a major employer seeks the privacy of arbitration, but only after first lodging accusations which she can only defend in private. See Vanity Fair report about the allegations against her and the move to arbitration.

One of the unintended consequences of arbitration is what to do when arbitration is invoked? Employment arbitrations typically start with an employment lawsuit. The employee often forgets s/he had even signed an arbitration agreement. So, the employee files the lawsuit, not anticipating a claim for arbitration. Then, the employer pulls out the arbitration agreement from dusty files. The employer invokes arbitration. What happens to the lawsuit? Many employers insist the employee dismiss the lawsuit outright.

But, the Fifth Circuit in Fonseca v. USG Insurance Services, Inc., found that to be error. In Fonseca, the employee dismissed her lawsuit when arbitration was invoked. But, later the employer failed to pay the arbitral fees. AAA then dismissed the arbitration, because the employer failed to pay the required fees. All this takes months to evolve. Months later when AAA dismissed Ms. Fonseca’s arbitration claim, the statute of limitations had passed for the plaintiff. It was too late for her to then re-file her former lawsuit. On appeal, the plaintiff argued that the arbitration proceeding tolled the statute of limitations. That is, she argued that the time period was postponed while her claim languished with AAA.

No, said the Fifth Circuit. Prior caselaw states that a arbitrations do not toll the statute of limitations. Filing an arbitration claim does not stop the clock. She should have requested a stay of the original lawsuit, said the court. See court decision here. That is, the Fifth Court said she should have retained the lawsuit, not dismiss it, and simply ignore it while the arbitration claim proceeds. One wonders if USG deliberately failed to pay the arbitration fees hoping for this result.

The remarkable thing is that the employee is in arbitration only because the employer pulled some long-forgotten agreement from an old folder somewhere. Yet, when the employer fails to pay its fees, it suffers no repercussions. The central fallacy of arbitration is that it was never intended for typical consumers. It was intended for generally business savvy large corporations and labor unions. Employees and consumers are paying the price for this poorly designed private system of justice.

Arbitration in employment cases is still new. It is also private. So, researchers have not had access to arbitration decisions or awards. But, a statute passed in California requires the arbitrators to make public their decisions. One Cornell researcher obtained those public awards and found some remarkable trends. The largest provider of arbitration services is the American Arbitration Association. AAA is also the only provider that provides protocols designed to protect employees from the worst sort of arbitration abuses. The report includes some 3900  AAA arbitration awards or decisions over a four year time period. I previously wrote about this study here. But, I want to mention some additional details.

Alexander Colvin found a “repeat player” effect. That is, repeat participants, employers with more than one claim filed against them, receive better results. Repeat players would also include repeat law firms. The unique aspect of employment arbitration is that the employee will almost always have only one arbitration in his/her life. Whereas, the employer may have multiple arbitration matters. The fear is that some arbitrators will curry favor to some degree with the employer in the hopes of securing additional arbitral matters. Most arbitrators are lawyers who have financial incentive to do more, not less, arbitrations. The more arbitrations they do, the more they get paid. Mr. Colvin found that in the “one-shot” employer situation, the employee would win 31.6% of the time. While, in the repeat employer situation, the employee win rate drops to 16.9% of the time. Regarding damages, when the employee did win in a one-shot employer situation, the mean damage award was $40,546. But, in the repeat employer situation, the mean damage award was only $16,134. So, workers have a better chance with the one-time employer, but even then their success rate is lower than in a traditional court.

Out of the 3900 cases, repeat employers included 62% of filings. There might have been more, but the four year window necessarily would have excluded some prior filings.

Compare the above win rates to other forums. Overall, the employee “wins” 21.4% in AAA arbitrations. In California federal court, the employee wins 36.4% of the time. In California state court, the employee wins 59% of the time. Yet, in securities arbitration, which has a much longer history than general employment arbitration, securities industry employees win arbitral hearings some 40-50%. Mr. Colvin does not attempt to explain why employment arbitration employees fare much worse than security dealers. He invites future researchers to answer that question.

Looking at a slightly different problem, what happens when the repeat employer uses the same arbitrator? Does that even make a difference? Mr. Colvin found some 15.9% of the cases included what he describes as “repeat pairings” – that is, the same employer with the same arbitrator. When cases did not involve a repeat pairing, the employee win rate was 18.6%. But, when you had a repeat pairing, the same arbitrator with the same employer, then the employee win rate slid down to 12%. The average damage award for non-repeat pairings was $27,039. But, when the same employer was paired with the same arbitrator, the average damage award was $7,451. So, when the employer has actually worked with the same arbitrator in the past, and the employer is not simply another employer who has done arbitration in the past, the success rate of the employee drops to 12%.

What is a “win”? Mr. Colvin defines a win as any positive finding in favor of the employee, no matter how small the award might be. He seeks the broadest measure of arbitral success as possible. Mr. Colvin suggests in his article that arbitration claims would have lower value than traditional court litigation claims. He is surely correct about that. See the article, An Empirical Study of Employment Arbitration: Case Outcome and Processhere.

Mr. Colvin noted significant differences in AAA arbitrations from individual arbitration agreements. AAA arbitrations are different because AAA requires any employer promulgated arbitration agreement to follow certain procedures. Those procedures ensure the employee pays only a modest fee for the the service. But, AAA arbitration matters that develop out of individual employment agreements see better results for the employee. But, as the researcher notes, individuals with his/her own arbitration agreement typically are higher ranking, are paid more and have much greater resources that the employer promulgated arbitration agreements. According to the data, some 82% of arbitration claimants were paid less than $100,000. So, the AAA arbitration results studied by Mr. Colvin represent by far the more typical experience for American workers.

This study is a stark reminder that employment arbitration is designed for employer success, not employee. The employer who has multiple claims will always come out ahead in this system. Civil-rights receive less protection in the arbitration context.

The right to confront one’s accusers in trial is a fundamental principle of our judicial system. Or, is it? One lawyer learned that confronting one’s accusers is not so fundamental, after all.

Ernesto Martinez, Jr. was accused of double billing. That is, he was accused of billing two different sets of clients for the same 17.5 hours of work in one day. So, he was in effect boiling for 35 hours of work in one normal 24 hour day. At least according to Wikipedia, there are only 24 hours in an average day…..

Mr. Martinez was found guilty of unethical billing practices. The matter went to arbitration. The arbitrator, Phyllis Speedlin, ordered him to pay back $633,000 to his former clients. The clients had hired Mr. Martinez regarding some failed investments on the South side near the Toyota plant. Mr. Martinez was found guilty of taking hours from a junior lawyer and billing them at his higher rate per hour. He was found guilty of many violations of lawyer ethics. See San Antonio Express News report.

But, as Mr. Martinez’ lawyer, Jesse Castillo, pointed out, was the process fair? Arbitration allows for no appeals. So, there is no process by which the arbitral hearing can be tested or examined. That one hearing is all a person gets. Mr. Castillo faults the system because the arbitrator did not allow him to cross examine the clients who alleged these violations. Mr. Castillo says the former clients signed “copy cat” affidavits. Those affidavits were admitted into evidence, apparently instead of live testimony from the clients. “Copy cat” affidavits refers to affidavits that contain the same language. If they are all worded the same, that similarity suggests someone other than the witness drafted the statements. Those sorts of affidavits are questionable.

Some cases may not require testimony from the clients themselves. This case sounds like it relied more on an audit of Mr. Martinez’ invoices. That may have been the critical evidence. But, still, anytime witness statements are admitted instead of live witnesses, we have to question the process.

Or, as Jesse Castillo says, he and the lawyers he knows are removing arbitration provisions form their future client agreements. At least courts will follow the rules of civil procedure, he explained. That sounds like wise advice to me. Arbitration is a private remedy with no appeal and no oversight.

Arbitration is more and more with us, all of us. Every consumer signs some arbitration agreement sometime, somewhere. Arbitration is increasingly found in the work place. Many employers require their employers to sign agreements to submit any dispute to arbitration. SCA Promotions paid a $10 million dollar bonus to Lance Armstrong years ago for winning multiple Tours de France. Part of the agreement was a provision requiring any dispute to go to arbitration. In 2005, SCA refused to pay the bonus due to the early allegations of substance abuse. Mr. Armstrong had to file suit to get his payment.

Now, SCA has gone to arbitration to get a refund. In a recent ruling, three arbitrators, in a 2-1 vote, ordered that Lance re-pay the bonus. The one arbitrator voting against the decision was the one arbitrator chosen by Lance. See Huffington Post report.

Observers are saying this is the single largest arbitration award against a individual. Mr. Armstrong plans to fight the award. But, this is arbitration. There are no appeals. There is very little “fight” available to any participant. That is the whole point of arbitration.

The folks at Public Justice have written a bog post about the pernicious use of mandatory arbitration by American Apparel, a major U.S. clothing manufacturer. Based on an article in the New York Times, the post recounts the story of Dov Charney, long-time CEO of American Apparel. Mr. Charney was known for such witticisms as "Masturbation in front of women is underrated." He was profiled in Jane magazine in 2004. See article. Indeed, he masturbated in front of the reporter during the interview. How compelling. 

American Apparel required mandatory arbitration agreements for all employees and models. There were at least five claims of sexual harassment by American Apparel employees and one claim that he kept a "sex slave." These women sued in court trying to break the arbitration agreement. But, each time, the court upheld the agreement. No one knows how many claims in total were paid or brought in some secret arbitration proceeding. All this was kept from investors, customers, employees and the public for years. The dirty secret about arbitration is that it is not open court. Whatever happens in arbitration stays in arbitration. 

See Public Justice blog post

The fundamental principle of USERRA (Uniformed Services Employment and Reemployment Act) is that a person should not suffer because s/he participates in the National Guard or Reserve duty. I wrote previously about one Reservist, Cpt. Nicole Mitchell, who very likely lost her job as anchor for the Weather Channel due to her Reserve duty. See that post here. She filed suit in 2012 and I said then her evidence sounded strong. 

Well, that was before I knew she had signed an arbitration clause with her employer. Her case has been stuck in limbo since then waiting for arbitration issues to play out. See Chris McKinney’s blog about her case here. She did not realize, as most workers do not, that she had signed an arbitration clause. She has not been able to secure new employment and has been waiting for an arbitrator to hear her case. Such is the world of arbitration: workers have rights but they may never get a chance to exercise them. And, in the meantime, they may remain unemployed. 

Note Chris’ comments that compared to traditional courts of law, those workers who take their cases to arbitration win about half the time they win in court (which itself is very low anyway) and when they win, they obtain about half the remedies they would in traditional courts. 

Its a heck of a way to say "thanks for your service, Cpt. Mitchell."

I first wrote about this case here.  An arbitrator failed to disclose his relationship with the attorney for one of the parties.  The arbitrator, Robert Faulkner, a former US Magistrate, had long standing ties with the lawyer for one of the parties, Brett Johnson.  The arbitration went well for Mr. Johnson of Fish and Richardson in Dallas.  Arbitrator Faulkner awarded $22 million to Mr. Johnson’s client and $6 million in attorney fees.  

The Fifth Court of Appeals in Dallas overturned the award last June, finding that Mr. Faulkner failed to disclose his prior relationship to Mr. Johnson and that Mr. Johnson deliberately concealed his prior relationship to the former Magistrate.  The court noted that at the outset of the arbitration hearing, both Faulkner and Johnson pretended to be meeting each other for the first time. 

Now, the losers in the arbitration have sued Fish and Richardson, Brett Johnson and the former opposing party for fraud.  See Texas Lawyer report.  The suit appears to be based on a Rule 11 agreement entered into by the parties early in the arbitration process.  In the Rule 11 agreement, Brett Johnson’s client, Jonathan Cooke agreed to arbitrate his dispute and to take the dispute to a neutral arbitrator with JAMS.  A Rule 11 agreement simply describes an agreement between opposing parties which is filed or capable of being filed withe the district clerk. 

As I have stated before, the problem with arbitration is the web of connections between all lawyers and law firms.  In the arbitration world, those connections are not apparent.  If the matter remained in a court of law, where it belongs, there is much greater transparency.  How many more connections are out there of which consumers and employees have no knowledge?  Yet, those same consumers and employees are forced into arbitrations everyday.  Arbitration is premised on the arbitrator and the parties disclosing all prior contacts.  But, if they choose not to disclose, who will know otherwise?

Legal scholars are becoming more aware that actual trials in federal courts have decreased dramatically since the 1960’s.  Suja Thomas discussed this trend in a recent speech at Seattle University to mark the 25th anniversary of the summary judgment trilogy.  See Workplace Prof report.  Prof. Thomas mentions a couple of developments leading to this trend: the rise in arbitration and the summary judgment emphasis in federal courts.  See her paper.  

She mentions her own experience with arbitration when she and her husband purchased a house.  The sale agreement included an arbitration clause.  The house had some serious flaws (like no sewer connection).  The repairs would cost about $5,600.  Yet, the arbitration clause would require them to pay for three arbitrators, typically lawyers, and numerous fees that ranged from hundreds to thousands of dollars.  The arbitrator’s fees alone would run into the hundreds of dollars per day.  All for a $5,600 problem.  Because Ms. Thomas is a lawyer, she was able to resolve it much simpler and more direct.  She could do her own research into the legal issues.  But, for the average homeowner, this would have been a minor catastrophe.  

Ms. Thomas mentions a good point regarding these major changes in how we resolve disputes: now, many disputes are not resolved at all and when they are, they are resolved by lawyers and other professionals, not by average citizens.  She mentions her own problem with a home builder.  She also mentions the case of AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), a U.S. Supreme Court case.  The Concepcions had a $30 dispute with AT&T regarding their cell phone bill.  The cell phone agreement required them to take it to arbitration.  The agreement prevented them from seeking class actions.  The agreement allowed them to file suit in small claims court, but the filing fee for small claims court far exceeded the amount of the $30 dispute.

The California Supreme Court found that the e provision preventing them from seeking class action status was unconscionable and not enforceable.  AT&T appealed to the US Supreme Court, which affirmed the class action provision, saying that federal law favors arbitration.  

This is a crazy result.  The $30 dispute would have little value to anyone other than the Concepcions abd possible class action lawsuits.  Arbitration would require the Concepcions to pay fees in the hundreds of dollars – just to have their case heard by an arbitrator.  

The trilogy of summary judgment cases started the trend toward judicial resolution of cases.  As Prof. Thomas points out, summary (or "quick") judgment has become the tool to dismiss cases.  The trilogy includes Matsushita v. Zenith, 475 U.S. 574 (1986), Anderson v. Liberty Lobby, 477 U.S. 242 (1986), and Celotex v. Catrett, 477 U.S. 317 (1986).  These three decisions made it easier for employers and other to obtain summary judgments, an event that was formerly somewhat rare.  Summary judgment means the judge decides the case lacks merit and no jury ever hears the issues. It is resolution by judges. 

The Federal Judicial Center has found that summary judgment is granted more often in employment cases than any other type of case.  73% of employment cases result in summary judgment.  Other cases see summary judgment 60% of the time.  So, judges decide 73% of employment cases.  Judges are lawyers.  So, like arbitration, we have critical decisions made by lawyers. 

Prof. Thomas discusses remittitur.  If a federal judge is not happy with a jury decision, he can order remittitur, which is a reduction in the jury verdict.  More employment cases see remittitur than any other case.  In a study conducted by Prof. Thomas, 63% of the cases ordered to remittitur were civil rights cases. 

Prof. Thomas cites one estimate that one-third of all nonunion disputes end up in arbitration.  

The trend is toward disputes being resolved by a select, trained but biased dispute "clergy."  They are biased in the sense that this "clergy" will know and feel more comfortable with the employer who brings them business.  It is an institutional bias.  The problem with this arrangement is both constitutional and social.  The Seventh Amendment was intended to garauntee each citizen the right to a jury trial.  Now, by simply buying a house or applying for a job, we waive that right.

The social problem, says Ms. Thomas, is we are working toward having lawyers and judges decide all important disputes in our lives.   I think we all can agree that lawyers look at problems differently than others with different training.  I think we lose something when the average citizen is removed from this process. 

 

In a recent decision, the US Sixth Circuit Court of Appeals found that an arbitration policy referenced in an employee handbook was not binding on the employee.  In Hergenreder v. Bickford Senior Living Group, LLC, No. 10-1474 (6th Cir. 6/8/2011), the employee was a nurse who suffered from cancer shortly after starting to work for Bickford.  She attempted to sue after she was terminated.  The employer claimed the arbitration policy applied and the federal district court agreed.  But, now the appellate court has reversed and has allowed Ms. Hergenreder’s case to proceed. See decision.  

The purported arbitration clause was contained in a dispute resolution clause.  In one brief sentence, the employee handbook said there was a dispute resolution clause and the employee should look at it sometime.  The employee handbook itself never mentioned arbitration.  The dispute resolution policy did indeed include an arbitration agreement.  The policy stated that agreement to the dispute resolution clause was a condition of employment.  But, found the Sixth Circuit, the employee nowhere acknowledged that she had been notified of the contents of the dispute resolution clause.  The employer could not show that the employee was aware of the policy or that she had agreed to it in any way. 

And, of course, like many employee handbooks, it contained language stating that the handbook was not contractual.  As Workplace Prof points out, many employers want the contractual benefits of a binding arbitration agreement.  The handbook appeals to employees because it provides a predictable, understandable framework for their employment relationship.  But, a binding employee handbook would present many problems for an employer.  So, they seek to avoid any contractual aspects.  See Workplace Prof blog.  It is hard to have your cake and eat it too….