For more than half a century, federal courts have done their utmost to encourage arbitration to resolve disputes. The preference is particularly strong in labor-management contracts, such as the one between Major League Baseball ("MLB") and the players' union that resulted in the recent Alex Rodriguez award suspending the famous third baseman from major league baseball for the entire 2014 season. This preference will now be tested in Rodriguez's lawsuit to overturn the arbitration decision under Section 301 of the Labor Management Relations Act ("LMRA").

In that suit, Rodriguez alleges the arbitrator did not review all of the evidence, ignored the fact that Rodriguez never tested positive for banned substances and credited the testimony of a convicted felon. These actions, he claims, demonstrate the need to overturn the arbitrator's decision. However, the legal hurdles for Rodriguez and his attorneys can be daunting.

Arbitration is relatively quick and cheap compared to federal court litigation and significantly reduces the workload of the federal judiciary. As a result, federal law has severely limited the grounds for overturning an arbitrator's decision and federal courts take a dim view of lawsuits that ignore the limited judicial review that is available.

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Enforcing your arbitration agreement in federal court when the underlying dispute cannot be removed from state court

Introduction

You are defending a claim brought in state court in violation of an arbitration agreement. You would prefer to fight the battle over the enforceability of the arbitration agreement in federal court. But, for any number of reasons, removing the litigation to federal court based on diversity of citizenship is not an option - most typically because the company is a citizen of the state where the action is pending and/or because the plaintiff included an employee who shares citizenship with the plaintiff thereby preventing complete diversity of citizenship. Since you cannot remove the case to federal court, you will have to seek to enforce the arbitration agreement in the state court where the underlying action is pending, right? Not necessarily.

It may be possible for the state court defendants (or some of the state court defendants) to file a separate action in federal court against the state court plaintiffs to compel arbitration pursuant to Section 4 of the Federal Arbitration Act, 9 U.S.C. �� 1-16 ("FAA"). This article will discuss the most commonly-raised procedural hurdles to such actions in federal court, which are (a) whether the federal court may exercise diversity jurisdiction to consider the petition to compel arbitration, (b) whether the federal court should decline to invoke its jurisdiction under theColorado River abstention doctrine, and (c) whether the federal court should enjoin the state court plaintiffs from pursuing their claims in state court. These issues are addressed in the recent case of GGNSC Louisville Hillcreek, LLC v. Warner, No. 3:13-CV-752-H (W.D. Ky. Dec. 19, 2013).

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"Settlement, ADR & Class Action Superiority"
from D. Theodore Rave

Professor Rave's (Houston law) paper Settlement, ADR, & Class Action Superiority (in Journal of Tort Law) contains an interesting insight about class action practice: when you get right down to it, there is little functional difference between (1) a class action settlement, (2) an AT&T "gold-plated" arbitration clause, and (3) a customer service action like a voluntary recall. Or, as Professor Rave puts it:

Functionally, what is happening with class settlements, voluntary compensation schemes, and mandatory arbitration clauses in form contracts is very similar. Private actors are effectively designing a system of ADR in which aggrieved claimants can seek compensation. The goal is to replace the public litigation system with a more streamlined and less costly informal process for resolving a mass dispute and, importantly, to channel claims into that alternative process. The question of system design simply comes at three different times: before any dispute has arisen in the arbitration context, while the parties are in dispute in the voluntary compensation context, and after the parties have agreed on a framework to resolve their dispute in the class settlement context.

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Why A-Rod faces long odds in his attempt to overturn the grievance arbitration award

Abstract:

A-Rod will need to overcome a high burden to prevail. The Supreme Court mandates that Courts provide substantial deference to arbitration decisions, vacating them generally, where it is arbitrary and capricious - a difficult standard to meet. Or, in other words, a court should only vacate them where it finds an absence of a rational connection between the facts the arbitrator considered and the legal conclusions the arbitrator made, or where the arbitrator ignored clearly applicable law.

To overcome this hurdle, A-Rod advanced four arguments: (1) the arbitration award does not draw its essence from the governing contracts; (2) is the result of arbitrator's manifest disregard of the law and misconduct; (3) reflects arbitrator bias; and (4) the MLPBA (baseball's union) breached its duty of fair representation to A-Rod.

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Schafer v. Multiband Corp. -- Sixth Circuit Raises the Bar: Apparent Error of Law is Not Manifest Disregard

In Schafer v. Multiband Corp., 2014 FED App. 0003N; 2014 U.S. App. LEXIS 288; 2014 WL 30713 (6th Cir. Jan. 6, 2014), an unpublished opinion, the Sixth Circuit reversed and remanded a Michigan district court judgment that had vacated an arbitral award for manifest disregard of the law. The court sidestepped the ongoing debate on whether manifest disregard survives the US Supreme Court's 2008 decision in Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, as a basis for vacatur, adopting a narrow interpretation of manifest disregard and relying on the policy of finality in arbitration.

The dispute concerned indemnification agreements between a holding company and two directors, Bernard Schafer and Henry Block, who were trustees of both company and subsidiary employee stock ownership plans. Upon sale of the holding company, the buyer, Multiband Corporation, assumed the indemnification agreements, but later refused to indemnify the trustees for a settlement with the Department of Labor (DOL) over claims of breach of fiduciary duty. The trustees initiated arbitration; Multiband argued that under the 1974 Employment Retirement Income Act (ERISA), 29 U.S. � 1110, the indemnification agreements were void as against public policy, and the arbitrator agreed. ERISA indeed prohibits relieving a fiduciary from responsibility or liability, but contains an exception - which despite Sixth Circuit precedent and a DOL bulletin the arbitrator found inapplicable - that allows for the purchase of insurance to cover a fiduciary's potential liability or loss.

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Waiver of right to arbitrate is issue for courts, not arbitrators to decide

A California appellate court has confirmed that the issue of whether a party has waived the right to arbitrate is an issue to be decided by the trial court, not the arbitrator. Defendants in a dispute regarding a stock purchase agreement moved to compel arbitration pursuant to that agreement, but

only after they filed a demurrer to the complaint, moved to require plaintiffs to furnish a bond, and commenced their own lawsuit against plaintiffs for alleged misrepresentations made in connection with the purchase agreement. Plaintiffs opposed the motion to compel arbitration by arguing that defendants waived the right to arbitrate through this litigation conduct. The trial court and the appellate both agreed that the waiver issue is one for the court to decide and that defendants had waived their right to arbitrate. Hong v. CJ GGV America Holdings, Inc., Case No. B246945 (Cal. Ct. App. Dec. 18, 2013).

In an effort to recognize the specialization in the ADR community, we are creating 3 separate newsletters broadly covering these areas: Mediation - Arbitration - International ADR.

A newsletter focused in one of those areas will be sent out bi-monthly. In order for you to subscribe to as many types of newsletters that fit your particular practice/interests, please click on the Update Profile/Email Address link at the bottom of this email. From there you will be able to select which newsletters you wish to receive or if you would like to opt out all together.

Thank you for reading my newsletter, and as always, if you have any questions on any of the articles listed, do not hesitate to contact me.

Sincerely,

Thomas Valenti

Attorney, Arbitrator (ACIArb), Mediator

Thomas P. Valenti, P.C.

300 N. LaSalle St., Suite 4925

Chicago, IL 60654-3406

T: 312-803-0472

F: 888-667-2485

email: tpv@valentilaw.com