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Arbitrator Duty of Disclosure and Vacature:

    Vacature of arbitration decisions causes much frustration as well as loss of money, time and resources. Several significant arbitration decisions in Hawaii have been recently vacated or are being challenged, in part, based upon assertions of inadequate disclosures by the arbitrator. In some of those challenged cases, the challenges have involved highly respected retired judges.

    An arbitrator’s duty to disclose past connections, relationships, interests and potential conflicts is well established in the case law, statutes and the administrative rules of major arbitration administrative agencies. Satisfying that duty is particularly difficult for retired judges who pursue a professional life as a private arbitrator following their service on the Bench. That difficulty is exacerbated by the wide experience, involvement, connection and exposure that judges have with many members of the Bar,  innumerable parties and witnesses as well as from the extensive civic and social connections that many judges develop over the course of their careers. Most often, Courts and retired judges do not have adequate means for researching and making conflict checks, making complete disclosure a significant challenge.

    Failure of disclosure or insufficient disclosure is becoming a litigator’s challenge strategy of choice when an arbitration case goes against their client’s interests. Suspicions have been raised that sophisticated and knowledgeable counsels and/or their law firms representing clients in arbitration may have had sufficient prior knowledge and awareness of the extensive (though not fully disclosed) connections, relationships and interests that their selected retired judge arbitrators have or had but reserved such information as a potential fallback ground to challenge an adverse arbitration decision.

    The duty of the arbitrator to make disclosures is well established in the law and under major rules of arbitration.  The Federal Arbitration Act does not explicitly address the matter of disclosures by the arbitrator. Case law, however, recognizes the fundamental obligation of arbitrators to make appropriate disclosures of potential conflicting interests and relationships. In the seminal case of Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), the Supreme Court held that an undisclosed business relationship between an arbitrator and one of the parties constituted "evident partiality" requiring vacating of the award. 

    At the State level, the Revised Uniform Arbitration Act (RUAA), including Hawaii’s adopted version found in HRS Sec. 658A-12, requires the arbitrator to:

  • (a) disclose to all parties to the agreement to arbitrate and arbitration proceeding and to any other arbitrators any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator in the arbitration proceeding, including:
    • 1.) a financial or personal interest in the outcome of the arbitration proceeding; and
    • 2.) an existing or past relationship with any of the parties to the agreement to arbitrate or the arbitration proceeding, their counsel or representatives, a witness, or another arbitrators.
  • (b) An arbitrator has a continuing obligation to disclose to all parties to the agreement to arbitrate and arbitration proceeding and to any other arbitrators any facts that the arbitrator learns after accepting appointment which a reasonable person would consider likely to affect the impartiality of the arbitrator.
  • (c) If an arbitrator discloses a fact required by subsection (a) or (b) to be disclosed and a party timely objects to the appointment or continued service of the arbitrator based upon the fact disclosed, the objection may be a ground under Section 23(a)(2) for vacating an award made by the arbitrator.
  • (d) If the arbitrator did not disclose a fact as required by subsection (a) or (b), upon timely objection by a party, the court under Section 23(a)(2) may vacate an award.
  • (e) An arbitrator appointed as a neutral arbitrator who does not disclose a known, direct, and material interest in the outcome of the arbitration proceeding or a known, existing, and substantial relationship with a party is presumed to act with evident partiality under HRS Sec. 658A-23(a)(2).

    While the duty of the arbitrator to make disclosures is well established in the law and under established rules of arbitration, a concomitant duty on the part of lawyer advocates and their clients to make similar disclosures is emerging but not completely developed. 

    The rules of some major American private arbitration agencies are attempting to address the matter. In the Construction Arbitration rules of JAMS, recent amendments to the JAMS Engineering and Construction Arbitration Rules(amended and effective November 15, 2014) now states as follows:

  • …requires Parties and their representatives to disclose any circumstance likely to give rise to justifiable doubt as to the Arbitrator’s impartiality or independence including any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives. Disclosure obligations of the Arbitrator, the Parties and the representatives continues throughout the case. (Underscoring added.)

Similarly, Rule 17 of the American Arbitration Association (AAA) Commercial Arbitration Rules requires that:

  • (a) Any person appointed or to be appointed as an arbitrator, as well as the parties and their representatives, shall disclose to the AAA any circumstance likely to give rise to justifiable doubt as to the arbitrator’s impartiality or independence, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives. Such obligation shall remain in effect throughout the arbitration. Failure on the part of a party or a representative to comply with the requirements of this rule may result in the waiver of the right to object to an arbitrator in accordance with Rule R-41. (Underscoring added.)

Rule 19 of the AAA Construction Industry Arbitration Rules sets forth a similar rule.

A prominent ADR agency in Hawaii is also currently reviewing its rules on the issue

    The establishment and recognition by these major ADR agencies of a duty on the part of arbitration parties and their representatives to similarly make disclosures of information that may reflect upon the arbitrator’s independence and impartiality may signal a growing sentiment that full disclosure and preservation of fairness in the arbitration process is enhanced by a duty of disclosure that applies to all of the principal parties and players in the arbitration process. Such a recognized duty will serve to minimize the ability of disappointed parties and their advocates to “game” the process. Parties and their contract drafting counsels can consider including contractual provisions in their alternative dispute resolution, mediation and arbitration provisions calling for such full and fair disclosure. 

JANUARY 2015

CASES & RESOLUTIONS:

Florida’s Sunshine Law Trumps Mediation Confidentiality

A Florida appellate court upheld the lower court’s determination that mediation of a federal case which resulted in a mediated settlement agreement changing pension benefits of unionized city employees violated Florida’s Sunshine Law, which is intended to protect the public from closed-door politics.  The court voided the settlement agreement and enjoined the parties from further mediation that involves collective bargaining issues.  The fact that the settlement agreement reached in the federal mediation was tentative and needed further approval did not cure the Sunshine Act violations.

Brown v. Denton, Nos. 1D14-0443, 1D14-0444 (C.A. Fla., October 21, 2014)

California Mediation Privilege Doesn’t Apply to Communications on Side Issues After Mediation

A California appellate court ruled that the state’s mediation privilege doesn’t cover communications occurring after the mediation which discuss side issues not covered in the mediation.  That determination, however, relied on testimony from mediation participants about what was not discussed in the mediation, in order for the court to know whether the communications in issue materially related to the mediation.

Pacific Building Development Inc., v. Kensington-Fair Oaks Associates Joint Venture, No. H038482 (C.A. Cal., November 20, 2014)

Mediation in City Bankruptcy Proceedings Has Mixed Results

  • A final intense mediation over the fees and expenses of Detroit’s bankruptcy professionals resulted in millions of dollars being written off from a total estimated to approach $200 million by the city of Detroit, the federally-appointed Official Committee of Retirees, and the city’s two pension funds.  Although awaiting judicial approval, this was the final administrative hurdle in the historic case.  Detroit Free Press (December 11, 2014)
  • While the Detroit bankruptcy was completed in seven months with extensive use of mediation, the San Bernardino, California, bankruptcy proceeding is 28 months old and its bankruptcy plan is not due until May 30, 2015.  Mediation has been used in San Bernardino, but an agreement between the city and the police union fell through, and an agreement between the city and CalPERS took nine months to reach a commitment that the city would make up all missed payments, along with fees and interest, leaving other creditors worrying that there may not be enough room left for a workable plan.  The Sun (November 18, 2014)

Other Notable & High Profile Proceedings

  • In a huge product-liability multidistrict litigation, a federal court ruled on motions in limine and refused to make a blanket exclusion of evidence of mediation or settlement negotiations, which could not be admitted on the issue of liability or damages, but might conceivably be relevant in some other way.  Eghnayem v. Boston Scientific Corp., No. 2:13-cv-07965 (U.S.D.C. W.V., October 28, 2014)
  • A Kentucky appellate court overturned the lower court’s decision that mediation confidentiality prevented a party from offering evidence about alleged coercion during mediation.  The appellate court held that evidence which did not go to liability or validity of the claim, but related to unconscionability of the agreement, was appropriate and should be permitted.  Barnett v. Barnett, No. 2013-CA-001310-ME (C.A. Ky., December 19, 2014)
  • After lengthy analysis, a federal court permitted an amended complaint to be filed in an Americans with Disabilities Act case against a state court for refusing to appoint an American Sign Language interpreter for a deaf party who was ordered to participate in mandatory mediation, which was later waived.  King v. Indiana Supreme Court, No. 1:14-cv-01092 (U.S.D.C. S.D. Ind., November 7, 2014)
  • Claims under the Americans with Disabilities Act arising out of a mediation session held in a defense counsel’s offices were dismissed as plaintiff had not adequately alleged that defendants were likely to repeat the ADA offenses in the future.  Novak v. Litchfield Cavo, LLP, No. 14-cv-3649 (U.S.D.C. N.D. Ill., December 22, 2014)
  • A California appellate court upheld a short settlement agreement that resulted from a mediator’s ongoing efforts after a mediation session, rejecting assertions that an elderly party was improperly pressured in the mediation since the agreement was signed four days later, and finding the agreement to be sufficiently definite even though it contemplated the preparation of additional documents.  Dan v. Rambla Vista Enterprises, No. B252050 (C.A. Cal., November 25, 2014)
  • A federal court stayed, rather than dismissed a case due to failure to comply with a contractual requirement for mediation prior to litigation.  The court noted, however, that if the case went forward, the parties’ private mediation would not fulfill the court’s mediation requirement and the parties would have to participate in a second mediation.  Hawkins v. Citimortgage, Inc., No. 8:14-cv-02810-T-33AEP (U.S.D.C. M.D. Fla., December 29, 2014)
  • The U.S. Court of Appeals for the Seventh Circuit rejected a sexual abuse victim’s assertion that the dispute he settled in mediation was distinct from his claim in the Archdiocese’s bankruptcy case, which would have permitted him to assert a “manifest injustice” exception to mediation confidentiality under Wisconsin law.  Doe v. Archdiocese of Milwaukee, No. 13-3783 (U.S.C.A. 7th Cir., November 5, 2014)
  • A settlement reached in mediation (involving the widow of William Randolph Hearst’s grandson) was upheld against claims of fraud, overreaching and excusable neglect, in part because the mediation was conducted by an experienced mediator.  In re Estate of Hearst, Nos. B251912, B251964 (C.A. Cal., December 16, 2014)
  • A federal court refused to impose sanctions when a party failed to attend a mediation session in person, as there was disagreement over whether counsel had promised appearance in person.  The party did participate by videoconference and then was present in person for the second day of the mediation.  The court also noted that a private mediation was at issue, so the court might not have had authority to impose sanctions in any case.  Siebert v. Gene Security Network, Inc., No 11-cv-01987-JST (U.S.D.C. N.D. Cal., November 6, 2014)

NEWS & INITIATIVES: 

States Continue Mediation of Agricultural and Related Disputes

  • The South Dakota Department of Agriculture Mediation Program has just implemented new rules adding federal lands and oil and gas disputes to its mediation program, based on legislation that the state enacted in 2013.  WNAX (December 2, 2014); Aberdeen News (November 11, 2014)
  • The Farmer-Lender Mediation Program in Minnesota is experiencing a high success rate in mediation, coupled with the fewest notices in a decade, with volatility in volume resulting from changes in crop yields and prices.  WNAX (December 9, 2014) 

Update on Home Foreclosure Mediation

  • Home mortgage foreclosures are generally dropping nationwide, with a 30% reduction reported from 2013 to 2014.  However, some states are seeing increases, including Hawaii and Maryland, which may be due to state mediation programs which delayed the foreclosure process.  Maryland now has the third-highest home foreclosure rate in the country, up over 90% from a year ago. App.com (December 16, 2014); WTOP (December 11, 2014); Pacific Business News (December 15, 2014).
  • Legislation has been introduced in New Jersey to ensure the continuation of the state’s Foreclosure Mediation Program, which began in 2009.  New Jersey now has the highest rate of home foreclosures in the nation.  LegiScan (December 8, 2014); App.com (December 16, 2014)
  • Based on the success of other Illinois counties, Macon County has applied to the Illinois Supreme Court to begin a mortgage foreclosure mediation program.  A similar foreclosure mediation program went into effect in Champaign County on November 1.  Herald-review.com (November 12, 2014)
  • Massachusetts’ Supreme Judicial Court ruled that the mortgage foreclosure laws in Springfield which require mediation were preempted by state law.  The state’s highest court had been asked by a federal court for its view on the state law issue.  The ruling is likely to impact similar ordinances in Worcester and Lynn as well.  State-wide legislation to implement mandatory foreclosure mediation had previously been proposed and will likely be considered again soon, as a result of the ruling.  Mass Live (December 19, 2014)
  • Missouri’s Supreme Court held that a St. Louis County ordinance requiring foreclosure mediation was void because the county lacked authority to implement it.  Daily Journal (November 12, 2014); Missouri Bankers Assoc.v. St. Louis County, No. SC 93848 (S.C. Mo., November 12, 2014)
  • The mortgage foreclosure mediation program in Washington state provides that the mediator can issue a certificate of bad faith when a party fails to follow the rules or to participate appropriately.  While about 6,750 homeowners have sought mediation since the program went into effect three years ago, mediators have found banks in bad faith in about 220 cases out of the 1,500 mediations that failed to reach agreement.  Some are concerned that there is insufficient follow up to penalize lenders for bad faith mediation.  KING 5 News (November 17, 2014)

International Mediation Developments

  • Barbados is initiating a court-annexed mediation program in February 2015.  NationNews (December 30, 2014)
  • Cyprus is beginning a mediation program between financial institutions and homeowners, with mediation to occur prior to lenders initiating foreclosure proceedings, and is receiving applications from mediators for the program.  Cyprus Property News (November 26, 2014)
  • A pilot court-based mediation program has been launched in magistrate courts in the provinces of Gauteng and North West in South Africa, in which parties may seek mediation prior to beginning a formal legal action.  Business Report (December 9 2014)
  • Extensive mediation training has been provided to 30 community mediators in Tripoli, Lebanon, who are now working in six neighborhoods in Tripoli, which has been deeply impacted by the ongoing crisis in Syria.  The Daily Star Lebanon (November 7, 2014)
  • The Dubai Chamber of Commerce in the United Arab Emirates continues to encourage mediation with the advent of online mediation application processes.  The Dubai Chamber received 330 mediation cases and settled 180 in the first 10 months of 2014.  Khaleej Times (November 16, 2014)
  • The Singapore International Mediation Institute has been officially launched with the expectation of setting world-class mediation standards.  The Institute was founded by the National University of Singapore with support from the Singapore Ministry of Law.  NewsWise (November 5, 2014)
  • A medical mediation program in Changning District in Shanghai, China, received over 250 medical disputes in 2014 and resolved 85%, using retired lawyers and doctors as mediators.  The mediation program began in 2012 and may be expanded to other districts.  English.eastday.com (December 25, 2014)
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DANCE as if no one is watching. LAUGH like you have never been hurt. LOVE like heaven is on earth. DREAM as if there are no impossibilities. LIVE life to the fullest. SING like no one is listening.
CHERISH the moment. (Anon.)

Mediation Quote:

"When we are in conflict, we all say things we do not mean and mean things we do not say.  Only rarely do we communicate at a deep level what we really, honestly think and feel...
"When you approach your conflict as a journey, process, or voyage that takes you to a new location, you transcend the idea that you are trapped in your conflict."

Kenneth Cloke & Joan Goldsmith, Resolving Conflicts at Work: Eight Strategies for Everyone on the Job (Jossey-Bass 2007) at xxi, 16

Worth Noting:

Preliminary Report for UNCITRAL on International Commercial Mediation
Preliminary findings have been released from what purports to be the first large-scale survey of use and perception of international commercial mediation and conciliation by international legal and business communities.  The survey was undertaken to assist the United Nations Commission on International Trade Law (UNCITRAL) and the UNCITRAL Working Group II on Arbitration and Conciliation as they analyze a U.S. proposal for a possible convention in this area, which will be considered in a Working Group II meeting in February 2015.  An article presenting an expanded final analysis and proposals on future international action is expected. 
Social Science Research Network
(November 17, 2014)

Veterans Assisted by Mediation
Veterans mediation services are becoming increasingly important in community mediation centers.  Six programs have been chosen to develop best practices for veterans mediation, with support from the National Association for Community Mediation and JAMS. 
The Recorder (November 10, 2014)

Other Cases & Resolutions:

  • Mediation resulted in settlements exceeding $1 billion for thousands of patients with faulty hip replacements after four months of negotiation.  NBC10.com (November 10, 2014)
  • Years of mediation resulted in a $1.1 million settlement for a teenager who became a quadriplegic after a bicycle accident in a San Jose park.  San Jose Mercury News (December 13, 2014)
  • Major progress has been reported in mediation between the government and Indian tribes seeking to implement a 2012 U.S. Supreme Court decision over inadequate federal payments on public programs the tribes now administer.  Rapid City Journal (December 19, 2014)
  • Mediation has resolved the claims of a woman who was severely injured from drinking sweet tea mistakenly made with white powder for cleaning deep fryers rather than sugar.  In the mediation, the restaurant chain agreed to extensive changes to prevent future accidents.  Fox13 (December11, 2014)
  • Shell and a law firm plan to mediate claims of 15,000 residents impacted by two major oil pipeline leaks in Nigeria in 2008.  Leigh Day (November 13, 2014)
  • IBM and the state of Indiana have agreed to mediate a dispute over IBM’s failed attempt to privatize Indiana’s welfare system.  The Indiana Supreme Court suggested the parties consider mediation after hearing oral arguments in the case.  WTHR.com (December 10, 2014)
  • A court sent to mediation an officer’s whistleblower claims that he had been pressured to profile young drivers for tickets.  Daily Record (December 11, 2014)
  • Mars Hill Church has apologized to those hurt and shunned by its pastor, and is preparing to dissolve and distribute its assets, but a threatened RICO (Racketeer Influenced and Corrupt Organizations Act) case seeking more transparency from the church is being addressed in mediation.  SeattlePi (December 22, 2014)
  • Mediation has been ordered in litigation filed as a class action involving a sewage system, drains and a mill pond.  Clarkston News (December 12, 2014)
  • Litigation between local media and a university over lack of disclosure of the names of those disciplined in a scandal has been sent to mediation.  WCHL News (December 12, 2014)
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