Welcome

The Ohio State Journal on Dispute Resolution, in collaboration with the Moritz College of Law's Program on Dispute Resolution, is pleased to bring you Volume 14, Issue 2, of the Mayhew-Hite Report on Dispute Resolution and the Courts.

Managing the Risk of Legal Error in Arbitration

Stephen L. Sepinuck

A CAUTIONARY TALE

Arbitrators sometimes make mistakes. Sometimes spectacular mistakes. Consider the case of Martin Evans. He and Craig Nielsen purchased several H&R Block franchises, with each franchise owned by a separate limited liability company. Nielsen provided financing for Evans, who signed a promissory note for the amount due. The note provided that, upon default, Nielsen was authorized “to charge or setoff all sums owing on the debt” against Evans’ interests in the LLCs. Evans did default and Nielsen proposed to keep the LLC interests in full satisfaction of the debt. Evans objected and brought an action seeking a declaration that Nielsen’s seizure of the LLC interests was ineffective and that Evans remained a member of the LLCs.

The matter was referred to arbitration pursuant to the parties’ agreement. The arbitrator ruled that Article 9 of the UCC did not apply because § 9-109(d)(10) generally excludes recoupment and setoff from the scope of the Article.1 The arbitrator then added that, even if Article 9 did apply and even if Nielsen had failed to comply with § 9-620 by not obtaining Evans’ consent to Nielsen’s acceptance of the collateral in satisfaction of the debt, the acceptance was effective and Evans’ only right was to recover damages for the loss of a surplus. 2

Both rulings are patently wrong. Setoff is a mechanism for netting mutual debts. A security interest, on the other hand, is an interest in personal property that secures a debt.3 Evans’ interests in the LLCs were his personal property, not debts. Thus, the note provided for a security interest, not setoff. The fact that the note described Nielsen’s right as a “setoff” is immaterial: Article 9 applies to any transaction, “regardless of its form,” that creates a security interest.4 The arbitrator’s ruling, if applied generally, would allow people to avoid application of Article 9 simply by labeling the creditor’s rights as a “setoff.” It is therefore bad policy in addition to being clearly erroneous.

Article 9 is equally clear that acceptance of collateral in satisfaction of the secured obligation is  ineffective, not wrongful, unless the debtor consents after default.5 Thus, if Evans timely objected to Nielsen’s proposal, as he apparently did, Evans remained the owner of his LLC interests.

Despite these errors, a Utah trial court confirmed the arbitration decision. In March, that ruling was affirmed on appeal.6 The appellate court noted that the judiciary’s role is not to review an arbitrator’s award for legal error, but merely to determine whether the arbitrator exceeded his authority. The court then concluded that the decision was not so without foundation as to justify refusing to enforce it based on irrationality or manifest disregard for the law.7

For litigators and transactional attorneys alike, this case should be troubling. Arbitration is frequently touted not only as speedier, less expensive, and more confidential than litigation, but also as less prone to error because of the expertise and experience of the arbitrators. But if even flagrant errors of law cannot be corrected, two questions naturally follow: (i) how does the risk of legal error in arbitration differ from the risk in litigation; and (ii) how should transactional attorneys manage that risk to protect their client’s interests?

Read more

ARTICLE SUMMARY

Summary of: “Nelson Mandela as Negotiator: What can we learn from him?”

Mark Zronek

In Nelson Mandela as Negotiator: What can we learn from him?, Hal Abramson, Professor of Law at the Touro Law Center, New York, examines Mandela as a negotiator from 1985, when he refused an offer to be released from prison if he were to denounce violence, until his release in 1990. Abramson argues that Mandela followed a textbook approach to his negotiations with the South African Nationalist government; therefore, Mandela did not teach us anything new on how to negotiate. Mandela performed as any good negotiator should.

In his introduction, Abramson describes his visit to Johannesburg, which occurred in the wake of Mandela’s death. Abramson participated in the remembrance, mourning, and learning that followed Mandela’s passing. It was during this visit that Abramson began to examine Mandela as a negotiator. Abramson explains that Mandela faced multiple distributive disputes from 1985 to 1990. For example, Mandela could have either renounced the armed struggle against the Nationalist government or not. His organization, the African National Congress (ANC), could have either been banned or not. While managing these distributive disputes and others, Mandela faced a conflict of interest. Government officials tempted Mandela with his personal freedom if he were to compromise the interests of his country. Mandela was determined to resolve these disputes in his favor without succumbing to his conflict of interest.

Read more

CASE SUMMARY

Supreme Court Oral Argument Summary: DIRECTV, Inc. v. Imburgia

Danny Dubow

A rising question in the field of ADR has been whether the Federal Arbitration Act (FAA) preempts state law on arbitration agreements. The Supreme Court will hopefully create a clear ruling on this issue in DIRECTV. Of pertinence to this case, is the FAA’s handling of class action arbitration. Under the FAA, a party can draft an arbitration clause into an agreement, forcing any claims between two parties to be brought to arbitration—not in the court system. Further, the drafting party can preclude other parties from consolidating claims and attempting to enter into class action arbitration. This stance from the FAA stands in direct conflict with some states and circuit courts, holding that arbitration clauses prohibiting class action arbitration to be unenforceable as unconscionable. California is one of these states.

The parties stayed DIRECTV to await the Supreme Court’s decision of AT&T LLC v. Concepcion, 563 U.S. 333 (2011). In Concepcion, the Supreme Court faced the question of whether the FAA preempts state law prohibiting a party from having an arbitration clause precluding class arbitration. AT&T had a contract that compelled those with cell phone contracts to bring claims to arbitration. Plaintiffs brought a claim after AT&T advertised “free” cell phones, but charged tax on the so-called free phones. The plaintiffs attempted to bring a class action claim, and AT&T moved to compel arbitration, where each would have to proceed alone.

Read more

HEADLINE NEWS

  • Schwartz Lecture with Theodore St. Antoine set for April 5, 2016

    At noon on April 5, 2016, esteemed labor arbitrator and University of Michigan Law Professor Emeritus Theodore St. Antoine will deliver Moritz's Schwartz Lecture on Dispute Resolution.  Professor St. Antoine will discuss current issues in labor arbitration in his address titled "Labor and Employment Arbitration Today: A Midlife Crisis or New Golden Age?"  Look for more details in 2016!

    The Schwartz Lecture on Dispute Resolution was established in 1992 as a result of the generosity of the late Stanley Schwartz Jr. (a 1947 Moritz College of Law graduate) and the Schwartz family. Each lecture is published in the interdisciplinary Ohio State Journal on Dispute Resolution, in keeping with Mr. Schwartz’s interest in the promotion of scholarly publication in the area of dispute resolution.

  • 2015 Lawrence Lecture: Tales of the Master Negotiator, Roy J. Lewicki

    Holly B. Cline

    At first glance, haggling for vegetables at a market, the culture of the Grand Bazaar in Istanbul, antique clock collecting, minivan shopping, and a conflict with a neighbor about underground plumbing may not appear to have a whole lot in common. At the 2015 Lawrence Lecture “Tales of a Master Negotiator: The Challenges of Moving Theory Into Practice,” OSU Fisher College of Business Professor Emeritus Roy J. Lewicki shared how these diverse life experiences have helped him become the “master negotiator” that he is today.

    On September 22, 2015, more than one-hundred students, faculty and friends of  The Ohio State University Moritz College of Law gathered during lunch to hear Professor Lewicki discuss and reflect on his experience as a negotiator and the practical ways in which he has mastered negotiation theory. In setting forth six negotiation lessons—apprentice to the masters; beware of your assumptions; manage (and train) your team; learn when to NOT negotiate; remember to “go to the balcony” and focus on interests; and capitalize on your learned expertise through preparation—Professor Lewicki shared anecdotal and entertaining stories highlighting how he learned these six lessons the “hard way.”

    Read more
  • Mental Health & Mediation

    Cory Martinson

    On Friday, October 2, The Ohio Mediation Association held a meeting at The Ohio State University’s Moritz College of Law. OSU College of Nursing Emeritus Professor Jeanne Clement discussed how to relate to individuals with mental illness during mediation. Professor Clement’s accomplishments over a more than fifty year career in the field of psychiatric nursing and mental health are too numerous to name and she has been a part of countless mediations involving individuals with mental illnesses. She facilitated discussion focused on common issues, such as capacity, which mediators may encounter while conducting a mediation involving at least one mentally ill participant.

    Professor Clement recognized that while some individuals with mental illnesses must be treated as “special” cases in the mediation setting, she also stressed that many participants with mental illnesses are capable of partaking in the mediation process. She suggested that there are a variety of steps a mediator could take depending on the type, severity, and symptoms of the participant to better prepare the participant for mediation.  Thorough mediator preparation will give participants a chance to fruitfully participate in mediation and  develop a durable agreement.

    Read more
  • Lawrence Competition a Success—Four Students at Regionals

    Between October 5 and 8, 2015, nearly seventy Moritz students participated in the annual Lawrence Negotiation Competition.  Special thanks to Moritz’s Moot Court Governing Board for arranging competition logistics and to all of the local practitioners who volunteered to judge this year’s competition.

    Congratulations to the wining team, Pat Schlembach & Trenton WeaverRobert Southers & Carol Walden claimed second place.  On November 13 and 14 two teams (Robert Southers & Carol Walden and Tyler Blair & Tyler Hall) traveled to Chicago with coach Luke Fedlam (’13) where they admirably represented Moritz at the ABA’s Midwestern Regional Negotiation Competition.

  • Truancy Mediation Project Resumes at Local Schools

    Moritz’s Truancy Mediation Project (TMP) facilitated this year’s first truancy mediation cases on November 5 at West High School.  TMP law student mediators work with students, parents and school officials with the goals of fostering clearer expectations between schools and families, helping to generate ideas that will help students and their families prioritize school attendance, and, ultimately, reduce absences in schools.  West High School—part of the Columbus City School District—has one of the highest truancy rates in the district.  TMP student mediators will continue to mediate at West and other local schools throughout the school year.

EDITOR'S CORNER

I’m Kelli Jo Amador, editor of the Mayhew-Hite Report for 2015-16.

The lead article featured in this issue is a reprint of Dean Stephen Sepinuck’s article, Managing the Risk of Legal Error in Arbitration, originally published by Gonzaga University School of Law’s Commercial Law Center in their newsletter, The Transactional Lawyer. Dean Sepunick is currently an Associate Dean at the Gonzaga University School of Law. This article covers the types of errors made in arbitration along with their associated risks, and strategies for avoiding such errors.

The article summary, by Mark Zronek,  Articles Editor and current member of The Ohio State Journal on Dispute Resolution, focuses on a forthcoming article by Hal Abramson, to be published in The Ohio State Journal on Dispute Resolution, slated for 2016. The article, Nelson Mandela as Negotiator: What can we learn from him? previews Abramson’s examination of the political figure as a negotiator by analyzing Mandela’s practices, speeches, relationships, and treatment of issues as informed through the lens of Abramson’s visit to Johannesburg shortly after Mandela’s death.

The case summary, by Danny Dubow, Articles Editor and current member of The Ohio State Journal on Dispute Resolution, features DIRECTV, Inc. v. Imburgia, United States Supreme Court No. 14-462 DIRECTTV addresses the continued conflict between the FAA’s preemption of state law and the  language of an arbitration agreement requiring the application of a state law, specifically with respect to contract language limiting class action arbitration.

Lastly, the student spotlight highlights recent Moritz graduate Brian Kelso’s (’15) award-winning article Drawing Outside the Lines: Utilizing International Approaches to Resolve Due Process Concerns in Med-Arb.  We appreciate Brian’s and the ABA's willingness to reproduce this article in this edition of the Mayhew-Hite Report.

Take a look at the Headline News for ADR news around Moritz, and feel free to email me with any comments or suggestions at amador.22@osu.edu.

STUDENT SPOTLIGHT

Drawing Outside The Lines: Utilizing International Approaches to Resolve Due Process Concerns in Med-Arb*

Brian Kelso**

I. INTRODUCTION

Every country has a unique approach to conflict resolution, and how each nation facilitates that process varies based on their cultural norms.1 Due to the backlog in the United States court system, there is a need for more expeditious resolution and cost saving approaches. As a result, new hybrid styles of dispute resolution have increased in popularity. One of the most prevalent alternative methods, known as med-arb, allows for a third-party neutral to conduct a mediation with the parties and proceed to binding arbitration only after settlement efforts have failed.2 While med-arb can provide many unique advantages for the parties, it also creates serious due process concerns during the exchange of confidential information while in caucus. Several countries utilize med-arb as a form of dispute resolution and have chosen to address these due process concerns with varying degrees of success. This paper will analyze these international approaches, and provide some guidance for how the United States can adopt a statutory remedy based on foreign solutions to combat these deficiencies. Part II of this paper gives a brief history and overview of med-arb in the United States. Part III will look at several international approaches to med-arb and how these countries address due process issues when transitioning from mediation to arbitration. Part IV will outline some potential statutory provisions based on foreign approaches to improve med-arb in the United States.

II. OVERVIEW OF MED-ARB IN THE UNITED STATES

Same-neutral med-arb is a two-step approach that traditionally begins with mediation and is followed by binding arbitration only after failing to reach a settlement.3 The neutral party acts in dual roles as both the mediator and the arbitrator throughout the process.4 A primary feature of this hybrid approach is that the parties in dispute desire to have a single individual act as both the mediator and arbitrator during the joint session. This request is either through contract or the consent of the parties. As med-arb has developed in the last few decades it has become prevalent in many dispute resolution settings. Parties that employ med-arb cite the benefits of an efficient and cost- saving method that can give parties some finality in their dispute. While there is a place for med- arb as a viable form of dispute resolution in the United States, there remains several defects with the process. The most discouraging is the lack of due process protections for parties when transitioning from mediation to arbitration.   Read more

MORITZ ADR LINKS

Moritz Program on Dispute Resolution

Widely regarded as one of the nation's finest programs in the area of Alternative Dispute Resolution, the Moritz ADR program was established in recognition of the need for future lawyers to be trained in an array of dispute resolution methods beyond litigation, including negotiation, mediation, and arbitration. [Program Home]

Ohio State Journal on Dispute Resolution

The Ohio State Journal on Dispute Resolution ("JDR") is a student-initiated, student-run publication and is the official law journal of the American Bar Association's Section on Dispute Resolution. [JDR Home]

The Caucus

The Caucus is a monthly e-newsletter that highlights the scholarship and accomplishments of the Moritz Program on Dispute Resolution faculty and students. [The Caucus Home]

Indisputably

Indisputably is a blog operated by law professors from around the United States concentrating on issues involving dispute resolution. [Indisputably Home]

Bridge Initiative @ Mershon and Moritz

The Bridge Initiative, which combines resources from Moritz College of Law and the Mershon Center for International Securities Studies, is an indispensable resource for those doing research in issues involving dispute resolution. [Bridge Initiative Home]

Contact US

Ohio State Journal on Dispute Resolution
The Ohio State University
Moritz College of Law
55 West 12th Avenue
Columbus, Ohio 43210-1391
(614) 292-7170
osu-jdr@osu.edu

The Ohio State University | Michael E. Moritz College of Law | 55 West 12th Avenue | Columbus, OH 43210-1391