While today’s “Highlights” has some case law, the important item appears at the end – a scholarly appraisal of arbitrators’ disclosure of social media contacts. If you only have time to read one thing over the next week, link to and read that article.
Failure to Mediate
Dispute resolution programs, in an effort to reach an early agreement, may establish a stepped procedure, under which the parties undertake mandatory mediation before moving on to arbitration or litigation. Miles v. Brusco Tug and Barge, Inc., 2022 U.S. Dist. LEXIS 59423 (E.D. Cal. March 29, 2022), demonstrates how a party’s failure to punch those pre-arbitration tickets can affect later arbitral proceedings.
The case arises out of a dispute over alleged wage and hour violations. Defendant argued that, as a member of the Master, Mates & Pilots union, Miles was bound by provisions of a collective bargaining agreement which required arbitration of such disputes. The Court, Nunley, J., however, holds that Brusco “forfeited” the right to compel arbitration by failing to undertake pre-arbitration mediation steps. The CBA required that the employee or Union present the complaint in writing to the employer, and that, after receiving the company’s response, the Union and company “discuss the grievance and attempt to settle informally.” Only then could the parties invoke arbitration. Here, in response to Miles’ lawsuit, Brusco moved directly to arbitration, skipping those preliminaries. The Court holds that “because Defendant never sought to compel compliance with these three steps, ‘the contractually established precursors to a duty to arbitrate,’ the Defendant has forfeited its right to compel arbitration,” quoting Knutsson v. KTLA, LLC, 228 Cal. App. 4th 1118 (2014)(Emphasis added). Accordingly, Judge Nunley denies the Defendant’s motion to compel arbitration. An interesting issue, though, is why the burden falls on the employer to satisfy the preconditions. Why shouldn’t the burden have fallen on Miles or the Union to seek informal resolution before he brought this action? Does the failure to do so mandate the dismissal of the action without prejudice to arbitration after the preliminary discussions take place. Perhaps this question will be resolved in later motion practice, so labor lawyers may want to follow this case.
Injunctive relief and arbitration; franchise law
Golden Fortune Import & Export Corp. v. Mei-Xin (Hong-Kong) Ltd., 2022 U.S. Dist. LEXIS 62266 (D.N.J. April 4, 2022)(Neals, J.) arises out of the dispute between the manufacturer of mooncakes which “enjoy an unparalleled reputation. . . ” and of which Golden Fortune was the East Coast distributor. As sales began to decline, defendant terminated the distribution agreement; Golden Fortune commenced this action, alleging violations of New Jersey’s franchise act, breach of the obligation of good faith and fair dealing, and tortious interference. This decision addresses Plaintiff’s request for a preliminary injunction to bar Mei-Xin from terminating the distribution agreement pendente lite. Judge Neals grants the injunction in an opinion that should be read by all franchise lawyers, finding that the court has personal jurisdiction over the Hong-Kong based defendant and that there is a likelihood of success for improper termination under the New Jersey Franchise Practices Act. For arbitration lawyers, the case is relevant as it holds that the presence of an arbitration clause does not prohibit a court from entering preliminary injunctive relief.
Incorporation of arbitration requirements contained in a second document
In White v. Merrill Lynch Pierce Fenner & Smith, Inc., 2022 U.S. Dist. LEXIS 60200 (D. Ariz. March 31, 2022)(Tuchi, J.), Plaintiff alleges that Merrill Lynch violated the terms of the parties’ account agreement and committed fraud and other torts in connection with the management of his margin account. Defendant moved to compel arbitration, pursuant to its Client Relationship Agreement. The court considers the issue of whether the terms of that agreement, which is not separately signed by the client, becomes effective by virtue of the client’s execution of an application for a Cash Management Account. Finding that the application specifically referenced the Client Relationship Agreement and separately provided that “I [THE CLIENT] AM AGREEING IN ADVANCE TO ARBITRATE ALL CONTROVERSIES THAT MAY ARISE BETWEEN ME AND MERRILL LYNCH,” (capitalization in original agreement), the court holds that the parties agreed to arbitrate. Judge Tuchi further holds that the broad language of the arbitration clause draws in the Plaintiff’s tort claims. Accordingly, he grants the motion to compel arbitration and dismisses the action.
Literature: Arbitrators’ Social Media and Conflicts
Mitch Zamoff, the McClendon Professor at University of Minnesota Law School, and Leslie Bellwood, a third-year student there, have written an important article which appears in the current edition of the Cardozo Law School’s Journal of Conflict Resolution.” In a lengthy and deep analysis, they consider how standards for the vacatur of awards under doctrines of partiality and the appearance of bias apply to social media contacts between parties or their counsel and the arbitrator. As they say, “While Commentators Have Flagged Social Media Disclosures as an Emerging Issue, They Have Yet to Provide Meaningful Guidance in this Area Either.” Zamoff and Bellwood propose guidelines for disclosure of such contacts. They would impose an obligation on the arbitrator to search his or her social media contacts (like connections on LinkedIn) and disclose all such ties, except “likes” which they hold create a looser tie between the communicators, even if there is little, if any, additional contact. As someone who is active in social media, I wonder whether it is not equally valid for the arbitrator to disclose that he or she has not conducted a search of social media, while specifically disclosing those “contacts” with whom he or she knows, without checking, that there is a “connection.” Once alerted, if the parties want the arbitrator to make a further inquiry, they can make that request. Also, a second level effect of the authors’ position is that active arbitrators may simply stop posting on social media, with the result that important information might get less widely distributed to the arbitration bar. Regardless of whether you agree with the article’s conclusion, it is an important addition to a vital, on-going discussion. Read it thoughtfully; the authors clearly wrote it in that spirit. Zamoff and Bellwood, “Proposed Guidelines for Arbitral Disclosure of Social Media Activity,” Journal of Conflict Resolution, 23:1, p. 1 et seq. (Spring 2022), https://static1.squarespace.com/static/60a5863870f56068b0f097cd/t/621808f19975c26755b22702/1645742321667/CAC106_crop.pdf.
Have a good weekend. My Pittsburgh Pirates, to the surprise of none of us who love them, opened the season with a loss. But, as flowers emerge every year from last year’s dirt, so do the hopes of the true fan of a perennial loser come alive each spring.
David A. Reif, FCIArb
 One of the on-going discussions in the arbitration world is whether taking steps that are inconsistent with the right to arbitration constitutes a “waiver” or a “forfeiture” of arbitration. While this distinction may seem like lawyerly nitpicking, it matters in those states where the elements of waiver and forfeiture differ. For example, waiver may require the intentional relinquishment of a right, while forfeiture may allow the loss of a right simply by conduct, regardless of the waiving party’s intent. Perhaps SCOTUS will give us some guidance when it decides Morgan v. Sundance Inc., which raises issues of waiver and was argued on March 21st.