Add Some Appeal to Arbitration Agreements

Most business people know that arbitration provisions in contracts can help avoid litigating matters in court before unsophisticated juries or elected state court judges.  Some use them to avoid litigating in “judicial hell holes.”

hellhole

 

However, in spite of the benefits of arbitration,  some businesses have been reluctant to use arbitration provisions due to very  limited appeal rights.  In fact, the bases for review of an arbitration award by a court are practically nonexistent.

Section 10(a) of the FAA establishes the grounds on which a court may set aside an arbitration award:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a).Section 11 provides the only grounds for modification of an award:

(a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award.

(b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.

(c) Where the award is imperfect in matter of form not affecting the merits of the controversy.

The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.

9 U.S.C. § 11.

Court review of an arbitration award made under the FAA is “extraordinarily narrow” and “exceedingly deferential,” Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391,393 (5th Cir. 2003).   Vacatur or modification is available only on the limited grounds set forth in §§ 10 and 11. 552 U.S. at 588, 128 S. Ct. at 1405.  Parties may not contract to expand judicial review beyond the bases set forth in the statutes. Id.

A recent revision to the AAA Rules provides for appellate review by a AAA appointed panel.

These rules are fully set out at http://go.adr.org/AppellateRules.  In short, they provide a review based on the written record without oral argument and  contemplate a ruling witin 90 days.  The appeal process is started by filing a notice of appeal within 30 days of the arbitration award.

If you need help adding some appeal to your arbitration agreements, contact me.

Matthew McConaughey’s Influence on Arbitration Involving Non-signatories

Matthew McConaghey won an Academy Award for Dallas Buyer’s Club and has been critically acclaimed for his performance in the HBO Series True Detective.

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He also appeared in A Time to Kill, Magic Mike, and Wolf of Wall Street.  His closing argument in A Time to Kill is one of the best movie court room scenes since To Kill A Mockingbird.  It is linked here https://www.youtube.com/watch?v=oSs04tXVCg4.

What he  is not known for his seminal role in the development of arbitration law addressing the enforcement of arbitration agreements by non-signatories that arose out of dispute over the distribution of Texas Chainsaw Massacre, the Next Generation.

This movie “starred” now famous actors Matthew McConaughey and Renee Zellweger. At the time the movie was made, McConaughey and Zellweger were relatively unknown actors.

McConaghey was a party in Grigson v. Creative Artists Agency, 210 F.3d 524 (5th Cir. 2000).  The case involved a dispute concerning distribution of a movie entitled “Return of the Texas Chainsaw Massacre.”

Grigson was trustee for the owners of the movie and he contracted with the producers of the movie and a distributor (Tri-Star) for distribution of the movie. Tri-Star held up distribution of the movie to take advantage of later success of Zellweger and McConaghey in other films.  Tri-Star later only gave the movie limited distribution.

Grigson was aggrieved by this limited distribution and sued the producers and Tri-Star. However, as soon as Tri-Star sought to enforce an arbitration agreement (which contained a California forum selection clause), Grigson dismissed the lawsuit.  After dismissal, Grigson and the producers sued McConaghey and his agent Creative Artists in Texas state court.  The case was removed to federal court and Creative Artists and McConaghey sought to enforce the arbitration provisions in the distribution agreement.  The federal district court enforced the arbitration provision.  The court held that Grigson and the producers were estopped from asserting the non-signatory status of Creative Artists and McConaghey because the “claims are so intertwined with, and dependent upon, the distribution agreement, its arbitration clause should be given effect.” Grigson, 210 F. 3rd at 526.

Grigson is widely cited for this “closely intertwined” test that the Fifth Circuit adopted in Grigson.  In adopting this test, Grigson followed an Eleventh Circuit case, MS Dealer Service v. Franklin, 177 F.3d 942, 947 (11th Cir. 1999).  In Grigson, the 5th Circuit stated that “we agree with the intertwined claims formulated by the 11th Circuit. Each case, of course, turns on its facts.”  The 5th Circuit went on to hold that “the lynch pin for equitable estoppel is equity – fairness.  For the case at hand to not apply with intertwined claims to compel arbitration would fly in the face of fairness.” Grigson, 210 F.3d at 527 -528 (emphasis added).   The lesson from Grigson is that whether a non-signatory can be bound by or enforce an arbitration agreement is a very fact intensive inquiry and will turn on the facts of a given case.