Arbitration Panel Makes Come Back, Giving Lance Armstrong $10 Million Bench Slap.

22 Sunday Feb 2015

Posted by Celia C. Elwell, RP in Arbitration, Functus Officio Doctrine

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Arbitration, Arbitration Nation Blog, Functus Officio Doctrine, Lance Armstrong, Liz Kramer

Lessons From Lance Armstrong About the Finality of Arbitration Awards, by Liz Kramer, Arbitration Nation Blog (with hat tip to Karl Bayer, Disputing Blog)

http://tinyurl.com/ngquns4

On February 4, an arbitration panel ordered Lance Armstrong to pay $10 million to his former promotions company, SCA, as a result of his ‘unparalleled pageant of international perjury, fraud and conspiracy’ that covered up his use of performance-enhancing drugs. (Read the NYT story about it here.) What is curious about the award, from an arbitration law standpoint, is that SCA essentially re-opened an arbitration that it had lost with Armstrong in 2005 to obtain this new award.

The general rule of thumb is that arbitrators lose jurisdiction once they issue the final award. Other than the short period within which parties may request that arbitrators correct a clerical or computational error under the arbitral rules (AAA gives 20 days; JAMS gives only 7), the arbitrators turn into pumpkins for all practical purposes after the final award is issued. The arbitral rules do not have any equivalent to Rule 60, which in state and federal courts allows a judge to re-do a judgment or order based on newly discovered evidence, fraud, or mistake. (But even Rule 60 sets a deadline of one year after the judgment is entered to request that the judgment be vacated…)

There is even a fancy Latin name for the reason that arbitrators turn into pumpkins after they issue final awards: functus officio. The policy is that arbitration awards are supposed to bring finality, and we wouldn’t want arbitrators revisiting awards based on improper or ex parte information. However, one of my favorite arbitration resources, Domke on Arbitration, suggests that there are now so many exceptions to the functus officio doctrine that they just about swallow the rule. Courts have allowed arbitrators to revisit their awards to correct mistakes, to rule on an issue that was submitted but not decided, to clarify an ambiguity, and always, if the parties contractually authorize the same panel to hear a new issue.

That last exception explains how the SCA got a second bite at its arbitration with Armstrong. . . .

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Contracts Must Be Drafted With Specific Language To Enforce Arbitration.

01 Monday Dec 2014

Posted by Celia C. Elwell, RP in 5th Circuit Court of Appeals, 8th Circuit Court of Appeals, Appellate Law, Arbitration, Arbitration, Breach, Contract Law, Employment Law, Legal Analysis, Legal Writing, Precedent

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Arbitration, Breach of Contract, Contract Law, Legal Writing, Lexology, Liz Kramer, Stinson Leonard Street LLP

“Harmonizing” Contract Language Leads Two Circuit Courts To Deny Arbitration, by Arbitration Nation Blog, posted at Lexology Blog

http://tinyurl.com/mh3y6z3

Two parties recently convinced federal circuit courts that the language of their arbitration agreements was not sufficient to compel arbitration of their disputes. Both cases turned on how courts ‘harmonize’ language from different parts of an agreement or from multiple agreements.

The decision from the Eighth Circuit was a pretty easy one. The parties’ contract required them to mediate any dispute. Then it said: ‘if the dispute is not resolved through mediation, the parties may submit the controversy or claim to Arbitration. If the parties agree to arbitration, the following will apply…’ The party fighting arbitration (a city in South Dakota) argued the quoted language does not mandate arbitration, it makes arbitration an option for the parties, so the case should remain in court. [Emphasis in original.]

The party seeking arbitration emphasized a sentence at the end of the arbitration paragraph saying that the arbitrator’s ‘decision shall be a condition precedent to any right of legal action.’ It argued that the only way to harmonize that language is to conclude that arbitration is required. The court disagreed, finding that a reasonable interpretation is simply that if the parties decided to arbitrate, the arbitration decision is a condition precedent to further legal action. Quam Construction Co., Inc. v. City of Redfield, ___ F.3d___, 2014 WL 5334781 (8th Cir. Oct. 21, 2014). Therefore, the Eighth Circuit affirmed the district court’s denial of the motion to compel arbitration.

The Fifth Circuit had a harder case in Sharpe v. AmeriPlan Corp., __ F.3d__, 2014 WL 5293707 (5th Cir. Oct. 16, 2014). In that case, three former sales directors of a company sued for breach of contract after they were terminated. The company moved to compel arbitration and the district court granted the motion.

Their original employment agreements with the company did not call for arbitration, in fact they set the venue for legal proceedings exclusively in Texas courts. The employment agreements also incorporated a ‘Policies and Procedures Manual.’ The employment agreements could only be modified with written consent of all parties, but the Manual could be unilaterally modified by the company. Years later, the company amended its Manual to provide for mandatory arbitration.

The Fifth Circuit reversed the district court, finding that the new arbitration clause was unenforceable. First, the court concluded that the jurisdiction and venue clauses in the original employment agreements survived the amendment to the Manual, because there was no written and signed change to the employment agreements themselves and because the company had affirmatively relied on the venue clause (calling for Texas courts) when it transferred the case from California to Texas. And second, the court found that the old and new provisions “cannot be harmonized” without rendering the original agreement meaningless.

There are drafting lessons from these cases: if you want to have mandatory arbitration of disputes, the contract must consistently say that, and if you want to modify existing agreements to add arbitration, make sure to honor any language in the original agreement about how that agreement can be amended or modified and be clear what clauses are replaced or superseded.