Arbitration Award Vacated Because Arbitrator Hid Ownership Interest In Arbitration Service

by: Peter J. Gallagher (LinkedIn)

Arbitration awards are rarely overturned. The standard to vacate an award is high, and judicial review of awards is often unexacting. So when a court overturns an award, it is usually worth a closer look. And one recent decision from the U.S. Court of Appeals for the Ninth Circuit, Monster Energy Company v. City Beverages , LLC, is definitely worth a closer look. In Monster, the court vacated an arbitration award based on the “evident partiality” of the arbitrator. The main evidence of the arbitrator’s “evident partiality” was his ownership interest in JAMS, a fact he did not disclose before the arbitration. At the risk of revealing my own ignorance, I did not know that JAMS is owned, at least in part, by some of the neutrals who mediate/arbitrate cases through JAMS. But it is, and after Monster, those owners should disclose that relationship to the parties before beginning an arbitration.

The defendant in Monster was a beer distributor. In 2006, it signed an agreement with plaintiff to be the exclusive distributor of plaintiff’s energy drinks for 20 years in a specific geographical territory. But the agreement contained an out for plaintiff – it could terminate the agreement without cause if it paid a severance fee to defendant in an amount agreed upon by the parties in the agreement. Eight years after signing the agreement, plaintiff exercised this clause, paid the severance fee, and terminated the agreement. Defendant objected, arguing that the termination violated Washington’s Franchise Investment Protection Act.

The agreement between the parties contained an arbitration provision, requiring that any dispute be resolved by JAMS Orange County. After plaintiff served its arbitration demand, JAMS provided the parties with a list of seven neutrals. The parties chose their arbitrator from this list. The chosen arbitrator then provided a disclosure statement, which included the following: “I practice with JAMS. Each JAMS neutral, including me, has an economic interest in the overall financial success of JAMS.” The arbitrator also disclosed that he had arbitrated one matter for plaintiff in the past five years, and that he had ruled against plaintiff in that case, which involved a dispute between plaintiff and another distributor.

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Fee Dispute Between Counsel Inspires Court To Bemoan The Death Of The Practice Of Law As A Profession

by: Peter J. Gallagher (LinkedIn)

In the final scene of the movie Scent of a Woman, Al Pacino’s character defends Chris O’Donnell’s character, who is about to be expelled from the (fictional) prestigious Baird School. Among many other things, Pacino’s character exclaims: “I don’t know who went to this place. William Howard Taft. William Jennings Bryant. William Tell, whoever. Their spirit is dead, if they ever had one.” Similarly, although slightly less dramatically, a fee dispute between counsel in Meister v. Verizon New Jersey Inc. led the trial court to eulogize the law as a profession:

This unfortunate fee dispute, coming as it does in the midst of seemingly final negotiations of a settlement, should resolve, with certainty, any lingering doubt that the practice of law, that storied profession of Marshall and Jefferson and Lincoln, is really now just another capitalist enterprise.

The court walked these comments back, slightly, by acknowledging that “[t]he practice of law is not a hobby” and “[h]ard working and industrious counsel who take risks to advance a client’s case and to maximize a client’s recovery should be rewarded.” But it then immediately returned to its original thesis:

However, while lawyers may indeed make a client’s life better through their advocacy and vigilant protection of that client’s interests, they are uniquely able to make it seem as though they are not doing so when quarreling, as they are here, over who gets to spell out how much they should be paid from their paralyzed client’s recovery and why one is more entitled to do so than another.

This is probably not how the lawyers in the case hoped the court would start its opinion.

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Judge Shopping Is Bad

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

That is the take home message from the Appellate Division’s recent decision in Goldfarb v. Solimine.

In Goldfarb, defendant promised to hire plaintiff to manage defendant’s family’s assets. Before getting written confirmation of defendant’s offer, plaintiff quit his job with an investment firm. Defendant then reneged on the promise, and plaintiff sued. At trial, the jury sided with plaintiff and awarded him damages based on the difference between the base salary defendant promised and what plaintiff actually earned at a new job he found after defendant reneged on that promise.

Both sides appealed on a number of issues, the most interesting of which had nothing to do with the underlying facts of the case. Plaintiff appealed the denial of his motion to recuse the trial judge, which plaintiff filed “after learning that a defense attorney, in an ex parte communication, sought the judge’s assignment to the case, and the judge responded by specifically requesting the assignment from the presiding judge.” The Appellate Division agreed with plaintiff and reversed the trial court’s decision on the motion to recuse.

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Lawyer Suspended One Year For Creating Fake Facebook Account To “Snoop” On Defendants And Witnesses

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Social media can be a valuable tool for litigators. Every state or local ethics authority that has considered the issue has held that public social media profiles are fair game. So litigators can generally mine the public profiles of witnesses, jurors, or even their own clients for useful information. But the same is not true for private social media profiles. Lawyers attempting to access anyone’s private social media profile are entering an ethical minefield. If someone is represented by counsel, then an attorney requesting access to that person’s private profile violates RPC 4.2, which prohibits communicating with individuals represented by counsel. Even if the person is not represented by counsel, some jurisdictions hold that it is still improper for lawyers to request access to private social media profiles unless they identify themselves and explain why they are requesting access. (Good luck getting someone to accept that friend request.) And requesting access from jurors is always improper because RPC 3.5 prohibits ex parte communications with jurors.

A recent ethics opinion from the Supreme Court of Pennsylvania, Office of Disciplinary Counsel v. Miller, offers another example of lawyers using social media improperly. In that case, respondent was the elected district attorney of Centre County, Pennsylvania. The Centre County judiciary had declared the sale of bath salts to be a nuisance and had enjoined three stores from selling them. Purportedly to track the sale of bath salts and enforce these injunctions, respondent created a fictitious Facebook account under the name “Brittney Bella.” To “portray a connection to the local community,” respondent created a fake backstory for “Brittney Bella,” claiming that she was a Penn State dropout who had moved to State College from Pittsburgh. She also included photos “from around the internet of young female individuals” on Bella’s Facebook profile, “to enhance the page’s allure.”

Once she established the fake Facebook account, respondent “liked” local establishments that sold bath salts, which led people who also “liked” those establishments to send “friend” requests to the fictitious Ms. Bella. Respondent accepted these requests and sent her own “‘friend requests’ in order to appear legitimate.” Respondent also encouraged the attorneys and staff in her office to help her with the Brittney Bella gambit. She told her staff that she “made a Facebook page that is fake for us to befriend people and snoop.” She encouraged them to “use it freely to masquerade around Facebook.” Finally, she requested that they “edit it . . . to keep it looking legit,” and “[u]se it to befriend defendants or witnesses if you want to snoop.” Respondent did not provide any guidance to her staff to prevent contact with defendants or witnesses.

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Litigation Privilege Protects Client’s Statement That His Former Lawyer Was a Liar, Thief, and “No Good Drunk”

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Privilege (pd)Anyone who has practiced law for any period of time likely has a story about a misdirected email. You know, the one you meant to send to a client or a colleague, but it went to your adversary or your supervising partner instead. These situations often just result in mild to moderate awkwardness around the office, but they sometimes create bigger problems. MacNaughton v. Harmelech, a recent decision from the Appellate Division, involved the latter. But it also involved the litigation privilege, something I wrote about just a few weeks back. (What Do eBay, The "40 Year Old Virgin," And The Litigation Privilege Have In Common?). And, fortunately for defendant, the statements in his misdirected email were protected by that privilege.

In MacNaughton, plaintiff, a New Jersey lawyer, represented defendant in a lawsuit involving defendant's company. Defendant disputed plaintiff's bill and plaintiff eventually sued defendant over the bill. At some point during the litigation, the trial court asked the parties whether they were interested in mediation. Around the same time, however, plaintiff was "in contact with another of defendant's creditors about banding together to force defendant into involuntary bankruptcy." As you might expect, when defendant learned about plaintiff's efforts, it colored his decision about whether to agree to mediation. In fact, defendant sent the following email, reprinted exactly as it appeared in the Appellate Division's decision, to his lawyers on the subject:

Please I Am asking you to file a paper in the state court there WILL NOT BE AGREE NOT TO BE A MEDIATION MACNAUGHTON CALL TODAY AND ASK HIM TO TRY TO POT ME IN IN VALENTRY BANKRUPTCY AS YOU SEE HE IS A. LIAR THIEF AND NO GOOD DRUNK

NO TO BE TRUSTED THANKS

Unfortunately, defendant also copied plaintiff on this email. Upon receiving it, plaintiff filed a one-count complaint for defamation. The trial court held a hearing on whether the statements were protected under the litigation privilege. After taking testimony from defendant and his current counsel, the court applied the four-factor test from Hawkins v. Harris, and held that they were. As a result, plaintiff's claim was dismissed. Plaintiff appealed.  

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