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Recent Cases and Developments in ADR – April 2013

Arbitration – Arbitration Clause in Employee Handbook Not Enforceable

The plaintiff brought suit alleging that her employer, its owner and her former supervisor interfered with her request for maternity leave under the Family and Medical Leave Act and retaliated against her by passing her over for promotion and demoting her to a part-time position. The defendants moved to compel arbitration pursuant to a provision in an employee handbook signed by the plaintiff. The Court denied the defendant’s motion on grounds that the arbitration agreement in the handbook is unenforceable.

In so ruling, the Court noted that the defendants conceded that the handbook is not a contractual agreement between the parties, that the defendants retained the unilateral right to alter the terms of the Handbook without plaintiff’s consent, that the handbook makes clear that its purpose is to provide guidelines to company employees, and that the defendants did not give plaintiff the opportunity to negotiate the terms of the Handbook and likewise did not direct any special attention to the Handbook’s import. Although plaintiff signed the Receipt & Acknowledgment page, that fact, standing alone, is not dispositive of contract formation.

The Dispute Resolution Policy appeared within the handbook and the defendants contend that the executed Receipt & Acknowledgment page operated as a separate and distinct agreement between the parties that gave effect to the terms of the Dispute Resolution Policy. However, the Court adjudged that a fair reading of the Receipt & Acknowledgment page and the Dispute Resolution Policy itself dictates a different result. The specific reference to the Dispute Resolution Policy which states ‘I have read and understand the [Dispute Resolution Policy] and agree to the resolution of any covered dispute in accordance with that Policy,’ appears alongside six other bulleted sentences. One of the later-bulleted sentences reemphasizes the unilateral right to modify the terms, stating ‘… should the content of this Handbook in any way change, Premier Education Group may require an additional signature from me to indicate that I am aware of and understand any new policies.’

“Furthermore, the Dispute Resolution Policy appears before the Receipt & Acknowledgment page, within the body of the Handbook itself. It does not appear in an additional format or on an additional page. In contrast, the Conflict of Interest and Alcohol Abuse Policies appear in a different format after the Receipt & Acknowledgment page; each requires an additional signature, arguably making them distinct from the Handbook itself.

The court concluded that ….”At best, therefore, it is ambiguous whether defendants intended that the reservation of the right to modify the contract applied to the entire Handbook, or the entire Handbook with the exception of the Dispute Resolution Policy. But ambiguities in arbitration agreements must be construed against its drafters. … Accordingly, the Court will interpret the Handbook to grant defendants the unilateral discretion to alter the terms of the Dispute Resolution Policy without having to notify plaintiff. Such discretion makes any agreement, if one even existed, illusory and unenforceable. …

“In sum, defendants retained the ability to modify the terms of the Handbook at their discretion, without notice to plaintiff. Because the Dispute Resolution Policy was a subsection of the Handbook, the power to modify terms also applied to the Dispute Resolution Policy. Defendants thus had the power to require plaintiff to arbitrate the covered dispute, while simultaneously reserving the right to modify the agreement. Such an agreement is not enforceable. Accordingly, defendants are not entitled to arbitration and the motion to compel arbitration will be denied.”

Domenichetti v. The Salter School, LLC, et al. (12 pages) (Saylor, J.) (USDC) (Civil Action No. 12-11311-FDS) (April 19, 2013).


Arbitration – Dispute over Condominium Stairs Requires Arbitration Under Trust Documents

In a case where the owners of the units in a two-unit condominium have been engaged in a dispute over the stairs leading to the front doors of the units, the Court ruled that the defendant’s motion to compel arbitration should be allowed based on the terms of the condominium trust and the commonwealth’s public policy favoring arbitration of disputes.

The parties’ dispute stemmed from the reconstruction of the front stairway leading up to the condominium. For purposes of this motion, the Court found that that this is a ‘common area’ and thus, subject to the By-Laws governing common areas, which states ‘All maintenance, and replacements of and repairs to the common areas and facilities as defined in the Master Deed … shall be made by the Trustees and shall be charged to each of the Unit Owners as a Common Expense.’ …

The Trust also contained a section entitled ‘Disputes’ which reads that ‘[a]ny Unit Owner aggrieved by any decision of the Trust in the administration of the Condominium may, within (30) days of the decision or action of the Trust, appoint an arbitrator. The Court found that whether through oversight, the use of boilerplate language, or otherwise, this provision creates impossibility: the only manner for resolving a dispute requires the unit owners to act unanimously in creating the dispute.

Interpreting this provision so as to give it meaning, this Court found that Nancy Marks, as a Unit Owner, was aggrieved by a decision of the Trust, namely Shawn McNamara’s decision, in his role of Trustee, to refuse to permit construction to go forward on the common area. … Alternatively, this Court could find that Ms. Marks acted in her role as Trustee when she decided to begin work on the common area, making Mr. McNamara the aggrieved unit owner.

In reaching the determination that arbitration is the appropriate course, the Court also noted that an April 29, 2010 letter from the McNamara’s predecessor counsel to Ms. Marks requesting that the parties arbitrate this dispute. In 2010, the plaintiffs recognized the availability of arbitration, it would therefore be inconsistent to claim that this same arbitration clause is now inapplicable.

The Court found that “Ms. Marks has not expressly or impliedly waived her right to arbitrate. … Here, the demand for arbitration was made immediately after the filing of this lawsuit. While the delay in filing the lawsuit may have been attributable to the defendant, this Court cannot affirmatively say she waived her contractual rights. …”

McNamara, et al. v. Marks, et al. (3 pages) (Curran, J.) (Middlesex Superior Court) (Docket No. 12-CV-0750-F) (April 10, 2013).


Arbitration – Counsel Fees Allowed in FINRA Case

In a case where the parties agreed to abide by any arbitration award rendered, the Court ruled that the arbitrators were acting within the Financial Industry Regulatory Authority (FINRA) guidelines by awarding counsel fees.

The plaintiffs argued that in the absence of a contractual agreement, statutory authority, or a joint agreement, counsel fees are generally not recoverable. … The defendants countered, and the arbitrators agreed, that pursuant to the ‘Registered Representative Agreement’ (RR agreement) and the rules of the Financial Industry Regulatory Authority (FINRA) to which the plaintiffs agreed to be bound, the circumstances of this case permit attorney’s fees. The judge agreed with the defendants, holding that according to the FINRA Dispute Resolution Arbitrators’ Guide, attorney’s fees are allowed when the contract includes a clause that provides for the fees and the all of the parties request or agree to such fees, as was the case in this matter. As the arbitration award did not violate the law, the judge confirmed the award.

The record revealed that the plaintiffs filed a FINRA ‘Arbitration Submission Agreement’ stating that they would agree to abide by any award rendered. The parties filed several claims and asked for attorney’s fees to be decided as part of the arbitration award. The Court noted that under the FINRA Dispute Resolution Arbitrators’ Guide, attorney’s fees may be included in an award under certain circumstances, such as when all of the parties request or agree to such fees and found accordingly, as identified in the arbitration award, the arbitrators were acting under FINRA’s guidelines by awarding such fees.

Kaplan, et al. v. Shanahan, et al. (4 pages) (Appeals Court – Unpublished) (No. 12-P-356) (April 10, 2013).


Arbitration – Award in Employment Dispute Upheld

In 2010, the plaintiff employer was awarded damages due to the defendant employee’s breach of a non-competition clause. In 2012, the defendant was awarded damages pursuant to an unlawful retaliation lawsuit. The defendant then sought to vacate the 2010 arbitration award given the findings in the 2012 lawsuit, the defendant is unable to show that the 2010 award should be vacated under either 9 U.S.C. §10(a) or F.R.C.P. 60(b)(2).

The Court found that “… Once an arbitration award is confirmed it is given the ‘same force and effect’ as a ‘judgment in an action’. … The plain language of 9 U.S.C. §10(a), the section of the Federal Arbitration Act under which defendant raises most of his arguments, does not pertain to a confirmed award which has become a final judgment of the court. …

The Court found that although defendant raised several arguments under 9 U.S.C. §10(a), the Court reviewed his motion and the arguments contained therein under the standard set forth in case law interpreting F.R.C.P. 60(b), which itself provides relief that is ‘extraordinary in nature’ and which ‘should be granted sparingly’, and that “It is clear that defendant’s complaints do not merit the extraordinary remedy that he seeks. …

The Court found that the Defendant’s argument is deficient even when construed as an attack on the 2010 Arbitration Award rather than on this Court’s final judgment, and that a review of the 2010 Award demonstrates that the arbitrator analyzed the non-compete provision under the applicable legal principles and upheld the provision. Defendant cites no binding authority that the arbitrator neglected to consider and, as a result, the Court must still defer to her conclusion.

The Defendant entered into an employment agreement for consideration. That contract included both a two-year non-compete clause and an arbitration provision. He has contested the 2010 Arbitration Award on three occasions and has lost each time. The Court stated that…”Should defendant defy a valid attempt by plaintiff to execute upon the judgment of this Court, he will be held in contempt and sanctions will be imposed.”

Lumber Liquidators, Inc. v. Sullivan, (9 pages) (Gorton J.) (USDC) (Civil Action No. 10-11890-NMG) (March 28, 2013).


Arbitration – Arbitration Clause Found Not Enforceable in Home Improvement Case

An Essex County Superior Court judge awarded summary judgment to the plaintiff homeowners in a dispute with the defendant home improvement contractor.  The Court affirmed this judgment despite the defendant’s assertion that the dispute should be arbitrated in Worcester County.

The contract signed by the homeowner and the contractor had this arbitration clause embedded into the middle of a paragraph indicating…‘Should disputes arise after commencement of work and parties cannot come to an agreement customer agrees that all and any disputes shall be settled through arbitration in county where the business Keller Waterproofing & Foundation LLC resides.’  The defendant argued that G.L.c. 251, the Massachusetts version of the Uniform Arbitration Act, and the strong public policy in favor of arbitration, required the Court to reverse the order from the Essex County Superior Court and compel arbitration in Worcester County. The plaintiff countered that the arbitration provisions of G.L.c. 142A, which govern home improvement contractors, supersede those of G.L.c. 251 in this case, and the Court agreed.

The Court found that while the defendant is correct that G.L.c. 251, §1, controls arbitration provisions generally, that is not the case here. The defendant is a home improvement contractor; the plaintiff, a homeowner. The legislature has adopted a series of laws that govern the relationship, including arbitration procedures, between home improvement contractors and homeowners. Based on the familiar tenets of statutory construction, the Court found that G.L.c. 251 must yield to G.L.c. 142A, when these parties are involved.

The Court agreed with the Essex County judge who found that the arbitration provision agreed to by the parties contained deficiencies prohibited by G.L.c. 142A, and that in the absence of an approved provision for arbitration in a contract, G.L.c. 142A gives homeowners the right to seek arbitration should a dispute arise, but contractors are not afforded the same right. See G.L.c. 142A, §3. The Court found that if contractors include an arbitration provision in a contract, they may do so only with a provision that is ‘clearly and conspicuously disclosed in the contract, in language designated by the director, and that each party separately signs and dates the provision, thereby assenting to the procedure.’ G.L.c. 142A, §2. See also 201 Code Mass. Regs. 14.03(4) (2003). The Court found that the arbitration clause here meets none of these requirements. It is contained in the middle of a long paragraph and is not distinguishable, whether by size, font, or color, from the rest of the text. Nor does the language match, or even closely approximate, that of the director’s as outlined in 201 Code Mass. Regs. 18.05(e). Finally, the parties did not separately sign and date the provisions. Accordingly, the provisions of G.L.c. 142A generally, and G.L.c. 142A’s arbitration provisions specifically, supersede the provisions of G.L.c. 251 under the facts of this case, and the Court ruled that the judge properly awarded summary judgment to the plaintiff in the declaratory relief action.”

Mamaril, et al. v. Keller, et al. (7 pages) (Appeals Court – Unpublished) (No. 12-P-827) (March 15, 2013).


Arbitration – Police Officer Reinstatement Does not Contravene Public Policy

Where a Superior Court judge confirmed an arbitrator’s decision to order the reinstatement of a police officer who had been terminated, the arbitration award did not contravene public policy, so the Superior Court judgment must be upheld.

The plaintiff, the city manager of the city of Worcester, contended that the arbitrator’s decision infringes on the city’s managerial prerogative and otherwise violates public policy by requiring the city to retain an officer who (i) violated three teenagers’ constitutional rights and (ii) engaged in felonious conduct by assaulting the teenagers without cause. The plaintiff also argues that the arbitrator exceeded his authority under the applicable collective bargaining agreement (CBA) by improperly interpreting and applying various statutory, regulatory, and other administrative rules incorporated therein. The judge was not persuaded that the arbitrator’s decision to reinstate the officer amounted to a violation of public policy and confirmed the arbitration award.

Affirming this award, the Court stated… “It seems clear that the city’s claim meets the first two of three criteria for application of the public policy exception. The critical issue here is the third: whether ‘the arbitrator’s award reinstating the employee violates public policy to such an extent that the employee’s conduct would have required dismissal.’ … This factor cannot be met ‘by the expedient of ignoring the arbitrator’s finding’ that [David] Rawlston had acted reasonably under the circumstances and had not violated the rights of the teenagers, nor used excessive or improper force, nor had improperly used his firearm. …

“In Boston v. Boston Police Patrolmen’s Assn., 443 Mass. [813, 819 (2005)], unlike the case at bar, the arbitration award was vacated as a violation of public policy because the arbitrator ordered reinstatement in spite of having made findings showing egregious conduct, including ‘that [the officer] had falsely arrested two individuals on misdemeanor and felony charges, lied in sworn testimony and over a period of two years about his official conduct, and knowingly and intentionally squandered the resources of the criminal justice system on false pretexts.’ …

“Here, the factual and legal underpinnings necessary to the application of the public policy exception is lacking. The arbitrator did not issue an award of reinstatement that flies in the face of factual findings of misconduct; there is no inconsistency between the findings of the arbitrator and his award of reinstatement.”

O’Brien v. New England Police Benevolent Association, Local 911 (9 pages) (Fecteau, J.) (Appeals Court) Case heard by Budd, J., in Superior Court. (Docket No. 12-P-155) (March 1, 2013).


 Conciliation training guidelines modified 4:29 pm Thu, March 7, 2013 

Trial Court Chief Justice Robert A. Mulligan has approved a change in the qualification training requirements for court-connected conciliators, as recommended by the Standing Committee on Dispute Resolution.

The amended guidelines, which took effect March 1, permit those who have completed an approved mediation training program to serve as conciliators in a court-approved program, subject to the approval of the conciliation program and the completion of the necessary court orientation.

Accordingly, Article III of the Alternative Methods for Conciliators in the Guidelines, implementing Rule 8 of the Uniform Rules on Qualification Standards for Neutrals, has been amended to include: “Completed the training requirements for a Mediator, as set forth in Rule 8(c) in addition to a court orientation as an approved Conciliation Program requires.”