Massachusetts Dispute Resolution Services

Recent Cases Involving ADR — February 2013

Arbitration – Loss of use damages

Where the plaintiffs appeal from a decision reducing an arbitrator’s award for loss of use damages from $120,000 to $4,500, the reduction of damages must be reversed, as (1) the award for loss of use was within the arbitrators’ authority and (2) it is too late for the defendant insurer to claim it is not bound by the arbitration.

“The issue of loss of use damages was before the arbitrators by consent of the parties, as stated in the 1998 District Court judgment and reinforced by this court in 2004 in a memorandum and order pursuant to our rule 1:28. … Contrary to the defendants’ suggestion that the arbitrators based their award on matters not before them, the award by its own terms is limited to loss of use. The defendants argue that the arbitrators exceeded their authority under G.L.c. 251, §12(a)(3), because loss of use damages generally extend only for the time reasonably necessary to repair a damaged automobile. … The plaintiffs sought and were awarded damages for an increased period of time based on the situation ‘where an injured party is unable to finance repairs and a defendant refuses to pay.’ … It suffices to say that this relief was not ‘prohibited by statute,’ … nor otherwise ‘prohibited by law.’ … The defendants’ argument therefore amounts to no more than an assertion of error of law or fact, which is insufficient. …

“The Appellate Division held that [defendant] Liberty had not been party to the arbitration and therefore should not have been subject to the judgment. We disagree. The stipulation of dismissal did not remove Liberty from the case, but instead dismissed ‘any claims in this action not disposed of by the binding arbitration,’ meaning that the arbitration proceeding was fully preserved. At a hearing in 1998, an attorney representing both defendants agreed that the loss of use issue had been sent back to the arbitrators, and gave no indication that Liberty no longer considered itself a party despite Timothy J. Sheehan, Jr.’s description of his ‘adversary’ as ‘the insurance company.’ The resulting judgment entered against both Liberty and [defendant Helen] Miller and noted the parties’ acknowledgment that ‘the arbitration panel has been requested to consider an additional claim for damage for loss of use,’ and Liberty neither moved to amend the judgment nor appealed from it. Instead, Liberty brought an action in Superior Court in 2000 in its own name, seeking to enjoin the arbitration, without mentioning its present contention that it had no part in the arbitration. We held nearly a decade ago that this suit was an impermissible collateral attack, that Liberty ‘expressly acknowledged the pendency of the [plaintiffs’] loss of use claim before the arbitration panel,’ and that therefore the arbitration could proceed. … The time for Liberty to raise its claim that it was not bound by the arbitration is long past. …”

Sheehan, et al. v. Miller, et al. (5 pages) (Appeals Court – Unpublished) (No. 12-P-340) (Feb. 6, 2013).

 

Arbitration – Untimely motion to vacate

Where an arbitrator awarded a defendant $126,442.58 in connection with loans to the plaintiff, a former employee, a motion by the plaintiff to vacate the arbitration award must be denied, as the motion was untimely and the defendant did not engage in “corruption, fraud or undue means” by communicating with the plaintiff rather than her legal counsel.

Limitations

“… On September 18, 2011, Plaintiff’s attorney, as attested to by her, sent Defendant a letter … stat[ing] that all future communications regarding the matter, including arbitration, were to be directed to the her and not to Plaintiff. …

“Plaintiff never filed an answer and did not appear at the arbitration proceeding. …

“Plaintiff asserts that the court should vacate the arbitration award because, despite the September 18, 2012 letter to Defendant from Plaintiff’s attorney directing that all future communications be sent to her, Defendant failed to provide Plaintiff’s attorney with notice of its statement of claim and failed to advise [the Financial Industry Regulatory Authority (FINRA)] that Plaintiff was represented by counsel. …

“Even assuming that Plaintiff’s actual receipt of the arbitration decision, i.e., April 28, 2012, began the running of the limitations period, it is undisputed that Plaintiff’s filing of the present motion on July 31, 2012, was untimely by three days. ... Unfortunately for her cause, Plaintiff has not cited nor can she cite any case law which excuses such late filing, no matter how short it may appear. …

“At best, without citing any case law, Plaintiff asserts that ‘the timing of the filing to vacate the arbitration should not have begun to [run] until her attorney received notice of the decision [on May 1, 2012].’ However, this is not a situation in which there were ‘extraordinary circumstances’ beyond Plaintiff’s control or in which she was ‘materially misled into missing the deadline.’ … Plaintiff was hardly unaware of an obligation to proceed expeditiously; in fact, as Plaintiff asserts in her memoranda, her attorney had multiple conversations with Defendant’s attorney ‘between the months of May and June’ concerning the arbitration award. In short, Plaintiff is not entitled to equitable tolling and her motion remains untimely.”

Lack of deceit

“… Plaintiff claims that Defendant’s failure to provide the statement of claim to Plaintiff’s attorney or advise FINRA that she was represented by counsel constituted ‘corruption, fraud, or under means’ under 9 U.S.C. §10(a)(1), which justifies vacatur. …

“[T]he court concludes that Plaintiff has not demonstrated and cannot demonstrate that ‘corruption, fraud, or undue means’ on Defendant’s part justifies vacating the arbitration award. First, Defendant complied with the FINRA Code — which, as mentioned, was incorporated into the arbitration contract — by sending the statement of claim directly to FINRA, not to Plaintiff or her attorney. … As Defendant asserts, ‘there was nothing immoral or deceitful in the routine manner in which the arbitration was commended and proceeded.’

“Second, FINRA sent multiple reminders to Plaintiff to file her answer and warnings as to the consequences of failing to do so. Thus, due diligence on Plaintiff’s part, namely, forwarding the documents to her attorney, would have ensured notice to her attorney and prompted discovery of any problem. … That simply did not occur.

“To be sure, Plaintiff alleges that ‘[a]ll of [her] time and effort during this period were focused on taking care of her mother,’ who was battling terminal cancer, and that she assumed her attorney was taking care of the arbitration issue. These unfortunate circumstances, however, do not transform this case into one of ‘corruption, fraud, or undue means’ on Defendant’s part. Even if Defendant were somehow obligated to inform FINRA that Plaintiff was represented by counsel and that she wanted all correspondence directed to her attorney, and assuming that FINRA would have disregarded its procedure requiring that the statement of claim be sent directly to Plaintiff, both of which are doubtful, the court would still conclude that this case does not rise to the level of ‘corruption, fraud, or undue means.’ …”

Domnarski v. UBS Financial Services, Inc., (11 pages) (Neiman, U.S.M.J.) (Civil Action No. 12-30139-KPN) (Jan. 30, 2013).

 

Arbitration – Central Artery/Tunnel Project

Where arbitration awards concerning the work of a contractor on the Central Artery/Tunnel Project were vacated in Superior Court, that was proper based on the language of the contracts between the parties.

“The defendants, Perini Corporation, Kiewit Construction Co., Inc., and Jay Cashman, Inc. (collectively, PKC), doing business as Perini-Kiewit-Cashman Joint Venture, appeal from a Superior Court order vacating arbitral awards in PKC’s favor and from orders on PKC’s subsequent motions for clarification and reconsideration. See G.L.c. 251, §18. The awards were made pursuant to a 1999 agreement between PKC and the plaintiffs, the public agencies overseeing the Central Artery/Tunnel Project (collectively, CA/T). The 1999 agreement provided that the parties submit a specific group of PKC’s claims against CA/T, arising from PKC’s work as a general contractor on the project, to binding arbitration before a disputes review board (DRB). Those claims were listed in exhibit 1 to the 1999 agreement and were related to events occurring prior to January 1, 1999.

“In addition to the claims specifically listed in exhibit 1, PKC submitted other claims to the DRB, some of which PKC alleged were related to the exhibit 1 claims and subject to binding arbitration. The DRB issued binding determinations as to which of the submitted claims were subject to binding arbitration, assessed the merits of the claims, and issued awards.

“CA/T brought suit in the Superior Court to vacate or modify the awards. On cross motions for summary judgment, a judge allowed CA/T’s motion, concluding that the court was required to vacate the awards because the DRB had exceeded its authority under the 1999 agreement when it decided which of the claims before it were arbitrable. In response, PKC filed motions for clarification and reconsideration. A second judge, acting on those motions, concluded that the awards were to be vacated in their entirety, that disputes concerning arbitrability were to be decided under the dispute resolution provisions of a 1995 contract between the parties, and that C/AT neither waived nor was judicially estopped from contesting the DRB’s authority to make binding determinations as to arbitrability. …

“We conclude that the 1999 agreement did not give the DRB the authority to issue binding awards as to the arbitrability of the disputes between the parties. We further conclude that the issue of arbitrability is to be resolved in accordance with the 1995 contract’s dispute resolution process, set out in subsection 7.16, and that there was no error in vacating the awards in their entirety.

“The order (dated December 23, 2010, and docketed December 27, 2010) on the cross motions for summary judgment is affirmed. The order (dated March 7, 2011, and docketed March 8, 2011) on the motion for clarification is affirmed. The order (dated June 2, 2011, and docketed June 3, 2011) on the motion for reconsideration is affirmed. The matter is remanded to the Superior Court for further proceedings in accordance with this opinion.”

Massachusetts Highway Department, et al. v. Perini Corporation, et al. (20 pages) (Graham, J.) (Appeals Court) Cases heard by Hinkle, J., on motions for summary judgment, and motions for clarification and reconsideration heard by Lauriat, J., in Superior Court. (Docket No. 11-P-1666) (Jan. 17, 2013).

 

Arbitration  –  Clause Binding on Assignees

An arbitration clause contained in a cleaning company’s franchise agreements is binding on a group of assignees, the 1st U.S. Circuit Court of Appeals has ruled.

The plaintiff assignees signed “Consent to Transfer Agreements” or “Guaranties to Coverall Janitorial Franchise Agreements,” which did not themselves contain arbitration clauses, but which by reference incorporated obligations under the original franchise agreements that did contain such clauses.

U.S. District Court Judge William G. Young found that the plaintiffs did not have adequate notice of the clause contained in the franchise agreements and thus were not obligated to arbitrate.

But the 1st Circuit reversed.

“Massachusetts law is explicit that it does not impose a special notice requirement upon agreements containing arbitration clauses,” Chief Judge Sandra L. Lynch wrote for the unanimous panel. “Such a requirement, in any event, would be preempted by the Federal Arbitration Act (‘FAA’), 9 U.S.C. §1, et seq., which requires courts to place such arbitral agreements upon the same footing as other contracts.”

The 20-page decision is Awuah, et al. v. Coverall North America, Inc., No. 12-1301, December 27, 2013.

 

Insurance – Fees – Settlement – Class action

Where (1) a class action was brought challenging a defendant insurance company’s failure to pay interest on arbitration awards obtained by insureds and by third parties, (2) a settlement agreement has been reached and (3) the plaintiff seeks $136,800 in counsel fees, the fee award should be in the amount of $50,000.

Reduced award

“This case raises claims identical to those raised and decided in an earlier class action filed in this Court, Meaney v. OneBeacon Ins. Group, LLC, SUCV 2007-1294-BLS. Seven automobile insurers were named as defendants in Meaney. After several years of litigation, that suit has been largely resolved by settlements in favor of class plaintiffs. …

“… Certainly, the result obtained on behalf of the class was a good one and the legal work was of a high quality. The fact remains, however, that this matter was essentially concluded within a very short period of time, the legal issues were not unduly complicated (since they had largely been resolved in the Meaney litigation), and the amount of the settlement was relatively small. Most significant, the number of hours for which plaintiff’s attorneys seek compensation is extremely high. In particular, this Court notes the following:

“1. The requested attorneys fees are more than ten times the $13,888.95 settlement agreed upon by the parties. When a fee request is on its face dramatically disproportionate to the results obtained, the judge should focus with precision on the relationship between the time invested and the results achieved and satisfy itself that counsel has not substantially exceeded the bounds of reasonable effort. … Plaintiff’s counsel’s work in this case does not hold up under such scrutiny.

“2. The amount of hours for certain work is clearly excessive, given the fact that [John] Yasi and his associates had already addressed the same issues in Meaney, and [defendant] NGM indicated early on in the litigation that it did not intend to dispute liability. Indeed, the number of hours billed for particular tasks seems to have been inflated. For example, a close reading of the Complaint in this case shows that it is virtually identical to the complaint filed in Meaney. Thus, counsel’s bill for over $17,000 related to the drafting or reviewing of the Complaint, where the work was for the most part a ‘cut and paste’ job, is clearly not warranted. The same is true with regard to the settlement documents. On September 26, 2011, [Matthew] LaMothe sent the settlement documentation used with respect to an insurer in the Meaney case as a the basis for a proposed settlement of [plaintiff Julie] Diminico’s class claims. With only minor changes, these documents became the basis for the settlement that this Court approved.

“3. Some of the work for which plaintiff’s counsel seeks compensation was plainly unnecessary. For example, after receiving the check sent from NGM to cover the unpaid interest on the named plaintiffs underlying arbitration award, attorney Yasi and NGM, via email, agreed that the check did not limit or waive any claim the plaintiff had against NGM. Notwithstanding this express agreement between the parties, Yasi had [Kevin] McCullough analyze and research case law as to the legal implications of cashing the check received from NGM. Attorney McCullough spent 9.75 hours researching this issue at a rate of $550 per hour. As another example, this Court notes that counsel seeks fees for time spent monitoring a deposition of a witness in Meaney. This was after the parties had entered into a memorandum of understanding to resolve the case and is therefore hard to justify on its face.

“4. Some billing appears to be duplicative of the work of others. For example, no less than four attorneys billed large blocks of time on the same dates in June 2011 for work described simply as ‘review of existing class actions,’ ‘rereading of all case law, ‘review of prior decisions, and ‘reexamination of legal issues pertaining to arbitration interest.’

“5. Seventy eight hours were billed by a first year associate, Matthew T. LaMothe, whose hourly rate was $300. This Court finds that both the number of hours and the hourly rate are unreasonably high in light of LaMothe’s limited experience and the fact that the bulk of the work had already been done in Meaney. Moreover, Yasi, lead counsel on this case, billed 84.5 hours at a rate of $550. From the descriptions in the bills, some portion of this time was spent in supervising LaMothe and reviewing his work. While this kind of supervision is important in the development of young associates, it is not time that NGM should have to pay for.

“Finally, there is the matter of the stipend for the named plaintiff. This was not part of the settlement agreement approved by the Court. Consequently, there is no basis to allow such a stipend as part of a fee request. If the named plaintiff is to be rewarded for her agreement to bring this suit, it should come out of the money paid to plaintiff’s counsel, who clearly benefitted most from this action.”

Diminico v. National Grange Mutual Insurance (6 pages) (Sanders, J.) (Suffolk Superior Court) (Docket No. 11-03037) (Dec. 4, 2012).

Contract – Arbitration – Lease

Where a judge found that a dispute over a lease for a boat slip was governed by an arbitration clause in the lease, that conclusion was warranted and thus an order allowing the lessor’s motion to compel arbitration must be affirmed.

“… The judge rejected [Robert] Cremone’s argument that the marina had waived the right to arbitration by terminating the lease and taking other action provided for in the lease. …

“… Under the plain and unambiguous terms of their contract, Cremone and the marina agreed that ‘any controversy or claim’ regarding the lease of the boat slip, or breach of that lease ‘shall be settled’ by arbitration. Contrary to Cremone’s contention, their agreement to arbitrate controls without regard to whether the dispute is ‘commercial.’

“We discern no error in the judge’s determination that the marina did not waive its right to arbitration by taking action as provided for in the lease, see e.g., lease §§5 and 9. The propriety of the marina’s action remained a ‘controversy or claim arising out of … [the] Lease’ subject to mandatory arbitration under the contract. Moreover, to the extent that Cremone argues that the marina violated the contract by not initiating arbitration at earlier points in time, that argument itself can be raised in the context of arbitration.

“Nothing in the record suggests that the marina acted in a manner inconsistent with its right to arbitration. … It responded promptly to service of Cremone’s complaint with a motion to dismiss or, in the alternative, to compel arbitration. …

“We also reject Cremone’s contention, raised for the first time in his reply brief, that the dismissal of his claims under G.L.c. 93A were improper in light of Hannon v. Original Gunite Aquatech Pools, Inc., 385 Mass. 813, 826 (1982). Nothing in the record demonstrates that this issue was even argued below. … Even were this issue not waived, we conclude that Cremone’s claim under G.L.c. 93A is itself a subject of mandatory arbitration under the agreement. …”

Cremone v. Development and Marketing Group Chelsea II, LLC  (3 pages) (Appeals Court – Unpublished) (No. 11-P-1458) (Dec. 3, 2012).

Insurance – Sexual harassment – Issue preclusion

Where a judge ruled in favor of an insurance company on the issue of whether a duty of defense or indemnification was owed to a company president accused of sexual harassment, the judgment was correct under the doctrine of issue preclusion in light of a prior arbitration between the company president and the purchaser of his business.

1st Circuit’s reasoning

“The crux of this appeal is whether the district court properly applied the doctrine of issue preclusion to bar [Luciano] Manganella from litigating whether the Policy’s Disregard Exclusion applies to the conduct alleged in [Donna] Burgess’s MCAD charge. As described above, the district court held that the arbitration between Lerner [New York, Inc.] and Manganella had decided, in the affirmative, the crucial question of whether Manganella’s acts, as alleged by Burgess, were committed with wanton, willful, reckless, or intentional disregard for the Massachusetts sexual harassment law that formed the basis for her claims against him. …

“Manganella argues that the arbitrators were simply never called upon to decide whether he acted in disregard of state law. He claims that Lerner’s Code of Conduct is broader and stricter than state sexual harassment law; the Code, he says, reaches not only sexual harassment serious enough to violate the law, but also less serious harassment, as well as behavior that would embarrass the company or constitute a failure of leadership. Thus, Manganella argues, the arbitrators did not, in the process of deciding whether he violated the Code, decide anything about the relationship between his conduct and state law.

“We think that Manganella overstates the differences between the Code of Conduct and the state law referenced in the Disregard Exclusion. … Thus, both the state law and the Code reach ‘sexual advances,’ ‘requests for sexual favors,’ and other ‘verbal’ or ‘physical’ ‘conduct of a sexual nature.’

“To be sure, the law does impose a severity requirement absent from the Code; the behavior described above is unlawful only if it involves a quid pro quo or ‘creat[es] an intimidating, hostile, humiliating or sexually offensive work environment.’ But this requirement does not, as Manganella suggests, mean that a single incident cannot constitute unlawful sexual harassment. In fact, the Supreme Judicial Court has declined to require sexual harassment claims to be based on any particular number of incidents. … Thus, the fact that the arbitrators did not expressly find that Manganella had propositioned any particular employee more than once does not mean that his conduct could not have run afoul of the law.

“None of this is to say that we see no distinction between the standard imposed by the Code and that created by the law. Rather, the point is that the two standards are similar enough that we are unable to discern a meaningful difference, on the facts of this case, between acting in willful violation of the former (which the arbitrators found Manganella to have done) and acting with wanton disregard of the latter (which triggers the Disregard Exclusion). Because of this similarity, sexually harassing conduct committed in willful violation of the Code, by a person familiar with the law, would, on these facts, show a wanton or reckless disregard for whether that conduct was lawful. …

“One final point bolsters our conclusion that the arbitrators effectively decided the issue presented here: proof of a willful violation of the Code and proof of conduct committed in disregard of the law would be extremely similar. …

“Consequently, we turn to the other element of issue preclusion that Manganella contends is missing here: necessity to the judgment. Manganella asserts that the arbitrators’ finding that he engaged in sexual harassment in willful violation of Lerner’s Code of Conduct was not essential to their ruling. … Based on what was actually decided by the arbitrators, we disagree. …

“In sum, the arbitration presented Manganella with the ‘full and fair opportunity’ for adjudication of the issue at hand that is the centerpiece of modern issue preclusion doctrine. … The extent of his harassing conduct and his knowledge that it was prohibited were vigorously litigated and were essential to the panel’s judgment. Allowing Manganella to contest these questions now would contravene the twin goals of issue preclusion: protecting litigants from the burden of relitigating settled issues and promoting judicial economy by preventing needless litigation. … Accordingly, the district court was correct to bar Manganella from disputing the applicability of the Disregard Exclusion.

Manganella v. Evanston Insurance Company v. Jasmine Company, Inc. (Lawyers Weekly No. 01-312-12) (19 pages) (Stahl, J.) (1st Circuit) Appealed from a decision by Stearns, J., in the U.S. District Court for the District of Massachusetts. (Docket No. 12-1137) (Nov. 27, 2012).

 

Arbitration – Statute of limitations – CBA

Where the plaintiff electric company filed an action against the defendant union seeking to vacate an arbitration award, the plaintiff’s action must be dismissed as untimely.

The defendant’s motion to affirm is granted in light of evidence supporting the arbitrator’s decision.

“[Defendant] Local 455 argues that [plaintiff] WME failed to file its application to vacate the arbitrator’s award within the statute of limitations, which it contends is thirty days, and therefore that the application to vacate should be dismissed. …

“Here, the arbitrator’s decision was handed down on January 28, 2011, and WME stipulated that it received a copy on January 31, 2011. WME then filed its application to vacate the arbitrator’s award some eighty-nine days later on April 27, 2011, well more than thirty days after it received a copy of the arbitrator’s decision. As a consequence, WME’s action is untimely, and is barred by the statute of limitations.

“Although WME’s application to vacate the award is untimely, Local 455′s motion to confirm the award is not. Accordingly, I turn to the merits of the award, which it bears emphasizing is a declaration without a particular remedy. …

“Here, I find that the arbitrator applied the [collective bargaining agreement (‘CBA’)] in a plausible manner. The arbitrator’s opinion noted that Local 455′s argument was that ‘that [WME] cannot unilaterally, without negotiating with the Union, require that employees work at entities outside of the [WME] service area.’ The opinion then described the evidence adduced by Local 455 representatives, including examples of past projects that were negotiated, such as the Interplant Maintenance Workforce accord and the Kent Distribution Project. In each example, WME and Local 455 met and negotiated wages, hours, and working conditions for employees who were being assigned work outside of WME’s territory. The arbitrator thus found that there was a past practice of negotiation and agreement in instances where WME employees were going to be assigned to work outside of WME’s districts. The evidence supported the arbitrator’s decision, which was within the scope of the CBA. I therefore must confirm his decision.”

Western Massachusetts Electric Company v. International Brotherhood of Electrical Workers, Local 455 (23 pages) (Woodlock, J.) (USDC) (Civil Action No. 11-30106-DPW) (Sept. 27, 2012).