Book your hotel rooms for Boca NOW if you want the conference rate!

Here is the link for the hotel reservations:

https://aws.passkey.com/event/11646664/owner/10914323/home

To register for the Forum on Construction Law's Annual Meeting in Boca Raton, Florida, visit: http://shop.americanbar.org/ebus/ABAEventsCalendar/EventDetails.aspx?productId=169461063

Come to the Annual Meeting: A Word from Forum Chair Steve Lesser

Are you planning on attending the Annual Meeting in Boca Raton?  Good! You should attend.  This meeting will be a great way to meet people, get excellent CLE, learn about business development from Cordell Parvin, and also have some fun.

Are you on the fence about coming to the meeting?  The Chair of the Forum on Construction Law, Steven B. Lesser of Becker & Poliakoff in Fort Lauderdale, would like to provide you with some good reasons why you should come.

Thank you, Jason Cagle!

Since November of 2012 -- a full year before we transitioned to a blog format for Division 1's news, information, and articles -- Jason Cagle was a member of the Editorial Staff for the Dispute Resolver. Over that time, Jason has been a reliable contributor here, providing us with an excellent view of construction law from Dallas, Texas.

In that time, Jason has become more involved with the ABA Forum on Construction Law -- even starting up a blog for Division 12 called "The Owner's Authority."  Jason also co-authored a chapter on third-party claims with Kimberly A. Davison of his firm which was published in the ABA Publication Green Building and the Construction Lawyer: A Practical Guide to Transactional and Litigation Issues.  Finally, his peers in Texas voted him to be a SuperLawyers Rising Star in Construction Law for both 2013 and 2014

This past week, Jason informed the rest of the Dispute Resolver Editorial Staff that he would be stepping down from his role with the Dispute Resolver.  All of us on the Editorial Staff wish him well.  Indeed, each of us wanted to pass along our thanks to Jason in our own words:

Tom Dunn, Pierce Atwood, Providence, RI:

I enjoyed working on the Dispute Resolver with Jason (even though he implemented all of our ideas to our friends in Division 12).  He was a great editor and is a good friend. I especially enjoy exchanging ideas with Jason about streamlining disputes and efficiently advocating for clients in e-discovery disputes. Thanks, Jason, for all your help with the Dispute Resolver.

Anthony Osborn, Goosmann Law Firm, Sioux City, IA:

It takes a solid team to keep Division 1’s blog running on all cylinders.  Jason was an important part of the team and will be missed.  He did a great job keeping us updated regarding case law developments in the Southern and Southeastern United States, and always provided thoughtful and relevant analysis on a broad array of topics.  Many thanks to Jason for his contributions to The Dispute Resolver.  He will be missed!    

Mark Frilot, Baker Donelson, Mandeville, LA:

As a reader of and eventual co-contributor to the Dispute Resolver, I always looked forward to Jason’s posts and insights regarding the issues unique to resolution of disputes on construction projects. While his Forum leadership will remain, his contributions to our publication will be missed. Thanks, Jason, for helping to launch the Dispute Resolver into a successful, thought-provoking newsletter and blog for our members.

Tony Lehman, Cohan Law Group, Atlanta, GA: 

Jason has been a great help in getting The Dispute Resolver launched after we made the decision to go to an online format. His involvement with Division 12 led to that Division also embracing the blog format, and his good work continues there. Hopefully, he will remain involved with Division 1 even as his participation with the blog comes to a close. Jason, thank you very much for all of your hard work, your ideas, and your time.

We hope you will join us in thanking Jason for his 2-1/2 years of excellent service to Division 1 through his participation as a member of the Dispute Resolver Editorial Staff.

Thank you Jason!

Arbitration Panel Awards $10 Million In Sanctions In What Some Might Argue Is a Re-“Cycle”ed Proceeding

On February 16, 2015, SCA Promotions, Inc. filed its Original Petition for Confirmation of Arbitration Award against Lance Armstrong and Tailwind Sports, Inc. The petition seeks to confirm a February 4, 2015, arbitration award against Armstrong and Tailwinds in favor of SCA that includes $10 million in sanctions. Beyond the general public interest surrounding the award, it excites additional attention from those of us who, along with our clients, resolve commercial disputes in arbitration because the award was issued in what might be argued to be a “re-opening” of a prior arbitration among the parties before the panel.

The underlying arbitration concerned whether Armstrong and Tailwind should be sanctioned for perjury in a prior arbitration proceeding among the parties. The panel awarded SCA $10 million in sanctions after finding that Armstrong had engaged in “an unparalleled pageant of international perjury, fraud and conspiracy” and had “used perjury and other wrongful conduct to secure millions of dollars in benefits” from SCA.

The prior arbitration concerned an agreement that required SCA to pay Tailwind a specified amount of prize money if Armstrong won the Tour de France in 2002, 2003, and 2004. Armstrong won all three races, and SCA paid the prize money for the 2002 and 2003 victories. But SCA withheld payment for the 2004 victory because there were allegations that Armstrong might have cheated.

In the arbitration that resulted from the dispute, both Armstrong and another Tailwind representative testified under oath that Armstrong never used performance-enhancing drugs in his career and had won the 2002, 2003, and 2004 Tour de France races legitimately and without cheating.

In 2005, before conclusion of the arbitration, the parties entered into a settlement agreement. The agreement provided that the arbitration panel retained and had exclusive jurisdiction over disputes arising under the settlement agreement and prior prize agreement.

Then, in 2013, we all know what happened. But as alleged by SCA, Armstrong admitted to Oprah Winfrey in a television interview that he used performance-enhancing drugs in every Tour de France race he had won, that he had lied under oath in the prior arbitration with SCA, and that he had tried to intimidate and harass witnesses who had otherwise tried to tell the truth about him and his conduct. Based on those admissions, SCA filed suit against Armstrong and Tailwind, asserting various claims, including fraud, unjust enrichment, civil contempt, and conspiracy.

In June 2013, SCA moved to reconvene the prior arbitration. SCA sought sanctions against Armstrong and Tailwind for perjury in connection with arbitration and also sought forfeiture of all prize money paid to Armstrong because Armstrong had been stripped of all of his Tour de France titles.

Armstrong and Tailwind argued that the panel lacked jurisdiction to hear the dispute or issue sanctions. The panel disagreed based in part on the language of the parties’ prior settlement agreement that retained the panel’s jurisdiction.

Following unsuccessful challenges by Tailwind and Armstrong Texas courts, the panel conducted an evidentiary hearing on September 4 and 5, 2014. On February 4, 2015, the panel rendered its award, including the $10 million sanction.

So, what do you think? Does this award offend the finality of arbitration awards that is attractive to many claimants and respondents? Regardless of your position, you might pay close attention to dispute resolution provisions of settlement agreements to ensure the language is consistent with your and your client’s positions on the finality of awards.

Copies of SCA’s Original Petition for Confirmation of Arbitration Award and the award at issue (which is attached to the Petition) can be found here.

Reminder re: Annual Meeting in Boca Raton, FL

Hey Division 1, just a friendly reminder - if you have not registered for the Forum's Annual Meeting in Boca Raton, Florida, the "early bird" registration period ends on March 7th. Sign up now to save a little money. It's going to be a fantastic event! Lots of practical advice to be learned by all. As a further reminder, the event takes place from April 16-18 at the Boca Raton Resort & Club.

Collecting and Analyzing iPads in Litigation

In the Division 1 LinkedIn Group earlier in February, Jim Zack from long-time Forum Sponsor Navigant Consulting posted a link to an article on Navigant's website called "Collecting and Analyzing iPads: What You Need to Know."

As an aside, if you are not a member of the Division 1 LinkedIn Group, it is a great way to stay up-to-date with announcements for Division 1, articles such as the one Jim posted, and with the Dispute Resolver generally.  Become a member, and then start a discussion! Now, back to the Navigant article.

Navigant consultant Cuyler Robinson's article outlines some of the issues that one has to deal with when looking for relevant documents and emails in a corporate environment where iPads and other tablets quickly are replacing laptops as the mobile computing hardware of choice for executives and lawyers.

iPads have been around only for five years at this point, and the big issue is that Apple's device security complicates both forensic imaging and forensic data gathering. Apple keeps what's under the hood in the iPad operating system secret, leaving e-discovery vendors and attorneys alike flatfooted when trying to figure out how to gather relevant information.  Add in that backups are made either through iTunes or into the iCloud, and you have multiple layers of complexity involved in trying to get relevant information.

Cuyler's article is well worth the read as a reminder that e-discovery will continue to evolve in the same way that electronic devices generally do.

I mean, how difficult would it be to try to gather electronic data for litigation from Google Glass?

If you have experience with gathering forensic data from this "new" media -- from apps on phones or tablets or the watches or eyeglass computers that are being developed, we would love to hear your experiences.  Was it difficult? How, if at all, can you tell whether relevant information has been spoliated on a tablet?

Trial Tips from Practice Masters

Earlier this week, the "Your ABA" publication included an article entitled "Preparation and Attention to Detail Can Pay off at Trial."  This article arose out of a video seminar of about an hour long that can be downloaded for free by any ABA Member.

The article and seminar focused on general trial strategy related to "the little things" in the case and in presentation generally.  Discussion during the seminar ranged across all areas of trial and included everything from how to handle surprise testimony that pops up at trial for the first time (common sense tip: if it is truly a surprise to you, request a brief recess so that you can consult with your colleagues or client or call someone who can help you with the issue) all the way to how you should dress for various days of court (one panel member suggested wearing brighter ties/clothes on days when the attention should be on you, such as opening statements, closing arguments, and key cross examination days).

One of the most helpful tips from the article that I saw came in the very last sentence:

[Andrew J.] Smiley [managing partner and lead trial attorney at the New York firm of Smiley & Smiley LLP] says you have [to] look at trial like a chess match, anticipating your opponent's next move.  "You should anticipate what can go wrong and plan how you'll handle it," he adds.

The mark of a great trial lawyer is being able to make the times when you truly are surprised by testimony -- whether from opposing witnesses or your own -- and turn those times either into advantages for your client or at least not making it appear that you are caught flatfooted.  While there is no substitute for experience, watching others in action can help guide you in the right direction.

Now, here's my question for all of you: Many of us have now tried a number of cases, whether to juries, judges, or arbitral panels. If you could go back and tell your younger self one or two tips to improve your trial skills far earlier in your career, what would those tips be?

Court Imposes Rule 11 Sanctions Against Counsel for Asserting Claims Against Arbitrator and Arbitration Organization

While not a construction dispute, the United States District Court for the Southern District of New York’s Opinion and Order in Landmark Ventures, Inc. v. Stephanie Cohen, et al., No. 13-9044 (S.D.N.Y. 2014), reminds us that courts consistently uphold the strong arbitral immunity defenses available to arbitrators and the organizations that sponsor arbitrations. Moreover, the case serves as a warning that, if a party to an arbitration intends to seek relief from an adverse arbitration award, counsel for that party should think twice before asserting claims against the arbitrator and/or sponsoring organization because doing so might expose them to sanctions.

In Landmark, the plaintiff, Landmark Ventures, Inc. (“Landmark”) was unsuccessful in an arbitration it filed against InSightec, Ltd. Defendant and arbitrator, Stephanie Cohen, presided over the arbitration pursuant to the rules of the International Chamber of Commerce (“ICC”), also made a defendant to Landmark’s suit. Concurrent with its suit against Ms. Cohen and the ICC, Landmark filed a petition to vacate the award, which the Court denied.

In support of its claims against Ms. Cohen and the ICC, Landmark urged that Ms. Cohen made procedural decisions that were unfair to Landmark, including limiting Landmark’s discovery requests and failing to grant Landmark a continuance to locate an expert witness. Landmark also urged that the ICC is liable for refusing to correct Ms. Cohen’s award and for assessing additional legal fees and costs against Landmark.

The defendants provided the court and Landmark notice of their intent to seek dismissal under the long-standing principle of arbitral immunity and the parties’ agreement through adoption of the ICC rules not to sue the ICC and its arbitrators for any alleged claims arising from the arbitration.  After a pre-motion conference, in which the principle of arbitral immunity was discussed at length, Landmark and its counsel still refused to dismiss Landmark’s claims against Ms. Cohen and the ICC. After the conference, the defendants sent a letter to Landmark notifying Landmark and its counsel of their intent to seek Rule 11 sanctions.

The defendants filed their motion to dismiss and motion for sanctions. The court granted both motions. The court found Landmark’s claims to be frivolous in light of the well-established principles of arbitral immunity and because, following multiple notices from the defendants regarding Landmark’s lack of a cause of action, “[i]nstead of heeding these precedents and dismissing the case without prejudice or responding to the cases in its reply, Landmark simply ignored these precedents and proceeded with the case.”  Moreover, Landmark’s counsel acknowledged at the motion hearing that, under the clear law of the Second Circuit, Landmark had no cause of action against Ms. Cohen and the ICC, yet did not provide any non-frivolous arguments for reversing current law. The Court awarded the defendants sanctions of $20,000 against Landmark’s counsel. The decision is currently being appealed.

For your reference, a copy of the November 25, 2014, decision can be found here.

Discovery in Arbitration: Take Aways from Division 1's Mid-Winter Lunch Program

Division 1: Litigation and Dispute Resolution

This was one of the handouts given during Division 1’s lunch program on Discovery in Arbitration. Special thanks to our speakers: Kelsey Funes, Phelps Dunbar LLP; John Bulman, Pierce Atwood, LLP; Nancy Wiegers Greenwald, Construction Dispute Solutions, LLP; and Linda Turteltaub, Skanska USA Building Inc.  Additional materials relating to the  presentation have been posted  in Division 1’s Dropbox. Please e-mail Division 1 Chair, Nick Holmes, nholmes@nkmlawyers.com, to receive an invitation to the Dropbox. 

The Dirty Dozen:

Best Practices for Discovery in Arbitration

1. Conduct discovery in stages or phases.

2. Use the neutral’s help to create a discovery blueprint.

3. Focus on the relevant facts early. Conduct early witness interviews and think about what you really need to present the case to the arbitrator(s).

4. Require each party with an affirmative claim to specify their damages (category and amount) in the early stages of the case.

5. Use negotiated discovery protocols (search terms; custodians; deposition time limits)

6. Narrow the issues to be arbitrated. Resist the tendency to tell the entire story of the construction project. Focus on the matters in dispute.

7. Select appropriate arbitrators. Select arbitrators with appropriate subject matter and process expertise.

8. Make the most of your preliminary hearing with the arbitrator by having at least a preliminary plan for discovery. Know the schedules of the key participants (including key witnesses) and be ready to commit to a discovery schedule and a hearing date.

9. Include flow-down provisions in your contract to be sure all of the parties can be brought into the arbitration.

10. Work with your client and opposing counsel to craft a written discovery plan before the first call with the arbitrator.

11. Consider allowing direct testimony by written submission.

12. Submit a form of award to arbitrator with post-hearing brief.

Top Five Things to Avoid

1. Don’t – Provide for the Federal Rules of Civil Procedure or other state procedural laws to apply to discovery in an arbitration.

2. Don’t – Provide for judicial review of errors of fact or law. (But, consider the AAA and JAMS appellate process if the case warrants it).

3. Don’t allow motions in limine.

4. Don’t use four witnesses or documents when one will do.

5. Don’t engage in petty discovery disputes.

Limitations on Amending a Notice of Removal, by Tom Dunn*

General Removal Rules 

·         Defendant has 30 days from service of process to file a removal petition. 28 U.S.C. § 1446(b).

·         During this 30-day period, a defendant may amend the petition without leave of court. Muhlenbeck v. KI, LLC, 304 F.Supp.2d 797, 799 (E.D. Va. 2004).

·         After the 30-day period, leave of court is required to amend the removal notice. 28 U.S.C. § 1653 (“[d]effective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts.”)

Are there limitations on a Court’s exercise of § 1653?

Can a Court permit a defendant to amend its notice of removal to add additional substantive grounds for removal?

In A.E.A v. Volvo Penta of the Americas, LLC, et al., Civ. No. 2:14-cv-425 (E.D. Va. 2014) (filed 1/9/2015) (“A.E.A.”), the Court answered the first question “yes” and the second question “no.” 

In A.E.A, a minor was injured while tubing in the Chesapeake Bay off of Virginia Beach. The location of the incident triggered federal maritime jurisdiction.  Defendant's notice of removal asserted original maritime jurisdiction of the federal courts and the removal statute.  After the 30-day period lapsed, Plaintiff filed a motion to remand relying upon a statute that provides a plaintiff the option of asserting his or her in personam lawsuit in state court even if it implicates maritime jurisdiction.  See 28 U.S.C. § 1333 (referred to as the savings to suitors clause). Thereafter, Defendant filed a motion for leave to amend its notice of removal. 

In its proposed amended notice of removal, Defendant added a claim that federal question jurisdiction exists and specifically cited to regulatory federal statutes.  The Court explained the “novel” issue presented was “whether § 1653 permits a party to add statements asserting federal question jurisdiction when its Notice relied on other grounds for removal.” A.E.A. at pp. 5-6 (emphasis added).  Following the Fourth Circuit’s decision, Wood v.Crane Co., 764 F.3d 316 (4th Cir. 2014), the Court held it does not have the discretion to allow the substantive amendment beyond the 30-day window under § 1653.  Noting a split in the Circuit Courts, the harmonized rule expressed by the Fourth Circuit in Wood was:

[A]fter thirty days, district courts have discretion to permit amendments that correct allegations already present in the notice of removal. Courts have no discretion to permit amendments furnishing new allegations of a jurisdictional basis. The trick lies in placing a case within one of those two categories. 

A.E.A. at p. 6, quoting Wood, 764 F.3d at 323 (emphasis added by A.E.A. Court).   

Applying the Wood rule, the A.E.A. Court found that Defendant had completely failed to plead in its initial notice of removal federal question jurisdiction or the specific federal regulatory statutes in the proposed amended notice of removal.  The Court stated that federal maritime jurisdiction and federal question jurisdiction are not separate and distinct.  Moreover, it found mere reference to the removal statute 28 U.S.C. § 1441(a) or citation to a federal statute to be insufficient to trigger federal question jurisdiction.  Accordingly, Defendant’s motion for leave to amend its notice was denied and Plaintiff’s motion to remand in accordance with the savings statute was granted. 

Takeaways

1.       Pay careful attention to the Notice of Removal. If you file your removal notice soon after service, calendar a “fresh look” on the 25^th day to make sure the Notice is complete.

2.       If there are multiple grounds to remove an action, state each one separately in the Notice.  In a footnote, the A.E.A. Court left open “whether citing a substantive, non-jurisdictional statute in a Notice of Removal would allow a defendant to supplant or add another substantive statute to its Notice under § 1653.” 

 

* Tom is a member of the steering committee  for Division 1: Litigation and Dispute Resolution of the ABA Forum on Construction Law.  Tom also helps manage The Dispute Resolver Blog.  In his life away from Division 1, Tom is a Partner at Pierce Atwood, LLP.  He practices construction law and business dispute resolution in Massachusetts and Rhode Island.  If you are interested in submitting an article to The Dispute Resolver or to learn more about FCL or Division 1, feel free to contact Tom at rtdunn@PierceAtwood.com. 

Waiver of Arbitration by Litigation Conduct – Who Decides (Court or Arbitrator)? by Tom Dunn*

Common Fact Scenario: Defendant is sued in state or federal court.  Plaintiff and Defendant signed an arbitration agreement.  After participating in the litigation for some period of time, Defendant moves to compel arbitration.  Plaintiff objects asserting, in part, that Defendant waived the right to compel arbitration through participating in the litigation and/or delaying the demand of arbitration. 

Typical Outcome: The question of waiver by litigation conduct is a case by case analysis with no bright lines.  “Thus, ‘a party may waive an agreement to arbitrate by engaging in two courses of conduct: (1) taking actions that are completely inconsistent with any reliance on an arbitration agreement; and (2) “delaying its assertion to such an extent that the opposing party incurs actual prejudice.”’” Shalabyv. Arctic Sand Technologies, Inc., et al., MICV2014-03621, Slip. Op. (Mass.Sup. Ct. 12/15/2014), quoting  Johnson Assocs. Corp. v. HL Operating Corp., 680 F.3d 713 (6th Cir. 2012), quoting in turn Hurley v. Deutsche Bank Trust Co. Ams., 610 F.3d 334, 338 (6th cir. 2010), quoting in turn O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 356 (6th Cir. 2003).  In general, as a defendant engages in affirmative conduct that involves the exercise of the power and authority of the court, and through the lapse of time, the likelihood that such conduct will be regarded as a waiver increases.  In Shalaby, for example, the defendant filed a Rule 12(b)(6) motion to dismiss, engaged in contentious e-discovery disputes, and requested the Court to issue a discovery protective order. Only after the lapse of six months and partial denial of its dispositive motion did Defendant first assert the affirmative defense of arbitration and/or a right to compel arbitration.  Under these facts, the Court found defendant waived arbitration. Defendant acted completely inconsistent with its rights to arbitration and caused prejudice to plaintiff through a “deliberate and tactical delay six month delay” that caused plaintiff to incur greater expense while also denying her the opportunity for an expeditious alternative to litigation. 

While this result is not that surprising, I found the Court’s discussion on “who” should make the determination of waiver based upon litigation conduct interesting. 

Who should decide waiver by litigation conduct: Court or Arbitrator? The Shalaby court addressed this question under the Federal Arbitration Act and federal case law.  It found the issue “more nuanced” than Massachusetts law, which presumes that questions of arbitrability are issues to be decided by a judge. See O’Brien v. Hanover Ins. Co., 427 Mass. 194, 199 (1998). Two lines of federal case law are relevant:

·       First Options: “Under the [FAA], ‘[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is “clea[r] and unmistakabl[e]” evidence that they did so.” Shalaby at p. 2, quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995), quoting in turn AT&T Technologies, Inc. v. Communications Wkrs. of America, 475 U.S. 643, 649 (1986).

·       Howsam: “[T]he Supreme Court moved the line drawn in First Options by deciding that under federal law ‘the presumption is that the arbitrator should decide “allegation[s] of waiver, delay, or a like defense to arbitrability.”’” Shalaby at p. 2, quoting Howsamv. Dean Witter Reynolds, Inc., 537 U.S. 79, 85 (2002), quoting in turn Moses H. Cone Mem. Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983); see also BG Group, PLC v. Republic of Argentina, 134 S.Ct. 1198, 1207-1210 (2014); Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-453 (2003).  In these cases, the Supreme Court has found that the questions of waiver are “‘issues of procedural arbitrabillty’ concerning ‘conditions precedent to an obligation to arbitrate’ that presumptively should be decided by an arbitrator, not for the judge. Howsam, 537 U.S. at 85.   

The Supreme Court has not answered whether the Howsam standard applies to waiver by litigation conduct.  Which standard applies: First Options [court decides] or Howsam [arbitrator decides]? The Shalaby Court stated the “consensus view” amongst “virtually every appellate court” is that “‘the Supreme Court in Howsam and Green Tree did not intend to disturb the traditional rule that waiver by conduct, at least where due to litigation-related activity, is presumptively an issue for the court,’ and not for the arbitrator, to decide.” Shalaby at p. 2, quoting Marie v. Allied Home Mortgage Corp., 402 F.3d 1, 14 (1st Cir. 2005).  The rationale is that the conduct that formulates the claim of waiver through litigation conduct primarily occurs before the the court and the court is in the best position to identify abuses and forum shopping.    

After finding that the First Options rule applies to waiver by litigation conduct, the Shalaby Court inquired whether under the facts of the case there was “‘clear and unmistakable evidence’ of such an intent in the arbitration agreement [or in arbitration rules adopted by contract].”  In Shalaby, the agreement cited the JAMS employment arbitration rules which provide that the arbitrator will decide any “Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought[.]” Shalaby at p. 3, citing to JAMS Employment Arbitration Rule 11.  The Court found the rule insufficient to overcome the First Options presumption.

·       Reason #1: “Federal law appears to render ineffective any contract provision purporting to delegate the issue of litigation-conduct waiver to an arbitrator.” The explanation here is that “waiver” constitutes a “default” by a party seeking to enforce an arbitration clause and Section 3 of the FAA (9 U.S.C. § 3) restricts a court from issuing a stay pending arbitration where there is no default.  [Question: wouldn’t the same reasoning apply to the Howsam line of cases?]  The court continued its analysis even if such an agreement were enforceable.

·       Reason #2: The arbitration rules at issue in the case could not overcome the First Options presumption. The Court stated: “The JAMS rule does not clearly and unmistakably provide that an arbitrator must decide the parties’ dispute as to whether [the moving party’s] conduct in this civil action constitutes a waiver of its right to compel arbitration. While the JAMS rule makes clear that the parties agreed to arbitrate ‘the gateway question of whether the underlying substantive dispute between [the parties] is arbitrable,’ nothing in this rule ‘similarly evidences a clear and unmistakable intent to have an arbitrator decide’ whether [the moving party] waived arbitration by ‘actively litigating the underlying dispute in court. There are no references to waiver of arbitration in this or any other provision of the’ JAMS rules.” Shalaby at p. 4, quoting Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 221 (3d Cir. 2007).

Takeaways: Courts are likely to keep the issue of “waiver by litigation conduct” until the U.S. Supreme Court extends its “procedural arbitrability” rule to this specific form of waiver.  While the Shalaby Court does not expressly say so, it is clear that the Court did not wish to reward the perceived purposeful litigation tactics of the employer moving party.  For example, the Court commented:

[Defendant] was happy to litigate Plaintiff’s claims in the Superior Court so long as it thought that it could obtain a quick judgment in its favor on the merits. It only moved to compel arbitration after its motion to dismiss on the merits was denied in part, in a 16-page memorandum of decision dated September 3, 2014. In essence, [Defendant] ‘“wanted to play heads I win, tails you lose,” which “is the worst possible reason” for failing to move for arbitration sooner than it did.’

Shalaby at p. 5 (internal citations omitted) (emphasis added). 

For those arbitration advocates that believe all issues of arbitrability including waiver from litigation conduct should be decided by an arbitrator, not a court, add language to your client’s arbitration agreement that the issue of waiver of arbitration, including but not limited to waiver from litigation conduct shall be exclusively decided by the Arbitrator through the arbitration process.”  This added language would present the issue squarely for the next court that addresses this issue. 

 

* Tom is a member of the steering committee  for Division 1: Litigation and Dispute Resolution of the ABA Forum on Construction Law.  Tom also helps manage The Dispute Resolver Blog.  In his life away from Division 1, Tom is a Partner at Pierce Atwood, LLP.  He practices construction law and business dispute resolution in Massachusetts and Rhode Island.  If you are interested in submitting an article to The Dispute Resolver or to learn more about FCL or Division 1, feel free to contact Tom at rtdunn@PierceAtwood.com. 

Ditka Joins D1?

Division 1 member Lisa Heard had a close encounter of the Coach Mike Ditka kind at the Midwinter Meeting of the Forum on Construction Law in Scottsdale, Arizona.

An NFL Hall of Famer and Super Bowl Winning Coach, Ditka apparently heard about the changes that are afoot in Division 1 and wanted to join in the festivities.

Many thanks to Coach Ditka for posing with Lisa and to Lisa for providing this great photo to make those of us not in Arizona jealous!

A New Name and an Updated Mission Statement

Yesterday, via the Division 1 Listserv, Division 1 Chair Nick Holmes made the following announcement:

During the Planning Retreat in Chicago last October, the Steering Committee reflected on Division 1’s name and mission statement, and after a lengthy discussion concluded that they should be updated.  I am pleased to announce that yesterday the Governing Committee approved the requested changes: 

Division 1: Litigation and Dispute Resolution

“Enhancing advocacy skills of construction lawyers in trials, arbitrations, and mediations; and, developing innovative ADR strategies and procedures.”

Many thanks to all who contributed to this effort.

This change to our division's name and mission is meant to reflect that Division 1 is the go-to division within the Forum on Construction Law for advocacy in litigation, arbitration, and mediation as well as the incubator for new ideas in alternative dispute resolution. 

Our blog's focus is meant to reflect this as well, so please consider contributing an article or providing a link to your already-published article related to construction advocacy and ADR.

Thank you for reading!

What Kind of Mediator Do You Want?

This is an article published by John Watkins, a partner in the Atlanta office of Thompson Hine LLP. It provides his insight into the characteristics that he looks for when he is trying to select a mediator. 

Hopefully, this will spur your thoughts as to the issues that you should consider when you are selecting a mediator as well. It also could help you try to imagine what mediator your opponent is looking for -- and that may be the person who gets a tough case resolved.

Another question for debate and discussion: are there other characteristics that you look for in selecting a mediator that are not on here? If so, what are those characteristics? Why do you look for them?

------------

What Kind of Mediator Do You Want?

Although I serve as a mediator, my primary role is as a lawyer, representing parties in disputes. Thus, I am often called on to choose a mediator in a case in which my role is as an advocate. Because a dispute involves two (or more) parties, and because the mediator usually must be chosen by agreement, neither party can mandate a particular mediator. Similarly, neither party is obligated to agree to a mediator proposed by the other side.

There are many views on the characteristics of a good mediator, but here is what I look for:

• Willing to probe and ask tough questions. Back in the day, many viewed a mediator's role as "facilitative," meaning that the mediator was simply to facilitate discussions between the parties and never to express an opinion or an evaluation of the parties' positions. Many attorneys now derisively refer to such mediators as "note carriers." I agree. A mediator has to be prepared to reality test by asking hard questions when appropriate, and to try to move the parties toward settlement.

• Truly neutral. Although a mediator has to be willing to ask tough questions, I do not want a mediator who definitively favors one party's position over the other's particularly early in the mediation.

• Practical experience. A mediator needs to bring practical experience to help the parties resolve a dispute. Many lawyers reflexively turn to retired judges. Although retired judges can be good mediators and are particularly useful for some disputes, an experienced lawyer may be a good, and in some instances, better choice. Why? Because lawyers (1) likely have experience in settling similar disputes (as opposed to deciding them), and (2) may have a better understanding for practical and emotional client concerns that are often key to reaching settlement. Regarding the latter, I generally want the mediator, whether a lawyer or retired judge, to have had experience at some point in representing clients.

• Creative. Many disputes involve more than just a monetary component. A mediator who can bring creative ideas for settlement is extremely valuable.

• Optimistic. A good mediator has to be optimistic about reaching a dispute. Optimism, coupled with a dose of dogged determination, keeps the parties talking and increases the possibility of a settlement.

Although there are other qualities that can be important, a mediator with these qualities will probably be near the top of my list.

Texas Supreme Court Denies General Contractor’s Negligent-Misrepresentation Claim Against Architect for Increased Construction Costs Caused By Deficient Plans

The Texas Supreme Court recently held that the economic-loss rule bars claims of negligence and negligent misrepresentation from a general contractor against an architect because there was no contract between the parties. Instead, the contractor was limited to its claims for breach of contract against the project’s owner. LAN/STV v. Martin K. Eby Constr. Co., 435 S.W. 3d 234 (Tex. Jun. 20, 2014).

The Dallas Area Rapid Transportation Authority (the “Owner”) contracted with the architect, LAN/STV (the “Architect”), to prepare plans, drawing, and specifications for the construction of a rail line within downtown Dallas. The Architect agreed to be responsible for the professional quality, technical accuracy, and coordination of all designs, drawings, specification, and to be liable to the Owner for all damages caused by the Architect’s negligent performance of any of the services furnished. The Owner incorporated the Architect’s plans into its solicitation for competitive bids to construct the rail line. The project was awarded to Martin K. Eby Construction Company (the “Contractor”). The construction contract contained administrative procedures for the Contractor to follow if asserting disputes against the Owner, including any design problems. There was no contact or contractual privity between the Contractor and the Architect.

Just after starting construction, the Contractor discovered that the Architect’s plans were replete with errors. While the Contractor expected that only 10% of the plans would be changed, eventually 80% of the Architect’s plans had to be changed. This greatly disrupted the construction schedule and required additional labor and materials. In total, the Contractor calculated that it lost nearly $14 million on the Project.

After settling with the Owner, the Contractor filed this tort action against the Architect alleging claims for negligent misrepresentation. The jury apportioned some responsibility to the Owner and the Contractor, but found that the Architect was 45% responsible. Judgment was subsequently rendered in favor of the Contractor for about $2.25 million. The Court of Appeals affirmed the judgment.

The Texas Supreme Court analyzed whether the economic-loss rule barred the Contractor’s recovery for negligent misrepresentation. Under the economic-loss rule in Texas, a plaintiff suffering purely economic loss cannot recover under negligence theories against a defendant if the duties allegedly breached arose solely from the defendant’s contract with a third-party. Put another way, the economic-loss rule means that there is “no general duty to avoid the unintentional infliction of economic loss.” Restatement (Third) of Torts: Liability for Economic Harm, § 1.

The economic-loss rule does not create a bright-line standard, and has caused some confusion among courts as to its application. In the construction context, the Court recently explained that the economic-loss rule does not bar an owner’s negligence claims directly against a subcontractor for damage to the owner’s property caused by defective work. Though the owner had no contract directly with the subcontractor, the subcontractor owes all persons (including the owner) the duty to perform its work with reasonable care to avoid causing damage to other persons’ property. In that case, the property damage was to the owner’s property and fell outside the scope of work in the subcontractor’s construction contract with the general contractor. Thus, the owner’s negligence claims were permitted to proceed. Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W. 3d  716 (Tex. 2014). The case is analyzed in further detail here.

In the LAN/STV case, in contrast, the Contractor sought to recover only for its increased costs of construction resulting from the Architect’s failure to comply with the standards of performance required under its design contract with the Owner. The Court explained that participants in construction projects typically cannot recover their economic losses from parties with whom they did not contract. A roofing subcontractor, for example, could not recover its economic losses through negligence claims against a foundation subcontractor that caused construction delays by failing to perform its work in a timely manner. Rather, the roofing subcontractor’s recovery, if any, would lie in claims for breach of contract against the general contractor, the only party with whom the roofing subcontractor had an agreement.

With respect to the Contractor’s negligent-misrepresentation claims against the Architect, the Court felt that the same reasoning barred any recovery. This is a divergence from the recent Restatement on the issue, which suggests that an architect’s duty to a contractor arises from the expectation that plans are prepared for contractors to rely upon to carry out the construction. Restatement (Third) of Torts: Liability for Economic Harm, § 6, cmt. b. While the Court agreed with this concept, it held that the contractor’s “principal reliance must be on the presentation of the plans by the owner, with whom the contract is to reach an agreement, not the architect, a contractual stranger.” The Court felt that contractors were sophisticated parties who could protect their interests adequately through allocating risk in their construction contracts with the owners.

As the Court noted, there are significant differences of opinion among various states as to whether contractors may assert negligent-misrepresentation claims against architects absent contractual privity. Indeed, prior to this case, several Texas courts of appeals permitted such claims. However, this case clarifies that, in Texas, contractors may not recover purely economic losses through negligent-misrepresentation claims against architects with whom they lack contractual privity.

Thanks to Ian Fullington at Griffith Davison& Shurtleff, P.C. for assistance with preparing this post.

Texas Trial Courts Are Required to Foreclose on Properly Perfected Mechanic’s Liens

A Texas Court of Appeals reversed a trial court’s statutory interpretation of Texas’s Mechanic’s Lien foreclosure statute, holding that a trial court must foreclose on a mechanic’s lien if the lienholder is entitled to recover damages for unpaid labor and materials and has properly perfected the lien. Crawford Services, Inc. v. Skillman Intl. Firm, L.L.C., 444 S.W. 3d 265 (Tex. App.—Dallas 2014, pet. filed).

The dispute arose out of a breach of contract claim by a subcontractor, Crawford (the “Subcontractor”), against a general contractor, Skillman (the “General Contractor”). The Subcontractor contracted with the Subcontractor to replace and repair the air-conditioning system in the General Contractor’s building. After the General Contractor breached by failing to pay the Subcontractor approximately $140,000, the Subcontractor sued the General Contractor for breach of contract and sought to foreclose on their mechanic’s lien.

After a bench trial, the trial court found that the Subcontractor was entitled to damages for unpaid work and materials, and that it had followed all of the proper procedures to perfect the lien. Having properly perfected, the Subcontractor sought a judgment foreclosing on its lien. However, the trial court refused, interpreting the lien statute to grant it discretion to deny the request. Texas Prop. Code § 53.154.

On appeal, the Subcontractor argued that the lien statute did not grant any discretion to deny foreclosure of a properly perfected mechanic’s lien. Specifically, the Subcontractor asserted that the language “may be foreclosed” should be understood as part of the phrase “may only.” When read in context of the lien statute, “may” means that the only way to foreclose a mechanic’s lien is through a court order. Further, Texas courts have liberally construed the lien statutes to protect laborers and materialmen. See Strang v. Pray, 35 S.W. 1054, 1055 (Tex. 1896) (reaffirmed by the Dallas Court of Appeals).

The Dallas Court of Appeals agreed, reasoning that “may” in the mechanic’s lien statute was purposefully constructed in the passive voice to show that the legislature did not intend for the trial court to be the implied actor. Simply, the only way a lienholder may foreclose a mechanic’s lien is through a judgment of a court of competent jurisdiction foreclosing the lien and ordering a sale of the party subject to the lien. See Lippencott v. York, 24 S.W. 2d 275, 280-81 (Tex. 1983). Thus, once the subcontractor had proven that it was entitled to a judgment for damages and that its lien was perfected, the trial court had to issue a judgment awarding the damages and foreclosing on the lien.

The general contractor filed a petition for review with the Texas Supreme Court, which is pending as of the date of this post.

Thanks to Ian Fullington at Griffith Davison& Shurtleff, P.C. for assistance with preparing this post.

Lunch Presentation on Discovery in Arbitration at the Forum's Midwinter Meeting

Please join Division 1 for a lunch presentation on "Discovery in Arbitration" at the Forum on Construction Law's Midwinter Meeting on Thursday, January 29, 2015, from 11:30 a.m. to 1:00 p.m. 

Clients, arbitrators and litigators understand that the cost of litigation is often driven by the cost of discovery.  The proliferation of electronic communications in business has only made managing the cost of discovery more difficult as parties struggle with the production, processing and review of stockpiles of electronically stored information ("ESI").  State and Federal procedural rules have evolved and expanded to manage the large volume of paper and ESI discovery in construction cases, but the rules which govern most arbitrations are almost silent when it comes to discovery.  In arbitration, decisions regarding discovery - including discovery of ESI - are primarily in the hands of the parties and the arbitrator.  While there is a proliferation of commentary on handling discovery in litigation, there are very limited resources available to guide parties and their counsel on how to deal with discovery in an arbitral setting.  

Join us as we discuss how to balance the need for discovery with the need to reduce arbitration costs.  Panelists Linda Turteltaub (Skanska Corporate Counsel), Nancy Wiegers Greenwald (Construction Dispute Solutions, PLLC) and John Bulman (Pierce Atwood LLP) will highlight best practices for dealing with the biggest issues regarding handling discovery in arbitration and provide insights into how arbitrators, clients and opposing counsel view the process.

Dinner with Division 1 at the Forum's Midwinter Meeting

As many of you know, the ABA Forum on Construction Law is holding its 2015 Midwinter Meeting next week in Scottsdale, Arizona. Divisions 1 and 12 are having dinner on Thursday night at TK's Urban Tavern. Known for its "casual dining, serious food," TK's is a locally owned small business that is committed to supporting local farms.  Its menu features a variety of quality dishes served in a casual atmosphere.  

TK's is located just a short 0.6 mile walk from our hotel, at the east end of Kierland Commons.  We are taking over the whole restaurant for this event, so there will be plenty of opportunities to catch up with friends, both old and new.  We hope you can join us for what promises to be a wonderful event.

Please contact Nick Holmes to RSVP for this event. Space is limited.

Date and Time: ​Thursday, January 29, 2015 at 8:00 to 10:00 PM

Venue: ​​TK’s Urban Tavern, 15037 N Scottsdale Rd, Scottsdale, AZ, (480) 664-0873

Be Careful What You Ask For: Tennessee Court of Appeals Upholds Arbitrator’s Attorneys’ Fee Award Based on AAA Construction Industry Rule 45 When Both Parties Requested an Award of Fees

In Lasco Inc. v. Inman Construction Corp., et al., 2015 WL 129024 (Tenn. App. 2015), the trial court had vacated an arbitrator’s award of attorneys’ fees in favor of the defendant general contractor and its surety, concluding that the award exceeded the arbitrator’s power.  On January 9, 2015, the Tennessee Court of Appeals reversed the trial court and upheld the arbitrator’s attorneys’ fee award.

The dispute involved non-payment claims by a subcontractor, Lasco Inc., against the general contractor,  Inman Construction Corp., and Inman’s surety, Travelers Casualty and Surety Company of America.  After a four-day arbitration hearing, the arbitrator denied Lasco’s payment claim and awarded Inman $162,333.44 in attorneys’ fees, plus costs of $12,112.20, which represented the portion of the arbitration fees and expenses incurred by Inman that exceeded the American Arbitration Association’s previous apportionment.

Inman moved to confirm the award, and Lasco moved to vacate the attorneys’ fee award.  Lasco claimed that the arbitrator exceeded his authority because the parties’ contract did not authorize an award of attorneys’ fees.  The trial court agreed with Lasco and vacated the award.  Inman appealed.

The Court of Appeals did not dispute that the contract at issue did not expressly provide for an award of attorneys’ fees.  But, as Inman argued, the parties’ contract incorporated the AAA’s Construction Industry Rules as the rules governing an arbitration under the contract.   Rule 45(d)(ii) provides that an arbitration may “include . . . an award of attorneys’ fees if all parties have requested such an award or it is authorized by law or their arbitration agreement.”  Therefore, the Court of Appeals found that, by virtue of the parties’ incorporation of the AAA’s Construction Industry Rules into their agreement, the parties’ contract did provide for an award of attorneys’ fees if both parties’ requested such an award.

Inman requested an attorneys’ fee award, and so did Lasco.  In fact, Lasco’s attorneys’ fee request was based in part on Rule 45.  Accordingly, the Court of Appeals ruled that the arbitrator had not exceeded his authority by awarding attorneys’ fees to Inman.

For your reference, a copy of the decision is linked here:

In Case You Didn’t Get the Memo, the Role of Local Counsel is Expanding

When your client needs to file a lawsuit in another state, you are frequently not licensed to practice law in the other state. As a result, the company must (typically with your assistance) find a local, out-of-state law firm to serve as local counsel. Sure, you will probably appear as co-counsel along with the local law firm, and as you read this blog post you might be sitting there thinking the local counsel will not do much work. Right? Not so fast.

All too frequently, local counsel take an inactive role in lawsuits, letting the out-of-state lawyers drive the ship. A recent decision from a Delaware state court reminds attorneys that when they serve as local counsel, they must be actively involved in the case. In James v. National Financial LLC, Delaware's Court of Chancery provides a stern reminder regarding local counsel's duties, ultimately holding local counsel liable for sanctions due to improper actions by the out-of-state attorneys and their client. According to the court, the local attorneys should have been more involved in the case and, if they had been, the misconduct might have been prevented.

Courts and ethics opinions in other states have reached similar conclusions. The old "rubber stamping" days of local counsel are seemingly over, at least in an ever-increasing number of jurisdictions. If you are going to be retained as local counsel, you should make sure the out-of-state client and/or attorneys are not just looking for somebody to file their pleadings, or merely looking for a place to take their depositions or store their bags when they’re in town for a court appearance. In addition, you should be prepared to take on an active role in the case and should make sure your client and outside counsel understand and agree with your position from the onset.