Arbitration Law Memo - February 2010 
LawMemo
First in Employment Law

*** Arbitration - Individual Arbitration Agreements ***

·         CA - $19 million arbitration award against employee is confirmed.

·         2nd - Arbitration compelled after employer waived statute of limitations and fee-shifting provisions.

·         MT - Employer was entitled to attorney fees incurred after employee's rejection of its offer to arbitrate.

·         CA - Physician wasn't bound by arbitration agreement between hospital and medical group.

·         4th - Basis for arbitration award rendered in financial advisors' favor didn't fall within scope of NASD Rule 10101.

·         NY - Arbitration award issued under Jewish law upheld.

·         CA - Limitation on discovery did not make agreement unconscionable.

·         UT - Arbitration panel's discovery decisions didn't provide a basis for vacating arbitration award.

*** Arbitration - Collective Bargaining Agreements ***

·         NY - Arbitrator didn't exceed his authority reducing level of discipline imposed on transit employee for assaulting customer.

·         3rd - CBA did not grant union newly-acquired store access; grievance was not arbitrable (2-1).

·         MD - Voter-initiated legislation requiring collective bargaining and binding arbitration was unconstitutional.

·         CA - State correctional supervisors weren't statutorily entitled to pay increases commensurate with those given to subordinates.

·         NY - Repeated instances of misconduct and insubordination led to discharge.

·         WA - PERC had exclusive jurisdiction over longshore workers' representation dispute.

·         1st - Employee's LMRA Section 301 complaint against employer for violation of CBA withstood dismissal.

*** Arbitration - Individual Arbitration Agreements ***

CA - $19 million arbitration award against employee is confirmed.

Oaktree Capital Mgt v. Bernard (California Ct App 02/22/2010)
http://case.lawmemo.com/ca/oaktree.pdf

Bernard was a fund manager employed by Oaktree until he resigned and formed his own company. Bernard demanded arbitration on his claim that Oaktree owed him incentive fees. The arbitrator (a) found that Bernard's incentive fees had not vested prior to his departure, (b) found that Bernard breached his fiduciary duty to Oaktree by delaying the launch of an Oaktree project so that his new company could purchase a commercial building that should have been an Oaktree investment, and (c) awarded to Oaktree $12.3 million for fees lost due to the delay plus $6.7 million in attorney fees, costs, and interest. The trial court confirmed the arbitrator's award, and the California Court of Appeal affirmed.

The court rejected Bernard's argument that the award violates the public policy protecting an employee's compensation, because the arbitrator found that the fees he claimed had not vested before he left Oaktree. The court rejected Bernard's argument that the award exceeded the arbitrator's powers by making him liable to his employer for malfeasance as an employee, because he acted for his personal benefit in breach of his fiduciary duties to Oaktree.

2nd - Arbitration compelled after employer waived statute of limitations and fee-shifting provisions.

Ragone v. Atlantic Video (2nd Cir 02/17/2010)
http://case.lawmemo.com/2/ragone.pdf

Ragone sued the employer for violation of Title VII and other claims alleging sexual harassment. The trial court granted the employer's motion to compel arbitration after employer waived enforcement of certain provisions of the arbitration agreement. The 2nd Circuit affirmed.

The court found the arbitration agreement was not made procedurally unconscionable by a "take it or leave it" offer, failure to read the agreement, or a failure to understand the agreement. With the employer's waiver of the statutes of limitations and the fee shifting provisions of the arbitration agreement, the court rejected Ragone's argument that the arbitration agreement, when considered as a whole, contained oppressive and unlawful provisions meant to disadvantage the employee. The court reasoned that New York law allowed the enforcement of an agreement with modified provisions that otherwise might be unconscionable. The court noted that had the employer attempted to enforce the agreement as originally written, it was not clear that the court would hold in its favor. The court agreed with the trial court that the relationship between Ragone, her employer, and ESPN supported the application of equitable estoppel, and, therefore, the arbitration agreement applied to the non-signatory ESPN.

MT - Employer was entitled to attorney fees incurred after employee's rejection of its offer to arbitrate.

Prescott v. Innovative Resource Group (Montana 02/16/2010)
http://case.lawmemo.com/mt/prescott.pdf

Prescott sued the employer, asserting a claim under Montana's Wrongful Discharge from Employment Act (WDEA).  The employer offered to arbitrate the dispute, but Prescott declined.  The employer prevailed after a jury trial, and was awarded attorney fees and costs.  The court affirmed.  The employer was awarded its attorney fees pursuant to Section 39-2-915 of the WDEA, which provides that "[a] party who makes a valid offer to arbitrate that is not accepted by the other party and who prevails in an action under this part is entitled as an element of costs to reasonable attorney fees incurred subsequent to the date of the offer."  The court declined to address Prescott's constitutional challenges to this provision because they were not preserved for appeal.  The court rejected Prescott's alternative arguments.

CA - Physician wasn't bound by arbitration agreement between hospital and medical group.

Suh v. Superior Ct (California Ct App 02/18/2010)
http://case.lawmemo.com/ca/suh.pdf

Suh sued the hospital where he formerly worked as a staff physician, as well as a medical group to which he belonged (and which contracted with the hospital).  Suh asserted (among other things) state law claims for age discrimination, national origin discrimination, and retaliation.  The trial court compelled arbitration, pursuant to arbitration agreements contained in two contracts between the hospital and the medical group.  The court reversed, concluding that 1) Suh was not bound by one of the arbitration agreements, since he was a non-signatory to that agreement and was not otherwise bound to it; and 2) the other agreement was both procedurally and substantively unconscionable, and hence unenforceable.

4th - Basis for arbitration award rendered in financial advisors' favor didn't fall within scope of NASD Rule 10101.

Raymond James Financial v. Bishop (4th Cir 02/22/2010)
http://case.lawmemo.com/4/rjames.pdf

Financial advisors engaged in the sales of securities asserted claims against the registered securities broker/dealer for which they worked.  The claims (including breach of contract, breach of fiduciary duty, "violation of just and equitable principles of trade," and tortious interference with contract) were resolved via arbitration pursuant to the rules of the National Association of Securities Dealers (NASD), with the financial advisors being awarded substantial compensatory damages.  The trial court vacated the compensatory damages award.  The 4th Circuit affirmed, concluding that the arbitration panel clearly "exceeded its power" under 9 USC Section 10(a)(4).  The court reasoned that the arbitration panel exceeded its power when it found that the broker/dealer "committed a breach of ?fiduciary and legal duties' when its in-house lawyer ... provided legal representation to the [financial advisors] in third-party arbitration proceedings."  The court reasoned that the arbitration panel rendered an award "whose underlying legal basis exceeded the bounds of arbitral employment-related disputes cognizable under NASD Rule 10101 as interpreted...[by Zandford v. Prudential-Bache Securities, Inc., 112 F.3d 723 (4th Cir 1997)]...."

NY - Arbitration award issued under Jewish law upheld.

Brisman v. Hebrew Academy (New York App Div 02/16/2010)
http://case.lawmemo.com/ny/brisman.htm

The trial court vacated the arbitration award (issued in accordance with Jewish law and the rules of Beth Din of America) reinstating the tenured teacher, Brisman. The New York Appellate Division reversed. The court found that Brisman demonstrated that he was a tenured teacher and could only be discharged for cause and that the employer failed to rebut this evidence by showing the award violated public policy, was irrational, or exceeded the arbitrator's authority.

CA - Limitation on discovery did not make agreement unconscionable.

Dotson v. Amgen Inc (California Ct App 02/03/2010)
http://case.lawmemo.com/ca/dotson.pdf

Dotson sued the employer, asserting a state law whistleblower claim.  The employer moved to compel arbitration, but the trial court denied that on the ground that the parties' arbitration agreement was unconscionable.  The trial court based that determination on a clause in the agreement limiting each party to one deposition "of one individual and any expert witness designated by another party."  The clause also provided that additional discovery could be had "upon a showing of need."  The court reversed, concluding that "the language permitting the arbitrator to expand discovery upon a showing of need removes any taint of ?unconscionability' from the agreement."

UT - Arbitration panel's discovery decisions didn't provide a basis for vacating arbitration award.

Hicks v. UBS Financial (Utah Ct App 02/04/2010)
http://case.lawmemo.com/ut/hicks.pdf

The employer appealed the trial court's order vacating an arbitration award.  The trial court's order was based on its determination that the arbitration panel's discovery decisions substantially prejudiced Hicks' right to present his case.  The court reversed.  The court concluded that 1) it had jurisdiction to consider the matter, pursuant to Amalgamated Transit Union, Local 382 v. Utah Transit Authority, 99 P.3d 379 (2004); and 2) although discovery decisions can provide a basis for vacatur, in this particular case  Hicks' rights were not substantially prejudiced.

*** Arbitration - Collective Bargaining Agreements ***

NY - Arbitrator didn't exceed his authority reducing level of discipline imposed on transit employee for assaulting customer.

New York Transit Auth v. Transport Wkrs Union (New York 02/18/2010)
http://case.lawmemo.com/ny/transit.htm

The New York City Transit authority sought review of a grievance arbitration award reducing the level of discipline imposed upon an employee from discharge to reinstatement without back pay.  The discharge was based on the allegation that the employee assaulted a member of the general public on a subway platform.  In this CPLR 75 proceeding, the trial court vacated the arbitration award, and the appellate court below affirmed.  The court reversed, concluding that the arbitrator did not exceed his authority under the parties' collective bargaining agreement (CBA).  The court reasoned that vacating the arbitration award on the ground asserted by the employer would entail "inapt flirtation with the merits...."

3rd - CBA did not grant union newly-acquired store access; grievance was not arbitrable (2-1).

Rite Aid v. UFCW Union (3rd Cir 02/16/2010)
http://case.lawmemo.com/3/riteaid.pdf

The employer sued the union seeking a declaratory judgment of the prior filed grievances' non-arbitrability. The trial court granted the employer's motion for summary judgment. The 3rd Circuit affirmed.

The issue was whether the union's newly-acquired store access grievance fell within the scope of the arbitration clause by raising a legitimate question of the collective bargaining agreement's (CBA) interpretation. The court found that the recognition clause of the CBA did not describe or purport to include anything resembling the union's claimed right to access newly-acquired stores. Under the observation clause, the court concluded it was not possible to ensure compliance at stores to which the CBA did not apply. The court opined a right of access could not be considered as within the purview of the privileges clause. The court rejected the union's argument that the trial court impermissibly considered the merits of the grievance in making its arbitrability determination; the court joined the 7th and 8th circuits in holding that where the merits and arbitrability questions were inextricably intertwined, a court's arbitrability decision could, of necessity, touch incidentally on the merits.

The DISSENT concluded the recognition clause sufficiently demonstrated that the union's asserted right of store access fell within the "zone of interests" that received protection in the CBA. The dissent also argued that the merits and arbitrability questions were not inextricably intertwined.

MD - Voter-initiated legislation requiring collective bargaining and binding arbitration was unconstitutional.

Wicomico Fraternal Order of Police v. Wicomico Cnty (Maryland Ct App 02/01/2010)
http://case.lawmemo.com/md/wicomico.pdf

The voters in Wicomico County enacted an amendment to the County charter which required the County Council to enact a law providing for collective bargaining with binding arbitration of disputes between the County and the deputies in the Wicomico County Sheriff's Office. The Maryland Court of Special Appeals held the charter amendment to be unconstitutional. The Maryland constitution allows voter-initiated charter amendments only if they are amending the form or structure of government. However, the amendment in this case served as a vehicle for adoption of local legislation, a function which the constitution vests in the County Council.

CA - State correctional supervisors weren't statutorily entitled to pay increases commensurate with those given to subordinates.

Correctional Peace Officers Assoc v. State of California (California Ct App 02/11/2010)
http://case.lawmemo.com/ca/peace1.pdf

An employee association representing state correctional department supervisors sued the state, alleging that it violated California Government Code Section 19849.18 when it refused to grant supervisors the same increases it granted the subordinate correctional officers they supervised.  The state prevailed after a bench trial, and the court affirmed.  The subordinate correctional officers received increases pursuant to an arbitration award, and the supervisors asserted that they were entitled to analogous increases pursuant to Section 19849.18.  The court disagreed, concluding that the state's discretion "allows it to look past each isolated rank-and-file compensation increase and determine the appropriate differential in light of the overall compensation picture...."  The court explained that the state is merely required to maintain "generally equivalent" compensation differentials between supervisory and subordinate correctional officers.

NY - Repeated instances of misconduct and insubordination led to discharge.

Coleman v.Town of Eastchester (New York App Div 02/16/2010)
http://case.lawmemo.com/ny/coleman.htm

The arbitrator found that Coleman committed 18 specifications of misconduct or insubordination which the employer adopted and discharged Coleman. The New York Appellate Division found two of the specifications were improperly granted. The court affirmed the discharge in view of the repeated instances of misconduct and insubordination, and it was not disproportionate to the offense. The union's request for a declaratory judgment for violation of the collective bargaining agreement was remanded to the trial court.

WA - PERC had exclusive jurisdiction over longshore workers' representation dispute.

ILWU v. Port of Tacoma (Washington Ct App 02/02/2010)
http://case.lawmemo.com/wa/ilwu.pdf

The longshore workers' union filed suit, seeking enforcement of an arbitration award relating to a representation dispute.  The trial court dismissed for lack of subject matter jurisdiction.  The court reversed, but concluded that the Public Employment Relations Commission (PERC) had exclusive decision-making authority over which union rightfully performed the disputed work.  The court remanded to the trial court for determination of what other relief the union might be entitled to under the arbitration award.

1st - Employee's LMRA Section 301 complaint against employer for violation of CBA withstood dismissal.

Ramirez-Lebron v. Intl Shipping Agency (1st Cir 01/29/2010)
http://case.lawmemo.com/1/ramirez.pdf

Ramirez-Lebron sued the employer and a group of three employees (G3) pursuant to Section 301 of the Labor Management Relations Act (LMRA) alleging the employer and G3 fraudulently procured an arbitration award granting seniority rights to G3 in breach of the collective bargaining agreement (CBA). The trial court dismissed the complaint for lack of standing and for failure to exhaust contractual remedies under the CBA. The 1st Circuit reversed.

The court stated the issue was not whether Ramirez-Lebron had standing, but rather whether he alleged circumstances sufficient to sustain a cause of action for breach of the CBA against the employer under Section 301. The court agreed that the employer's conduct was suspect because the claim of a sham transaction, in the sense of being both covert and in bad faith, implied a determination to repudiate the relevant provisions of the contract and thereby avoid arbitration. The court held that the factual allegations of Ramirez-Labron's compliant were sufficient to withstand the employer's motion to dismiss.