Legal News

Mandatory Arbitration?s Newest Foe: Tech Billionaire Paul Allen

By Dionne Searcey

When we hear complaints about fairness issues in mandatory arbitration usually it's the little guy – a credit-card consumer or a big-box employee – doing the complaining. Microsoft co-founder Paul Allen is showing that even billionaires can have issues with private arbitration.

Allen's private investment vehicle, Vulcan Capital, is alleging that an independent arbitrator overseeing a compensation dispute with two former employees improperly consulted with the men ahead of time.

The WSJ reports today that in legal filings made in King County Superior Court in Seattle earlier this week, Vulcan alleged that an arbitration ruling worth potentially $20 million was compromised by the actions of Arthur Harrigan Jr., a Seattle lawyer.

Vulcan says Harrigan met with the two employees and their lawyer for five hours ahead of hearing the case and billed the group for $3,355. He later signed a disclosure document saying he had no personal or professional business with the two fired employees. Harrigan was part of a panel of three arbitrators who unanimously supported the employees' claim.

“The failure to disclose these consultations, either before the proceedings began or at any time before the evidence was presented and the arbitrators issued their substantive award, independently justifies” throwing out the arbitrators' ruling, according to Vulcan’s motion.

Richard Yarmuth, a lawyer for one of the claimants, said he had met with Harrigan ahead of time merely to vet him, which is allowed under rules that both parties agreed to beforehand. He said such practices are commonplace, as is being billed for that time.

“It’s important to find an arbitrator who is strong and independent in a city in which Paul Allen exerts significant influences,” Yarmuth said, noting that Allen has significant real estate holdings and owns professional sports teams in the area.

Harrigan, a Seattle lawyer known for handling prominent cases locally, declined comment.
Vulcan is like many employers that require workers filing claims to do so before arbitrators. Critics tend to focus their attention on how the process may be unfair to employees, because sometimes they aren’t involved in selecting the arbitrators and because rulings are difficult to overturn.

In the wake of the case, Vulcan has removed mandatory arbitration agreements from its employee contracts. "Until this is settled, we don’t have faith in arbitration,” said Vulcan spokesman David Postman.

Meanwhile, we congratulate Allen today on his impressive 37th ranking on Forbes's newest list of the World's Billionaires. Allen tied Austin techie Michael Dell, both of whom have an estimated net worth of $13.5 billion.

Full post as published by Law Blog - WSJ.com on March 11, 2010 (boomark / email).