ADR News from Jim Reiman

Friends and colleagues –

This eMail newsletter is a monthly piece that I send to friends and colleagues. In it, I identify, link, and briefly describe three to five articles, court decisions, or news items that I’ve come across that I hope readers will find of interest concerning the two subjects that occupy my time and thoughts: i) legal and business issues concerning alternative dispute resolution, and in particular mediation and arbitration, and ii) corporate governance, with a focus on executive compensation.

This month’s articles cover the following:

Alternative Dispute Resolution

• a decision by the Minnesota Supreme Court upholding an arbitration award of over $500 million in an arbitration wherein the arbitrator entered a punitive sanction prohibiting the losing party from asserting material defenses
• the growing global judicial support for dispute adjudication boards
• a curiosity – a decision wherein an arbitration award was vacated because the arbitrators were impartial
• another curiosity, albeit unrelated to ADR – the Florida Supreme Court’s effort to end the question raised during the Clinton presidency: “What is sexual intercourse?”

Corporate Governance

•  A research report by IRRCi that revealed that there is no material difference between institutional investors’ Say-on-Pay voting for those companies that create economic value as compared to those that destroy value.

Warm regards –

Jim Reiman

Articles – Alternative Dispute Resolution

Seagate Technology, LLC v. Western Digital Corp., No. A12-1944 (Minn. Oct. 8, 2014)

Appellants argued that the arbitrator’s punitive sanctions, which precluded Appellants from presenting any evidence or defense of certain claims and resulted in a liability award against Appellants in an amount excess of $500 million, must be vacated under Minnesota law “because the arbitrator exceeded his authority by issuing these sanctions and substantially prejudiced [Appellants] by refusing to hear evidence material to the controversy.” The Supreme Court rejected the argument concluding that: i) the arbitrator, based upon the agreement of the parties, had the power to impose punitive sanctions, ii) the punitive sanctions imposed qualify as “injunctions or other relief” as authorized by the arbitration agreement, and iii) the award was proper. An excellent summary and description of the Supreme Court’s decision may be found at http://www.lexology.com/library/detail.aspx?g=b6c4faa1-1b61-4e08-a7dd-547c9353b3d6&, and the full opinion of the Supreme Court may be viewed or downloaded from the Court’s website at http://mn.gov/lawlib/archive/supct/2014/OPA121944-100814.pdf

Three different country’s supreme courts have recently approved the use of dispute adjudication boards (DABs) as a means of dispute resolution and, more generally, affirmed the enforceability of contractual dispute resolution clauses. The courts: England, Switzerland and Singapore. An excellent discussion of DAB’s and the recent court decisions may be found at:
http://hsfnotes.com/adr/2015/01/22/judicial-support-for-dispute-adjudication-boards/

Americo Life, Inc. v. Myer, __S.W.3d__, 2014 WL 2789429 (Tex. June 20, 2014)

In this case a curious result (an arbitral award being vacated because the panel was “impartial”) is achieved based upon a traditional and wholly “normal” analysis of the parties’ arbitration agreement. The contract’s arbitration clause provided that each party appoint a “knowledgeable, independent businessperson or professional” as arbitrator, and then the two party appointed arbitrators select a third arbitrator. When the matter was submitted for arbitration, the AAA rules then in effect and which governed the proceedings required that arbitrators be “impartial and independent,” and further provided that an arbitrator “shall be subject to disqualification for partiality or lack of independence.” Relying on such rules, the AAA rejected the parties’ selected arbitrators finding them neither “impartial” nor “independent.” The Texas Supreme Court held that “independent” and “impartial”, “when applied in the arbitration context . . . carry distinct meanings.” It then concluded that “the parties chose ‘knowledgeable’ and ‘independent’ but not ‘impartial’,” hence it vacated the arbitral award because the tribunal was not constituted consistent with the parties’ agreement. The case may be found at http://caselaw.findlaw.com/tx-supreme-court/1670453.html

Debaun v State of Florida, Florida Supreme Court Case No. SC13-2336

The case involves a man charged with a felony after failing to tell his male sex partner that he

carried the HIV virus. His defense: the statute under which he was charged uses the term “sexual intercourse,” which Petitioner contends refers to “the penetration of the vagina by the penis.” Homosexual sex, which he engaged in, is not “the penetration of the vagina by the penis,” hence Petitioner argues that the charge should be dropped. The case is presently pending before the Florida Supreme Court. Petitioner’s Reply Brief, summarizing the arguments, may be found at http://www.floridasupremecourt.org/pub_info/summaries/briefs/13/13-2336/Filed_09-04-2014_Reply_Brief-Merits.pdf#search=Brian Ellison

Articles – Corporate Governance

Research Reveals No Material Difference Between Institutional Investors’ Say-On-Pay Voting For Those Companies That Create Economic Value And Those That Destroy Value

Last month I referred readers to a study conducted by the Investor Responsibility Research Center Institute (IRRCi) regarding the metrics used in executive compensation, and finding that dozens of companies, by using the wrong metrics, are paying executives substantial performance bonuses for supposed superior economic performance when in reality these executives have overseen dramatic reductions in shareholder value (see http://irrcinstitute.org/news/deep-misalignment-between-corporate-economic-performance_pr_11_17_14.php.). Following up on that study, the IRRCi reviewed Say-on-Pay voting, comparing such voting to companies that created economic value and those that destroyed value. The result: “no material difference.” Thought provoking reading! See the study and the Institute’s discussion of its findings at http://irrcinstitute.org/news/Institutional-Investors-Proxy-Advisors-Fail-To-Use-Economic-Value-Creation-As-Major-Factor-In-Say-on-pay-Voting_pr_12-22-14.php