September 2022

Friends –

Summer is coming to a close and I, for one, will miss it.  I hope all of you enjoyed relaxing time with friends and family as much as I did.

With this issue of the Newsletter, as in the past, I’ll focus on two areas:  corporate governance and alternative dispute resolution (“ADR”).  Additionally, I’ll also include an article or two concerning matters of general interest in my “Interesting Cases/Articles of the Month” section.  I provide a brief summary of each article and a link for you to access and read the article in its entirety if you wish. My hope is that you’ll find one or more of the articles I’ve selected of interest and this Newsletter worthy of your time and in-box

This month’s newsletter presents an article on the need for corporate boards to recognize and prepare for the coming paradigm shift that quantum computing will bring to the business world.  For my articles of general interest, I present two:  one on the ability to “see” emotions from facial expressions, and one discussing the benefits (and potential harm) of playing video games with your children (or grandchildren).  For the lawyers and ADR practitioner readers, I present two recent decisions:  one dealing with non-signatories to an arbitration agreement being compelled to arbitrate, and one addressing the issues of functus officio and manifest disregard of the law.

First, however, a couple of announcements and shameless self-promotion.  I’m proud and deeply honored to announce that my book, Negotiation Simplified, was awarded the Nonfiction Authors Associations’ highest award:  Gold!  I’m gratified by the recognition that the book has received and the many compliments and positive feedback I’ve had from readers.  While not academic, the book is being used in multiple graduate and undergraduate courses teaching negotiation or mediation at elite institutions in the US and other countries.  Additionally, the book (and my take on negotiation) were the subject of three podcasts this summer:  Jake Carlson’s Modern Leadership; Mark Gandy’s CFO Bookshelf , and; Jason Wick’s Leadership Voyage (click on the links to hear the podcasts).  Finally, I’ll be leading the Chartered Institute’s Accelerated Route to Fellowship program in Washington DC October 7 & 8 (co-sponsored by the International Institute for Conflict Prevention and Resolution – CPR).  For senior attorneys thinking about serving as an arbitrator or counsel who practice before arbitration tribunal panels, this program is worthy of your time and serious consideration.  Here’s a link to the program brochure, and don’t hesitate to reach out to me if you’ve any questions.

This Month’s Articles

Corporate Governance

  • Get Into the Quantum Game:  As quantum computing becomes more prevalent, seizing the opportunity to revolutionize could lead to a place as a market leader.  Businesses must be prepared for the shift that will take place once quantum computing takes hold or face challenges leading to the loss of near-term benefits and necessary long-term protections.

Alternative Dispute Resolution

  • In re Rotavirus Vaccines Antitrust Litigation.  The Third Circuit, in a precedential opinion, held that medical practices could be bound by arbitration agreements entered by purchasing agents.
  • In re: Craig Steven Romanzi.  The parties agreed to arbitration and contracted for a “brief reasoned decision.”  The tribunal issued a single paragraph decision which “while certainly brief, was not reasoned to the [losing party’s] satisfaction.”  The Tribunal issued a supplemental award which was challenged as being functus officio.  Also addressed is the issue of “manifest disregard of the law.”

Articles of General Interest

  • I Play Video Games With My 4-Year-Old, and That’s Ok.  The potential adverse side effects of children playing video games have been discussed since their introduction.  One parent, however, considers the potential positives.  He highlights bonding time and problem solving, and argues that the value of development achieved through a virtual platform is no less worthy than achievements in reality.
  • Facial Expressions Do Not Reveal Emotions.  Experts are split over whether facial movements accurately broadcast our emotions to other people. The issue is not merely academic.  Current AI programs and “experts” are making hiring, sentencing, and other important decisions based on their belief as to the emotions and psychology of a person “revealed” by their facial expressions.  Per the article’s author, just as animal species are a collection of varied individuals, so too are emotions and the facial expressions resulting from them hence variety, not uniformity, is the rule.  Her conclusion:  facial expressions do not reveal what a person is thinking.

I hope you find one or more these articles of interest and this Newsletter worthy of your in-box.


Jim Reiman

Articles / Corporate Governance

“Get Into the Quantum Game: Use Cases Are Emerging,” Jim DeLoach, NACD Board Talk, May 31, 2022

“One of the most misleading phrases found in articles about quantum computing goes something like this: ‘When quantum computers are available …. ‘ It turns out that quantum machines are not only available now but also powerful enough to tackle practical problems. In fact, they already do certain things better than classical computing, with some trade-offs.

With machines available and powerful enough to tackle practical problems, the use of quantum computing continues to grow.  Even though quantum machines cannot crack encryption, their implementation has some advantages in specific use cases.  Specifically, end-companies claimed a “customer advantage” in speed and price. The potential revolutionizing of different optimizations and machine learning problems means getting involved in quantum computing now could lead to being considered a market leader. Although the true quantum advantage is unknown, some use cases could be there within a year, disrupting manufacturing, logistics, and financing. By then, those not quantum ready will struggle to get into quantum computing.

Current quantum computing uses which are materially superior to traditional computing are optimization problems, such as optimizing an asset portfolio to enhance returns.

Optimization problems are performed on quantum annealers, which map variables to thousands of qubits in a way that can be thought of as a field of peaks and valleys. The computer finds the lowest energy state to give the best possible answer.

One way to visualize this process is to imagine searching for the lowest valley on a continent. With a traditional approach, you would have to drive up and down all over the terrain to measure and find the answer. Thanks to quantum tunneling, the annealer can quickly identify the answer by moving through all the hills without a slow road-trip approach. These “peaks and valleys” can be applied to things such as asset portfolios to solve for optimal returns. Specific constraints can be assigned, such as how long to hold an asset and the minimal gain before selling.

*     *     *     *

[Quantum computing] is already showing some advantage in solving the classical traveling salesman problem, where a mythical salesperson has to visit every city in a country using the shortest routes without ever passing through a city twice. An actual situation that the annealer addressed involved a vehicle routing problem that added real-world constraints such as downed power lines and other hazards to make the problem more complex. One run had the quantum approach providing a route with 20 kilometers of driving to make deliveries. The classical solution needed 27 kilometers of driving. An edge such as this would multiply quickly when dealing with thousands of kilometers or miles daily. Many use cases are easily adaptable in this fashion, such as to certain pricing decisions for hospitality and airlines. This is but one example. There are other types of quantum computers that address other kinds of use cases.

To be quantum ready for the quantum computing age, companies must task champions to select areas of the business open to revolutionization and help stakeholders recognize the possibilities through brainstorming and use cases. Additionally, companies will need governance structure and support to implement quantum use cases successfully. The right people throughout the company need to be involved and consider the applicability, benefits, risks, and appropriateness of investment level when it comes to quantum computing. Then, a business will need a resource plan to guarantee adequate quantum technology software development skills by offering staff training, resources, and hands-on knowledge transfer.

By planning sooner rather than later to include quantum computing, boards will avoid resource challenges that would result in the loss of near-term benefits and necessary long-term protections offered by the development of quantum computing.

Articles / Alternative Dispute Resolution

Sugartown Pediatrics, LLC v. Merck Sharp & Dohme Corp. (In re Rotavirus Vaccines Antitrust Litig.), 30 F.4th 148 (3d Cir. 2022)

In In re: Rota Virus Vaccines Antitrust Litigation, plaintiff medical practices filed a suit against Merck Sharp & Dohme Corp. alleging Merck’s vaccine bundling scheme was anti-competitive. Merck responded by filing a motion to compel arbitration which the district court denied under the summary judgment standard. The case proceeded to the Third Circuit Court of Appeals twice.  The first time before the appellate court, the court vacated the summary judgment decision and held the district court should have allowed discovery on arbitrability.  Following discovery, Merck renewed its motion to compel arbitration, and the plaintiffs cross-moved for summary judgment. The district court again denied the motion to compel arbitration and granted summary judgment for medical practices.  The District Court found that the plaintiffs were not bound under an agency theory because they had not expressly authorized the Physician Buying Groups (PBGs) to enter into arbitration agreements. This decision led to Merck’s second appeal. The Third Circuit agreed with Merck and reversed, holding that the plaintiffs should have been compelled to arbitrate their claim.

There are two types of contracts at issue.  Both are part of Merck’s loyalty program granting medical practices discounts when they buy sufficient vaccine quantities. The first type of contract was between Merck and the PBGs and entitled members of PBGs to discounts when they bought a large enough amount of their vaccines from Merck. These contracts included an arbitration provision. The second type of contract was between the PBGs and the medical practices and gave the medical practices discounts on Merck’s vaccines when they enrolled with the PBGs. The PBGs acted as a bridge between Merck and the medical practices in these contracts. The pediatrician medical practices were members of the PBGs and contracted with Merck but never signed the first type of contract with an arbitration clause.

The Appeals Court held that the Federal Arbitration Act “‘declare[s] a national policy favoring arbitration’ of claims that parties contract to settle in that manner.”  Still, because arbitration is a matter of consent, “courts must be sure that the parties have agreed to arbitrate their claims. After all, ‘[a]rbitration is strictly a matter of consent.’”   However, parties who are not signatories to a contract with an arbitration clause, “will be bound to an arbitration agreement . . . [when] ‘traditional principles of contract and agency law so require.”  Therefore, the Appellate Court examined applicable agency and contract law and determined that the law governing the contract (Pennsylvania) provides that principles of agency will bind a non-signing party to an agreement to arbitrate.

The court found that “at least” one of the plaintiff medical practices, Schwartz, must arbitrate because they granted the PBGs actual authority to consent to the arbitration clause on their behalf. Under Pennsylvania law, three basic elements of agency must be met: “(1) the manifestation by the principal that the agent shall act for him, (2) the agent’s acceptance of the undertaking, and (3) the understanding of the parties that the principal is to be in control of the undertaking.”

The contract between Schwartz and the PBG satisfied the first two prongs because the agreement explicitly made the PBG the “non-exclusive agent to arrange for the purchase of goods and services,” which manifested Schwartz’s intent to have the PBG act as an agent. The PBG accepted the responsibility and acted on this authority when executing the loyalty contract with Merck that included the arbitration agreement. For the third prong, the court found that Schwartz exercised sufficient control over the PBG by circumscribing the PBG’s authority by making the PBG an agent for the limited purpose of vaccine purchases. Furthermore, the court found that even if the PBG did not notify Schwartz about the arbitration clause, that would be a failure to perform the duty, not evidence that an agency relationship does not exist holding the medical practices to the arbitration clause.

Next, the court found that Sugartown and Margiotti & Kroll’s contracts with the PBGs would have established actual authority if they had been signed earlier. Even so, the court did not need to determine if actual authority existed because it found that PBG had apparent authority to act on these parties’ behalf.

In Pennsylvania, apparent authority is established by showing “(1) limited authority given to the agent by the principal; and (2) conduct of the agent which demonstrates to the third-party the agent’s apparent authority to bind the principal.” Both prongs were met in this case because the medical practices confirmed the PBGs acted on their behalf in testimony. Third parties dealing with agents only need to exercise reasonable diligence to ascertain authority because an admitted agent is presumed to be acting within the scope of their authority, so Merck was justified in believing the PBGs were agents as they represented.  Additionally, the medical practices confirmed Merck’s impression through their vaccine purchases.

Therefore, the court found that the district court erred in denying the motion to compel arbitration because the PBGs acted as agents of the medical practices when binding them to the arbitration agreements.

Nathan v. Fieger & Fieger, P.C. (In re Romanzi), 31 F.4th 367 (6th Cir. 2022)

In In re: Craig Steven Romanzi, Romanzi worked at the law firm Fieger & Fieger (the “Firm”) where he referred a lucrative personal injury case.  Before the Firm settled the case, Romanzi left the Firm.  The case settled for $11.9 million, and the attorney fees were “about $3.55 million” of which Romanzi was entitled to a third as the originating attorney, his “departure [from the Firm] notwithstanding.”  However, before Romanzi could claim his share of the fee, his creditors forced him into an involuntary Ch. 7 bankruptcy and the Firm refused to pay Romanzi his share of the fee.

Nathan, the Trustee of Romanzi’s bankruptcy estate, thereupon commenced adversary proceedings against the Firm to recover Romanzi’s 1/3 of the legal fee from the settlement alleging that the Firm breached its contract and also that Romanzi was entitled to the fee pursuant to the doctrine of quantum meruit. The bankruptcy court allowed Nathan’s claims to proceed to trial.  Before trial, all parties (seeking to avoid a jury trial) “agreed to submit to [the dispute to] arbitration and abide by a panel’s ‘brief reasoned decision’”. Two of the three arbitrators found for the Trustee in “a single paragraph decision.”

“[W]hile certainly brief, [the Firm argued that the award] was not reasoned to the Firm’s satisfaction. The district court agreed and remanded to the arbitrators for clarification rather than vacating the award. On remand, the panel asked for submissions from both parties, which the Trustee provided; the Firm refused to participate at all. The arbitrators’ subsequent supplemental award, approved by the district court, awarded the Trustee the fees owed to Romanzi, plus interest.

The Firm appealed, arguing that: (1) the remand was inappropriate, and the award should have been vacated, (2) the arbitrator’s decision on remand was barred by the doctrine of functus officio, and (3) the supplemental award should also be vacated.  The court found the Firm’s arguments unpersuasive, holding that no grounds for vacating arbitral decisions apply and that the remand was appropriate under the clarification exception to functus officio. Therefore, the court affirmed the judgment of the district court and bankruptcy court.

For the Firm’s first challenge, the court reasoned that the clearest argument would be under §10(a)(4) of the Federal Arbitration Act (“FAA”): “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” The court summarized the Firm’s argument on this point as follows:  “Because the parties bargained for a “brief reasoned  decision,” and the arbitrators delivered something else, the Firm asserts that they exceeded their powers.”

The Appellate Court rejected this argument, finding that the arbitrators did not exceed their authority:  “The text of the original award was . . . within the limit set by’ the arbitrators’ powers, so it did not exceed them. The issue is simply that more was required of the panel.”

As this court has explained, “if the district court were correct in its conclusion that [the] Arbitrator … failed to explain his award, the proper remedy would have been a remand to the same arbitrator for clarification.” [citation omitted] That principle makes sense. The proper remedy for falling short of the level of explanation agreed to by the parties is remanding back to the panel, rather than starting from scratch.

Turning to the argument that the award should be vacated for “manifest disregard of the law,”

This test, we have said, is part and parcel of the statutory prohibition against the arbitrators’ “exceed[ing] their powers,” because “[a]rbitrators do not exceed their authority unless they display a manifest disregard of the law.” [citation omitted]  But the outrageous circumstances required for this court to find manifest disregard are clearly not met here. [citation omitted] (“An arbitration panel acts with manifest disregard if ‘(1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2) the arbitrators refused to heed that legal principle.’ ” [citation omitted] (“A mere error in interpretation or application of the law is insufficient. … Rather, the decision must fly in the face of clearly established legal precedent.” [citation omitted] (“[A]llegations of errors in interpretation … fail[ ] to prove that the arbitrators displayed a manifest disregard of the law.”).

For the Firm’s second challenge, the court found that the doctrine of functus officio has many exceptions, including the clarification-completion exception.

In this court’s words, “[c]ourts usually remand to the original arbitrator for clarification of an ambiguous award when the award fails to address a contingency that later arises or when the award is susceptible to more than one interpretation”; remand is also appropriate based on “a failure fully to explain an award”—provided that “the parties’ agreement imposed a duty of explanation on the arbitrator.” [citation omitted]

Hence, the district court’s decision to remand to the original arbitrators and the arbitrator’s request for supplemental submissions fell under this exception.  Specifically, the parties contracted for a “brief reasoned decision,” so the proper remedy was remanding to the original arbitrators because the reasoning behind the decision and not just the result required clarification. Then, the arbitrators’ requests for additional information from the parties did not violate the doctrine because the order requested a clarification, including a discussion of both parties’ claims and the justification for the award. So the court found it was appropriate to ask for an explanation of claims and defenses not to reconsider the merits but to reach the “brief reasoned decision.”

Lastly, the Appellate Court rejected the Firm’s argument that the supplemental award should be vacated for violating FAA §10(a).  § 10(a) of the FAA permits vacatur when 1) the award was procured by corruption, fraud, or undue means; 2) there was evident partiality or corruption in the arbitrators; 3) the arbitrators were guilty of misconduct in refusing to postpone the hearing or hear evidence or otherwise prejudiced the rights of a party; and 4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

For factors (1) and (2), “the Firm argue[d] that the panel’s soliciting findings from both parties, but only receiving submissions from the Trustee, constituted ex parte contact that ‘raises a presumption that the arbitration award was procured by fraud, corruption, or other undue means.’”  The Appellate Court firmly rejected this argument, holding that “because notice, not participation, is the touchstone of ex parte contact, the Firm cannot refuse to respond to emails on which it was copied and later claim that those communications were made ex parte.”

Concerning factors (3) and (4), the court found that for the same reasons expressed with respect to the functus officio claim, the arbitrators’ actions did not reopen the merits and they did not constitute misconduct or exceed the scope of the remand instructions.  Further, the Appellate Court held:  “Generously construed, the Firm’s § 10(a)(3)-(4) argument is that the arbitrators’ actions on remand were so one-sided as to require vacating. The failure with which the Firm takes issue, then, is its own refusal to provide a summary of its arguments when the arbitrators requested that it do so. It cannot now twist its actions into misconduct on the part of the arbitrators.”

Concluding: “[w]e will not punish the district court for criticizing the arbitrators’ taciturnity, nor the arbitrators for explaining themselves more fully on remand.”

Articles / General Interest

Facial Expressions Do Not Reveal Emotions, Lisa Feldman Barrett, Scientific American, April 27, 2022

A contentious debate surrounds the question of whether facial movements broadcast emotions. On one side, pointing to hundreds of studies and Charles Darwin’s The Expression of the Emotions in Man and Animals, experts believe that people make specific, recognizable faces to express emotions. Whereas on the other side experts point to counterevidence, claiming that there is too much variance in facial movements during emotions for there to be one universal, emotional meaning.  While both sides acknowledge that facial movements vary by emotion, they disagree on the level of uniformity needed to detect what emotion is causing the facial expression.

This debate is not just academic; the outcome has serious consequences. Today you can be turned down for a job because a so-called emotion-reading system watching you on camera applied artificial intelligence to evaluate your facial movements unfavorably during an interview. In a U.S. court of law, a judge or jury may sometimes hand down a harsher sentence, even death, if they think a defendant’s face showed a lack of remorse. Children in preschools across the country are taught to recognize smiles as happiness, scowls as anger and other expressive stereotypes from books, games and posters of disembodied faces. And for children on the autism spectrum, some of whom have difficulty perceiving emotion in others, these teachings do not translate to better communication.

The potential answer to the question “do facial movements broadcast emotions?” goes back to Darwin. In his book, The Expression of the Emotions in Man and Animals, Darwin is credited with expressing the proposition that “universal expressions” exist, and that “universal expressions evolved by natural selection.”

Darwin was inspired by Guillaume-Benjamin-Amand Duchenne, a 19th-century French physician who electrically stimulated facial muscles and photographed the resulting contractions. Duchenne’s work led to Darwin’s proposal in Expression that facial movements act as a signaling system, with specific movements being universal signs of emotion.

The way the story is usually told, Darwin discovered that emotions have innate, biologically based expressions that are made and recognized universally and shared with other animals.  That story presents facial movements as a sort of signaling system in which you can look at a person’s face, detect their emotional state and receive important information to keep you—and them—alive and healthy.

*     *     *     *

A preponderance of evidence shows that Darwin was wrong, and his mistake was a doozy. In real life, people express a given emotion with tremendous variability. In anger, for example, people in urban cultures scowl (or make some of the facial movements for a scowl) only about 35 percent of the time, according to meta-analyses of studies measuring facial movement during emotion. Scowls are also not specific to anger because people scowl for other reasons, such as when they are concentrating or when they have gas. The same tremendous variation occurs for every emotion studied—and for every other measure that purportedly tells us about someone’s emotional state, whether it’s their physiology, voice or brain activity.

Emotion AI systems, therefore, do not detect emotions. They detect physical signals, such as facial muscle movements, not the psychological meaning of those signals. The conflation of movement and meaning is deeply embedded in Western culture and in science. An example is a recent high-profile study that applied machine learning to more than six million internet videos of faces. The human raters, who trained the AI system, were asked to label facial movements in the videos, but the only labels they were given to use were emotion words, such as “angry,” rather than physical descriptions, such as “scowling.” Moreover there was no objective way to confirm what, if anything, the anonymous people in the videos were feeling in those moments.

Lisa Feldman Barrett (the article’s author) argues that not only is the belief that “instances of a particular emotion, such as anger, share a distinct, immutable, physical cause or state—an essence—that makes the instances similar even if they have superficial differences,” wrong, Darwin himself proved the error of the belief.  She argues that in Darwin’s On the Origin of Species, written 13 years before his Expression, he disproves the theory that emotions have an essence that is shared universally.

Darwin’s Origin proposed, radically, that a species is a vast population of varied individuals with no essence at its core. The ideal dog doesn’t exist—it is a statistical summary of many diverse dogs. Variation is not error; it is a necessary ingredient for natural selection by the environment.

Further, Barrett argues that contrary to popular belief, Darwin did not claim “facial expressions as universal.”  Rather, she argues that Darwin’s Expression has been cited incorrectly for more than 100 years,” and she identifies the source of the error.

While the erroneous attribution of the belief in universal facial expressions may be of interest to academics, Barrett points out the practical implications to all of us:

There is no [universal] essence. Variation is the norm, and it is intimately linked to a person’s physiology and situation, just as variation in a species is linked to the environment its members live in.

An increasing number of emotion researchers are taking [variation] thinking more seriously and moving beyond the essentialist ideas of the past. It is time for emotion AI proponents and the companies that make and market these products to cut the hype and acknowledge that facial muscle movements do not map universally to specific emotions. The evidence is clear that the same emotion can accompany different facial movements and that the same facial movements can have different (or no) emotional meaning. Variety, not uniformity, is the rule.

I Play Video Games With My 4-Year-Old, and That’s OK, Jay Caspian Kang, New York Times, December 9, 2021

Jay Caspian King grew up in the late ’80s when the consensus was that video games were drugs turning children into zombies. The only feasible defense of video games was the potential to improve hand-eye coordination. In 1982, Surgeon General C. Everett Koop warned the country against video game addiction even though no scientific evidence supported the conclusion that video games inflicted harm on children. Over the decades, the panic around video games routinely popped up with no substantial changes taking place, leading the country to settle on a “hey, these things are bad, but what are you gonna do?” attitude.

The culture of video-game-shaming present in King’s childhood has influenced his parenting methods. Notwithstanding King’s concerns (especially of addiction), since the pandemic’s start, he has played video games with his 4-year-old daughter, Frankie. At first, King felt tortured, but now playing video games with his daughter, they have found something they can both be present for in an enjoyable way that’s difficult to find in other more structured parts of life.

When we play these games, she is fully engaged and asks questions about the stories, which I admit are stupid, but most kids’ stories are stupid. When she solves a puzzle in a game or defeats a boss, her face lights up with the same satisfaction and confidence she displayed when she learned to ride a bike without training wheels or when she figured out how to go across the monkey bars. These moments are digitally inspired, yes, but I’m not sure why that means they’re worth less.

But more important, video games have become a thing we do together. We now play them a few nights a week. For Halloween this year, my wife and I dressed up as Princess Peach and Bowser and our daughter went as Mario. She has become what the kids in my second-grade class might have called a Nintendo freak, although I imagine the kids in her generation are all Nintendo freaks.

While Kang acknowledges that ‘[m]y experience with video games, of course, is just my experience,” and that “[t]here may be kids who fall into addictive patterns — several years ago, the World Health Organization added ‘gaming disorder’ as a behavioral addiction to its list of diseases.”  However, he also notes that “[s]ome scholarship has even highlighted the cognitive and social benefits of many video games” and that more recent research is “more nuanced.”  He concludes:

I’ve also noticed that just as I know when Frankie isn’t enjoying a game, she can tell when I’m going through the motions. But when we play, say, Yoshi’s Crafted World or Mario Kart, we’re both present in a way that’s difficult to find in other parts of our very structured lives. And so my hope is that by playing video games with me at a young age, she will at least get used to the idea of a virtual life that still involves her old man.