Friday, March 2, 2012

Large Pie—Hold the Arbitration

Unifirst Corp. v. Juniors’ Pizza, Inc., 2012 VT 13 (mem.).

In the practice of law, clients consistently rely on us to craft a course of action for them in a moment of panic and difficult circumstances. 

These are the dreaded 6 pm calls when we are entering our time for the day and thinking about returning to our loved ones or, in some cases, our families.  Just as you start to shut down the computer, the phone rings.  The client tells you her situation.  It is terrible.  Something should have been filed last week.  The client should have applied for a loan six weeks ago.  The other side should have been approached and talked off the ledge they are about make everyone jump off. 

In the best of times, we serve our clients in this hour of need.  We work the phones and craft a strategy that puts things together or at least makes lemonade out of the lemons.  But occasionally, we cannot fix what is irrevocably broken, or worse, in the heat of the moment we make recommendations that fail miserably.  In both cases, the result is a bad situation made worse.  It is like trading in your Edsel for a ticket on the Hindenburg. 

It is unclear from today’s case whether the end result was the product of bad advice or bad decisions before the attorney was called.  What is clear is that Defendant made a series of bad choices that will insure that they pay no less than six times what Plaintiffs originally demanded of them.

Let’s start at the top.  Parties had a relationship where Plaintiff provided supplies to Defendant.  The terms of the relationship were governed by a written contract.  In November 2008, Defendant ended the relationship.  Plaintiff sent a bill for $8,000 for services and supplies already rendered.  Defendant ignored it. 

Under the terms of the parties’ contract, any dispute was required to go to private arbitration for resolution.  In June 2009, Plaintiff filed a demand for final and binding arbitration with the American Association of Arbitrators.  Defendant chose to ignore this request and the subsequent notices for a hearing.

A quick note on arbitration: the process of hiring an arbitrator to resolve differences is a long-standing practice.  Arbitrations are essentially small, limited trials.  The advantage is that the parties can move faster through arbitration than through the court system with less expense and hassle.  Arbitration is also geared to business.  Arbitrators are often selected for their specific knowledge of a particular area, such as business-to-business disputes.  On the downside, arbitrations can sometimes be a little too quick and limited.  Key issues, which might otherwise be developed in the longer trial process and change the outcome, are casually tossed under the bus in the moment.  The key to remember in arbitration is the root word: arbitrary.

Back to our story:  Despite Defendant’s refusal to participate, Plaintiff and the arbitrator went ahead with a hearing on October 28, 2009.  Five days later, the arbitrator awarded $43,000 in damages and attorney’s fees to Plaintiff against Defendant.  Arbitrator sent notice of the decision to Defendant who received it in December 2009.

Again Defendant did nothing. 

In August 2010, Plaintiff moved to confirm the arbitration with the trial court.  Defendant moved to dismiss but failed to file a memorandum in support of the motion in a timely manner, and it was dismissed.  The trial court confirmed the arbitrator’s award, and Defendant appealed to the SCOV.

On appeal, the SCOV slices and dices Defendant’s arguments faster than a Ginsu through a beer can

Defendant’s arguments boil down to three arguments: Defendant did not waive the right to object to the arbitrator’s award; Plaintiff needed to go to court to compel Defendant to participate; and the hearing was conducted improperly.

The key to understanding any challenge to an arbitration decision is that the courts will only make a very limited review of the issues.  The whole purpose of arbitration is to give the parties a quick, private, and final decision—Time being worth money, and money being worth time.  Any review of an arbitration will only look to vacate the decision because of a lack of process or other inherent unfairness.  Courts will not take up the merits of the matter, the strength of the evidence presented, the legal soundness of the decision, or any of the issues that normally make up an appeal.  In other words, a party seeking to vacate an arbitration will have to prove that some fundamental unfairness in the process or the decision renders it invalid—a tall order in any circumstance.

Here Defendant never even gets to first base.  The SCOV deems the entire challenge untimely because Vermont law requires a party seeking to vacate an arbitration to do so within 30 days of the decision.  In this case, the decision came out in December 2009 but Defendant never objected or sought to vacate until 14 months later.  For this reason alone, Defendant strikes out and will have to go home to Mudville.

Just to be complete, though, the SCOV goes on to discuss Defendant’s remaining two arguments.  First, the SCOV rules that a party does not have to go to court to compel another party to participate in an arbitration where there is a valid arbitration agreement and where one party unilaterally refuses to participate.  As long as there is proper notice to the parties, a party refuses to participate at its own peril and detriment.

Second, the SCOV rejects Defendant’s argument that the arbitration was flawed because the contract called for it to be held in Montpelier but Plaintiff appeared by phone from New Hampshire.  The rules of arbitration allow a party to request a change in location and the other side has 15 days to object.  Defendant failed in this in any way and cannot revive the issue years later. 

Finally, the SCOV notes that Plaintiff has requested attorney’s fees for the cost of the appeal.  The SCOV rules that such requests under the rules must be filed with the trial court within 14 days of entry of the SCOV’s decision. 

And that, folks, is as close as you will get to an engraved invitation from the SCOV to file for such costs.  Plaintiff has likely made such a filing, which will only add to Defendant’s ever-escalating obligations, which seem to be growing into a larger piece of the pie on a near-daily basis.   

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