Headaches Persist After Arbitration Award
For a good example of how far some attorneys and litigants are willing to go to overturn an arbitration decision, look no further than a May 18 hearing in Dallas. On that sunny Thursday afternoon, four attorneys gathered in Judge Nancy Thomas' 160th District courtroom, where they argued for more than three hours over whether an arbitration award should be vacated because the arbitration judge allegedly had a headache.

Headaches Persist After Arbitration Award

On that sunny Thursday afternoon, four attorneys gathered in Judge Nancy Thomas' 160th District courtroom, where they argued for more than three hours over whether an arbitration award should be vacated because the arbitration judge allegedly had a headache.

Not just any headache -- a migraine headache -- reason enough, a defense attorney argued, to overturn a $2.3 million arbitration award for the plaintiffs in Hinson, et al. v. Stevens Transport Inc., a workers' compensation case.

A migraine is an intense periodic headache that is usually limited to one side of the head. The fact that the arbitrator went ahead with the hearing -- despite mentioning to lawyers in the case that he'd suffered from a migraine the previous night and had gotten little sleep -- was a violation of the defendant's fundamental due process rights, according to a motion to vacate the arbitration award filed in Thomas' court by Stevens Transport.

Attorneys representing the plaintiffs, trucker Kenneth Hinson and his wife, do not agree with the defendant's reasoning.

Three trial lawyers say the case represents the growing dissatisfaction attorneys and litigants have with resolving litigation through arbitration. The arbitration system is supposed to help litigants by resolving disputes efficiently and economically and by offering a sense of finality. But increasingly, parties dissatisfied with the arbitrator's decision are willing to take the difficult and expensive step of contesting an arbitration award.

Two lawyers who defend the use of arbitration, including one who serves as an arbitrator, say arbitrations usually are not controversial and rarely are challenged successfully. They believe that sour grapes often fuel motions to vacate arbitration awards, which trial and appellate courts recognize for what they are.

NO SLEEP, NO JUSTICE?

Kenneth Hinson claims he suffered serious injuries while working for Stevens Transport, a Dallas-based transportation company. After his rig was involved in a wreck that he alleges was caused by a driver he was training, in 2003 Hinson filed a nonsubscriber workers' compensation suit in Thomas' court against the company.

Disputes between employees and employers who subscribe to coverage with a private carrier are automatically sent to a Texas Workers' Compensation Commission administrative panel for resolution. But employees of companies that do not subscribe to such coverage with the TWCC can sue their employers in state court.

But after the Hinsons filed suit, both sides agreed to allow the case to go to arbitration.

The parties selected JAMS, a company that provides mediation and arbitration services, and they agreed to have arbitrator Glen M. Ashworth, a retired state district judge from Kaufman County, hear the dispute. As part of a Rule 11 agreement, the parties agreed not to appeal the arbitration award unless it involved fraud or collusion.

The parties agree that on Aug. 9, 2005, day six of a 14-day arbitration hearing, Ashworth told them that he had not slept the previous night because of a migraine headache. A defense lawyer asked to recess the hearing but Ashworth refused.

Ashworth issued his final decision in the case on Dec. 6, 2005, and the plaintiffs filed a motion to confirm the arbitration award with Thomas.

But on Feb. 15, the defendant filed a motion to vacate the award, alleging that Stevens Transport did not waive its fundamental right to due process by signing the Rule 11 agreement. It also alleged that Ashworth had violated JAMS' procedural rules, which required him to refrain from serving as an arbitrator if he became physically or mentally unable to meet the expectations of the parties.

David L. Sargent, a partner in Dallas' Hermes Sargent Bates who represents Stevens Transport, made it clear to Thomas in his May 15 opening statement that "[w]e are not fussing with Judge Ashworth's assessment of the facts. We think the arbitrator was incapacitated."

To prove his point, on May 18 Sargent called two experts to the stand who testified that sleep deprivation can affect a person's ability to concentrate. Lawyers representing the Hinsons offered two experts of their own to counter Stevens Transport's experts.

The hearing before Thomas was a waste of time and money, said Ralph C. "Red Dog" Jones in his closing argument. Jones, a partner in Dallas' Jones Geisler, represents Hinson.

Sargent estimates that the defense spent $20,000 to pay for its two expert witnesses, and Jones says the plaintiffs spent about $15,000 on their two experts.

"We talk about frivolous lawsuits -- this is a classic frivolous defense," Jones argued. "An arbitration is supposed to be final. When you submit to arbitration, it's supposed to be private. It's not supposed to be down here at the courthouse."

On May 23, Thomas sided with the plaintiffs by granting their motion to confirm the arbitration award.

Sargent says he is disappointed with the ruling but hasn't discussed with his client whether it will appeal to Dallas' 5th Court of Appeals.

Jones says, "I'm sorry it's taken so long and so much money on what was supposed to be a final arbitration award."

Thomas has not made a decision on the plaintiffs' motion seeking sanctions against Stevens Transport for filing a frivolous pleading. Jones says his clients will try to recover approximately $115,000 in legal fees and expert costs spent fighting the defense motion to vacate arbitration.

But Sargent doesn't believe that his client will be sanctioned.

"We've looked at the grounds that we thought existed to set aside this arbitration and looked to see if those grounds had been subjected to sanctions in the past," Sargent says. "We felt what we were hanging our hat on was not exposing Stevens to sanctions."

Ashworth declines to comment about the arbitration or his alleged migraine.

"I was, of course, surprised," Ashworth says of Stevens Transport's motion to vacate the arbitration award. "I wish that I could be candid with you, but the process requires that I remain neutral."

CAN'T GET NO SATISFACTION

While Texas businesses embraced arbitration in the 1980s and early 1990s as a way to avoid costly litigation, some lawyers who represent employers and corporations now have second thoughts about the process.

Michael P. Maslanka, the managing partner of the Dallas office of Ford & Harrison who defends businesses in employment litigation, says he advises his clients to be cautious about placing arbitration clauses in their contracts with employees.

"The nimbleness and simplicity of arbitration has been calcified over the years," Maslanka says. "I'm really beginning to wonder if it's in the best interest of the employers."

With scheduling orders and full-blown discovery becoming a regular part of arbitration, the litigation cost-savings are marginal at best, he says. Maslanka advises clients that if they lose, the rulings are difficult to overturn. Most arbitration agreements contain language that limits the parties' ability to appeal.

"Companies who've gotten into it and win think it's the greatest thing," Maslanka says. "But when they lose it's like, "What have we gotten ourselves into?'"

Civil defense lawyer Jim Cowles has similar reservations about arbitration.

"At times arbitration has seemed to be a good remedy and at times it's been a horrible remedy. And it's hard to do anything about it," says Cowles, a partner in Dallas' Cowles & Thompson. "If you have an arbitrator who goes off in left field, you're sunk.

"I've always worried about putting a dispute in the hands of one or three people," says Cowles, adding that some arbitration cases are decided by a panel of three arbitrators.

Maslanka and Cowles believe that parties seem more willing to attempt to vacate arbitration awards than they were in the past.

For example, Perry Homes, a large Houston-based home builder owned by Bob Perry, a prominent supporter of tort reform, is attempting to overturn an $800,000 arbitration award to a Mansfield couple who alleged that they bought a defective home built by the company. The couple originally planned to go to trial, but shortly before the suit was to be tried, they decided to go to arbitration.

Perry Homes filed a motion to vacate with a Fort Worth trial judge seeking to overturn the arbitrator's award, but the trial judge approved it. The 2nd Court of Appeals also approved the arbitration award but modified it slightly. In an Oct. 14, 2005, petition for review filed with the Texas Supreme Court in Perry Homes, et al. v. Robert E. Cull and S. Jane Cull, the construction company alleges the Culls waived their right to compel arbitration by originally pursuing a suit in district court. The Culls argue in their reply brief that the high court has no jurisdiction over the case.

The high court has not accepted the case for review, but earlier this month it asked for additional briefing from both parties.

Geoffrey Bracken, a partner in Dallas' Gardere Wynne Sewell who represents Perry Homes, and Thomas Michele, a partner in Fort Worth's Griffith, Jay, Michele & Moore who represents the Culls, did not return telephone calls seeking comment before presstime on May 25.

GOOD LUCK WITH THAT

Try as they might, parties' attempts to overturn arbitration awards are rarely successful, says Larry Mills, a partner in Seattle's Mills, Meyers, Swartling who conducted a study on the issue last year.

After analyzing every state and federal court opinion published nationwide between Jan. 1 and Oct. 31, 2004 in which a party attempted to vacate an arbitration award, Mills found that of those 182 cases, only 37 -- or 20 percent -- were vacated.

The most common reason for vacating an award was because an arbitrator "exceeded their powers, or so imperfectly executed them that a ... final and definitive award upon the subject matter was not made."

Mills, who published the report "Vacating Arbitration Awards" in the summer 2005 edition of Dispute Resolution Magazine, says courts are supposed to be skeptical about overturning arbitration awards.

"Vacature is only supposed to happen for very narrow reasons," says Mills who also is an arbitrator. "And what I think is happening is that the sore-loser problem is real. When someone loses big, there isn't a merits-based appeal. And they'll seize on whatever they can. I've seen some parties investigate the arbitrator and move to vacate to cause problems and cause expenses on appeal."

Trial and appellate courts frown on such actions, because losing parties' motions to vacate arbitration awards defeat the purpose of seeking arbitration to begin with, Mills says.

A good example is the 11th U.S. Circuit Court of Appeals' Feb. 28 decision in B.L. Harbert International v. Hercules Steel Co., in which the court warned that parties who attempt to vacate arbitration awards because of sour grapes are liable for sanctions.

"Courts cannot prevent parties from trying to convert arbitration losses into court victories, but it may be that we can and should insist that if a party on the short end of an arbitration award attacks that award in court without any real legal basis for doing so, that party should pay sanctions," wrote Judge Ed Carnes for a three-judge panel.

Mills believes it might be up to trial and appellate courts to put a stop to unfounded motions to vacate arbitration awards by imposing sanctions.

"I actually think the courts may have to take a hard line," Mills says. "We're all big boys, and we shouldn't have people doing this."

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