Bloomberg News

Arbitration Association Creates Right of Appeal: Business of Law

November 15, 2013

The American Arbitration Association adopted new rules that will allow some parties in an arbitration to appeal within the arbitration process.

Currently, disgruntled parties can only appeal to a court under very narrow grounds. The new rules provide for appellate panels with former judges or experienced arbitrators to review awards when there are allegations of material errors of law or “clearly erroneous” factual mistakes.

There is no automatic right of appeal. The parties must either include the appeal in the original arbitration provision or subsequently must all agree to opt in, said Steven Reisberg, a partner at Willkie Farr & Gallagher LLP.

The “words appeal and arbitration don’t usually belong in the same sentence,” Reisberg said. “The new rules are a response to the hesitancy of some to put arbitration clauses into agreements when damages can be in the millions or even billions.”

On Tuesday, for example, Starbucks Corp. (SBUX:US) announced that it lost an arbitration with Kraft Foods Group Inc. over the grocery-store marketing of its coffee and was ordered to pay $2.79 billion. Their arbitration agreement predates the new rules.

Reisberg doesn’t expect the appellate process to be widely used. Allowing appeals will “diminish the speed, finality and lower cost that arbitration provides,” he said in a telephone interview yesterday. For the right user, though, he said it provides a way for mistakes to be corrected.

Fredric Leffler, a senior counsel at Proskauer Rose LLP specializing in employment and labor law, also doubts the appellate process will be widely adopted.

He said that the procedure “might be attractive to employers who want mandatory arbitration where employees waive their rights to a judicial forum.”

A right to an appeal would “give the employees a sense that if they lose, they’re not foreclosed from an appeal, and would give employees more solace in signing these agreements,” Leffler said.

Chancery Court Awards Attorneys’ Fees in Case Held Moot

A Delaware Chancery Court judge awarded attorneys’ fees to a plaintiffs’ firm whose initial case challenging a merger was moot.

The litigation arose over Quest Software Inc.’s proposed acquisition by Insight Holdings Group, in which a Quest director had an interest. The plaintiffs sued to stop the deal during a 60-day go-shop period.

During that time, Dell Inc. emerged as another bidder, offering $283 million more. Dell’s proposal led to the Chancery Court to hold the plaintiffs’ suit moot.

Nonetheless, in an opinion, Judge Sam Glasscock III said that the case “raises issues of the proper timing of litigation in the hyper-expedited world of merger litigation, with potential injunctive relief providing the best, and perhaps only, remedy.”

“As with burglary, so with merger litigation; the greatest utility comes from the watchdog biting the burglar on the way in, not the way out,” he said.

While he found that that the litigation hadn’t substantially contributed to the corporate benefit from Dell’s higher offer, Glasscock said “the record makes it clear that the board was well aware of the eyes, raptorious and unblinking in oversight, of the plaintiffs’ counsel, and responded accordingly.”

He found that the benefit provided by plaintiffs’ counsel was 5 percent and awarded the firm -- Grant & Eisenhofer PA -- $1 million in fees.

Potter Anderson Corroon LLP represented the defendants in the case. T. Brad Davey, a partner in the firm, didn’t respond to an e-mail seeking comment.

Lawrence Hamermesh, a professor at Widener University School of Law, said in a phone interview that “it is not unusual to be awarded some fees in a moot case.” He added that it indicates there may be presumption that shareholder litigation “may do some good.”

The case is In re Quest Software Inc. Shareholders Litigation, 7357-VCG, Delaware Chancery Court (Wilmington).

Patton Boggs Lays Off 10 Associates, 35 Staff Members

Patton Boggs LLP said it fired 10 associates in its Newark, New Jersey, office and terminated 35 staff members throughout the firm.

“The changes we have been making are part of an overall plan we unveiled several months ago to address changing client needs and market conditions,” the firm said through spokesman Elliott Frieder. “As a result of these tough decisions, we are becoming far stronger financially.”

Frieder said that as a result of the cuts, the firm would save about $5.5 million.

The Wall Street Journal first reported the layoffs. Frieder declined to discuss speculation that Patton Boggs was considering a merger with Locke Lord LLP.

Law Firm Revenue Up in the Third Quarter, Citigroup Finds

Things were looking up a bit for law firms in the third quarter of 2013, according to a report from Citi Private Bank’s Law Firm Group.

Revenue growth at law firms improved in the third quarter, outpacing expense growth and “easing the pressure on profit margins for the first time this year,” according to the report. Revenue rose because of more demand and a shortening of the collection cycle, while rate increases remained relatively unchanged, the report found.

Operating-expense growth remained little changed while compensation-expense growth eased. Increases in the number of lawyers slowed, while the number of equity partners dropped, according to the report.

For 2013 to “be better than 2012, we will need a very strong fourth quarter,” John Wilmouth, a Citi senior client adviser in the law firm group, said in a phone interview. “It will be very difficult to exceed last year,” since the fourth quarter of 2012 was fueled by a push to do deals ahead of tax changes, he said.

Consultant Says Partners Can’t Really be Entrepreneurial

This year has been a “long slog” for most major law firms, with revenues and profits rising modestly, if at all, law firm consultant Bruce MacEwen tells Bloomberg Law’s Lee Pacchia.

Two aspects of law firms make it difficult to change that, he said. First, despite claims they are entrepreneurial, partners aren’t really creating something new, he said.

Additionally, partnership agreements require firms to pay out their profits, sometimes without investing significant money back into the business, he said.

To watch the interview, click here.

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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