AAA Responds to Alleged Bias in Coffee Beanery Award

Coffee Beanery Arbitration Debacle Raises Questions 

NEW YORK (Blue MauMau) - Although Richard Naimark, Senior VP of the American Arbitration Association, did not grant an interview, he did offer a general response to questions surrounding a recent Coffee Beanery article alleging arbitrator bias outlined in an appeal brief filed January 25, by Harry M. Rifkin, attorney for the franchisees. His brief asked the court:  If there had been irregularities in appointing the arbitrator, should the arbitration be deemed valid?   

Rifkin also questioned if this was a case where there was a deliberate manipulation of the system.

From the AAA on down through the opposing counsel and party, Rifkin questions if his clients were doomed from the start, regardless of the merits of the case.  Rifkin's latest brief was again in response to the March 28, 2007, Arbitration Award by JoAnne Barron, the AAA's appointed arbitrator, which ruled in favor of The Coffee Beanery. She stated that the franchisor had successfully defended all claims brought against it and ordered franchisees, Richard Welshans and Deborah Williams, to pay in excess of $150,000.

After examining the entire convoluted history of the case proceedings outlined in the Rifkin appeal brief, a list of relevant questions were presented to the AAA for this article, in an effort to shed light on some of the discrepancies. They included the dismissal of the mediation demand (a requirement of the franchise agreement) and the process and timing of the arbitrator's appointment. Also included was the arbitrator's disclosure of her own client-accountant relationship with Jane Johnson, Yeo & Yeo, the same accountant who represented Coffee Beanery in the arbitration. 

In spite of AAA’s legal constraints on answering questions listed at the bottom of the article, which are specific to the case, Mr. Naimark did answer the three remaining questions below:

If a party files suit disputing jurisdiction, what is the policy of AAA as to whether the AAA proceedings are suspended pending a judicial determination as to whether AAA does in fact have jurisdiction?

AAA:  State and federal arbitration laws permit parties to move in court to challenge whether a particular dispute is subject to arbitration. The AAA will always comply with a court order that directs that an arbitration proceed in a particular matter, whether the AAA is named in that action or not. Absent a court ordered stay, an agreement of the parties or a determination of the arbitrator that the arbitration should not continue, the AAA will proceed with the administration of a case.

Given the number of AAA arbitrations each year, this type of issue must come up on occasion.  If during arbitration a witness is called and the arbitrator recognizes that the witness has a business relationship with the arbitrator, what is the arbitrator supposed to do?  Is there a written AAA procedure, and if so, where is that procedure written down?

AAA:  Arbitrator disclosure is covered in R-16 of the Commercial Arbitration Rules which states:

a) Any person appointed or to be appointed as an arbitrator shall disclose to the AAA any circumstance likely to give rise to justifiable doubt as to the arbitrator's impartiality or independence, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives. Such obligation shall remain in effect throughout the arbitration." 

b) Upon receipt of such information from the arbitrator or another source, the AAA shall communicate the information to the parties and, if it deems it appropriate to do so, to the arbitrator and others." 

c) In order to encourage disclosure by arbitrators, disclosure of information pursuant to this Section R-16 is not to be construed as an indication that the arbitrator considers that the disclosed circumstance is likely to affect impartiality or independence."

Arbitrators in AAA administered arbitration also sign an oath at the time of their appointment stating that they will serve in accordance with the American Arbitration Association / American Bar Association Code of Ethics for Arbitrators in Commercial Disputes. That code also addresses arbitrator neutrality and disclosures.

With respect to arbitrator neutrality, it is also important to note that state and federal courts play an important role since arbitration statues from around the country permit a court to vacate arbitration awards where an arbitrator has failed to disclose a relationship that he or she may have with a party or attorney that is involved in an arbitration.

Is AAA concerned that Internet dissemination of reports of AAA bias (even inaccurate reports) will fuel Congressional action to limit pre-dispute ADR clauses? 

AAA:  There is currently some congressional activity related to the use of arbitration. This is within the purview of Congress to determine. Ethical standards and balance in arbitration are always laudable goals.

Unanswered Questions

In answer to the questions below, Mr. Naimark stated the AAA does not and cannot comment on specific cases. He explained, "There are legal constraints on this organization from doing so." He did however state that the parties to a particular arbitration may not be constrained regarding information that they may share about a particular dispute. And, he said that applies to the following questions:

• Why did the mediation not take place when it was scheduled by the AAA?
• Was the mediation a "condition precedent" to the arbitration, and if so, how could the arbitration take place without the mediation?
• Did AAA get notified of the franchisees' intent to file the federal suit disputing the jurisdiction of the AAA?
• When the parties filled out there list of prospective witnesses, did The Coffee Beanery disclose that Yeo & Yeo and/or Jane Johnson, the accountant, would be a witness?  If so, did the arbitrator see the list and what was the arbitrator's response? If not, did the arbitrator notify the AAA case manager when during the arbitration proceedings Jane Johnson, the accountant, was called to give testimony?
• Now that there has been an allegation that the arbitrator had business dealings with one of the witnesses that the arbitrator had business dealings with one of the witnesses, has the AAA conducted an internal investigation?  What are the results of the investigation?
• Is JoAnne Barron still on the AAA list of neutrals?
• When did the AAA first become aware of the charges of arbitrator bias?
• Given the highly publicized nature of this Coffee Beanery arbitration, does AAA see a potential problem in JoAnne Barron acting as a neutral in the future?
• Since the Internet allows widespread dissemination of formerly-private information, will AAA implement any policies regarding the posting on-line of information (either by the parties or their counsel)?

Related reading:

Coffee Beanery Franchisees Fight On

CB Franchisees Uncover New Evidence 

Maryland Launches New Probe in CB

Coffee Beanery Violates Illinois Franchise Act