Gardner Calls Hall Street "Abhorrent"
In Part 2 of an exclusive Blue MauMau interview, Ronald Gardner takes off his chairman's hat and speaks frankly about current Supreme Court jurisprudence. Hall Street Associates, L.L.C. v. Mattel, Inc is a controversial decision because it calls into question whether manifest disregard of the law is grounds for vacating an arbitrator's decision. Gardner notes that the following views are personal and do not reflect any official position of the American Bar Association.
BMM: What is the status of manifest disregard as grounds for arbitral vacatur in the wake of Hall Street?
GARDNER: The law of the land is that it is dead. But that is so unpalatable to those who believe in the rule of law... [pauses]
...To respect law, you have to allow someone to ignore the law???
That's going to be abhorrent to circuit court judges.
BMM: And so lawyers going forward...
GARDNER: [interjects] Lawyers say they "love the law." Well, people are now being screwed with the full blessing of the United States Supreme Court and of the United States Congress (via the Federal Arbitration Act).
BMM: Necessitating a legislative solution?
GARDNER: The reason for tension is the incongruity... [pauses] To ignore the law???
The federal judiciary is amazingly conservative. I'm not suggesting there's anything wrong or dishonest. Its just that we've had 28 years of Republican party appointees--even when the Democrats were in, their [progressive] candidates were blocked by [the late Senator Strom] Thurmond and [his allies].
BMM: What about personal freedom, even if that is freedom to be stupid? Didn't Lochner have some merit?
GARDNER: [laughs] Two separate issues.
[As to Lochner:] The bar that I as a Plaintiff's lawyer have to cross is extraordinarily high. If someone gets truthful information and makes a bad decision, they will lose 99 times out of 100. If the information is not truthful... the law should protect those people.
We all pay the price when these [franchisees] lose big portions of their savings. This is different from a $10 novelty store purchase. When people take out a mortgage or go to a car dealer, we protect them [statutorily]. That's because if they lose their money, it affects society.
BMM: Why don't franchisee attorneys make the argument about negative externalities?
GARDNER: As an attorney, I'm not going to put that in my briefs. Externalities is an argument that franchisees should be making to their legislators, not to the judge.
In the conclusion to the interview, Gardner assesses the prospects for the Arbitration Fairness Act
--
Read Part 1: Gardner Sees Signs of Recovery, Change in Franchise Bar
- Franchise topic:
- Enter Your Own Tag:
how arbitration works out in the franchise world? Ballpark estimate - do more arbitrators find for franchisors vs. franchisees from your legal experience? Why the bias? Wouldn't most franchise agreements call for the losing party to pay for arbitration?
I'm missing why the arbitration is pro-franchisor, if it is?
1. Because it is generally required that it be conducted in a venue selected by the franchisor, often adding significant travel and lodging expense to the franchisee and allowing the franchisor to select a state that may have less regulation.
2. Because the franchisor selects the arbitrator, whose very livelihood is dependent on being selected, and may have a prior relationship with the franchisor.
3. Because any victory for the franchisee comes with a non-disclosure provision and any defeat is without the possibility of appeal.
4. Because it can be exceedingly expensive, $400 to $500 per hour for an arbitrator.
5. Because the discovery process is limited.
6. Because normal rules of evidence and procedure do not apply.
7. Because mandatory arbitration clauses also include the waiver of the right to a trial by jury.
There are other reasons, but you get the idea and understand why the franchisors are lobbying hard to have franchise contracts excluded from the Arbitration Fairness Act currently before Congress.
I hope Harry Rifkin's view wins out.
For a good discussion of the current confusion created by Hall Street, see this article in Dispute Resolution Journal.
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Rifkin points out that the Court raised some mischief with the Hall Street dicta.
The question is: Why?
Why not either leave the language out of the opinion, or squarely address the matter?
Might it be that the Court is aware of how it would be seen in the eyes of Congress and so the Court wants the circuits to do its dirty work and build up a body of appellate law supporting this nonsensical position?
Manifest disregard is an extraordinarily tough thing to show. It is not simply that there is (1) a statute which is (2) clear and (3) on-point (itself a tough job) but also you must show that (4) the statute was sufficiently brought to the attention of the arbitrator and that (5) the arbitrator chose to flip the bird at the Legislature.
So the number of cases which would involve an attempt to vacate based on manifest disregard is likely to not be great. But to highlight this particular problem is to impliedly raise more fundamental concerns regarding the ability of private justice to frustrate the will of the people as embodied in statute.
At bottom, the debate over manifest disregard may be a proxy for those broader concerns.
adoption of the FAA was the war on clogged dockets. If disputantsa had to go elsewhere, the load on courts would be reduced and the quality of judicial administration improved. That sounds good as a sound bite.
In reality, however, judges have always had the power to reduce abusive litigation tactics but have not used those powers. Judges for the most part are political animals; many are lazy; and some are just plain ignorant. Every trial lawyer has encountered all these characteristics with only the availability of an appeals court as a way to obtain relief from judicial sloth and ignorance.
Reduction of workload is a sacred mantra and almost no one in power wants to make judges have to actually deal with the use of their powers. The big money is against revision of the FAA.
The problem is that arbtration has become couurpt. Since the victims of this corruption are folks without a warchest to get the political power needed to deal with it, the arbitration situation is likely to remain corrupt. For one thing, when an arbitrator rules in favor of a franchisee, the arbitrator's name goes on a shit list, always to be stricken by franchisor parties. Franchisees don't have a shit list like that. They should. One will soon be started that will be publicly accessible for a very reasonable fee. It would not be surprising if Dady & Gardner and Bobby Zarco kept such lists for their private use, but I have no personal information about that - it's just my guess.
I have the utmost respect for Ron, and maybe he could shed some light on this question. We do need our own shitlist.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
I respectfully disagree with Gardner on Hall Street's holding. The issue in Hall Street was whether parties could contractually change the terms of the Federal Arbitration Act. It concluded that the parties could not do so. That part of the opinion was correct. The language as to manifest disregard was unnecessary, and if it can be read as throwing out that concept, outrageous. However, thus far the Court has not accepted the argument that manifest disregard is no longer grounds to overturn an arbitration award. If it were to do so and overturn 50 years of jurisprudence since Wilko v. Swan, such a result would be abhorrent. What I find most abhorrent, however, is the FAA itself and how the courts, and the Supreme Court especially, have abdicated all review of arbitration awards and given arbitrators more power than any judge. In arbitration, due process and the rule of law take a back seat to whatever the arbitrator thinks is right. If the law cannot be honored and the constitutional protections are thrown away, don't we put ourselves in the same posture of dictatorships with kangaroo courts.
As a lawyer, I was trained in the law and while judges do not always get the law right, there is a right of appeal and their decisions and proceedings are public. If a judge disregards the law, he or she may be overturned on appeal and certainly will not escape public censure in some form. Not true with arbitrators who conduct their hearings in secret and without scrutiny. Often there is no transcript and no explanation for their decisions. While many arbitrators try to do what is just, others don't care or are not able to do that. Arbitration must be reformed in order to provide parties with the option to proceed in court rather than arbitration at the time the dispute arises in consumer and franchise matters. Consumers and franchisees do not understand arbitration in the pre-dispute phase and have no power to negotiate these arbitration provisions.
Harry Rifkin
Franchise and Business Law Group
www.franbuslaw.com
hrifkin@franbuslaw.com
Post new comment