Twin Cities Business Litigation Blog : Minneapolis Business Litigation Lawyer & Attorney : Gavin P. Craig Law Firm : St. Paul, Twin Cities, Minnesota MN

The Supreme Court does not often hear an arbitration case. However, they have now elected to hear Jackson v. Rent-A-Center West. Cert was granted on January 15th.

The case involves a claim of race discrimination and retaliatory termination. The employee had signed a stand alone agreement with the employer agreeing to arbitrate any disputes, including any claim of discrimination. The trial court dismissed the case on a motion, finding that the arbitration agreement already provided that the arbitrator determined arbitrability.

The case was appealed to the Ninth Circuit, and the Court of Appeals reversed, finding that the issue of whether an arbitration contract is unconscionable is an issue for the court. The agreement specifically provided that the question of arbitrability is a question for the arbitrator. The Ninth Circuit said it wasn't. Case law would appear to support this argument absent a provision in the agreement to decide arbitrability, but in this case the agreement already specified a process.

The district court held that the question of whether the arbitration agreement was unconscionable was a question for the arbitrator, as provided in the agreement. Moreover, the District Court held that the Plaintiff had not demonstrated that the agreement was substantively unconscionable.

The plaintiff is arguing that the arbitration clause is invalid because it is unconscionable, and therefore the agreement to allow the arbitrator to determine the question of arbitrability is equally void. The Ninth Circuit accepted the argument and reversed, sending the case back to the district court. Now the US Supreme Court has taken up the case.

In this case, the plaintiff signed the agreement. He may not have read the agreement, but that does not make it unconscionable.

This is an odd case. If you accept the premise that the arbitration Agreement is a contract, and that the parties are bound by their contracts, the Ninth Circuit is wrong. The court is essentially re-writing the contract and deleting a provision. That is not right. Court are not suppose to rewrite contracts. But that is the effect of the Ninth Circuit ruling.  Here is the decision. 

Gavin Craig

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Even the dead must honor their contracts. In an unusual case, the Buyer signed an agreement to purchase a NYC Condo for $2,300,000. The agreement is approved. The Buyer dies before the closing, and the estate does not want the condo. But, the estate wants the $230,000 deposit returned.

The Contracts Professor noted the courts reasoning as thus:

The crux of this matter lies in contract paragraph 15.2, which expressly makes the contract binding on the parties' "heirs, personal and legal representatives and successors in interest." The inclusion of this provision indicates that the parties explicitly contemplated, and provided for, the possibility of either party's death before closing, by specifying that the death would not terminate the contract, but that the contract would survive, to be performed by the successors or heirs of the deceased party. This provision makes the contract binding on [the buyer's] estate.

While this is basic contract interpretation and reasoning, the estate would have been responsible in any case. Just because a party to a contract dies does not mean that their estate is not responsible for the contract entered into by the deceased. (Unless it was a personal services contract, which has separate rules for obvious reasons.) The general rule in New York and I will guess all other states, is:

"[w]here the proposed purchaser dies before the closing of title, his executor or administrator may pay the balance of the purchase price and take the deed in his own name holding it in trust for the heirs at law or devisees. It is the duty of the fiduciary for a deceased vendee to complete payments under a contract entered into by such vendee for the purchase of real property" (4-35 Warren's Weed New York Real Property §35.24 [2009] [footnote omitted]; see Di Scipio v. Sullivan, 30 AD3d 660 [2006])."

The court also rejected the arguments of impossibility and frustration of contract purpose. So the Seller gets to keep the deposit, and apparently was able to sell the property for $2,125,000. That is a nice extra profit for the seller.  How to avoid this problem: add a contract clause that the death of a party voids the contract.  It isn't hard to do. 

Thanks to the Contract Prof Blog for this story.
 

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Victoria Pynchon has an interesting post on her Commercial ADR Blog. It is a fact pattern that many attorneys will recognize. It is a very real scenario. However, I don't understand why experienced attorneys would resort to the game playing. Attorneys should avoid tit-for-tat responses. They are juvenile responses to serious negotiations, and accomplish nothing for your client.

I agree that you can usually tell in a negotiation (but not always) where the other party is headed after awhile. I always assumed that the other side could tell where I was headed. The mediator in the case study did not seem very effective, or the parties were not listening to the mediator. Mediators, in my experience, do not want to convey useless and counter-productive offers back and forth.

In a recent case, the offer we received was so out of line that it almost stopped the negotiations. We had no meaningful way to respond to the offer. There was no place to go even with a meaningful counteroffer. Even the mediator told me that he told the other side that the offer was a big mistake.

Unfortunately the absurdly high or low offers do nothing to move the parties toward a settlement, and they can defeat the very purpose of the negotiations. Although we finally got to a place we thought was fair, my experience was a good example of the initial offer (or counter offer) being in the stratosphere and almost killing the effort. Many times the very high initial demand offer will be followed with major downward moves. That is at least an admission by the claimant that the initial offer was not a real offer.

Sometimes what seems like a ridicules demand or counter offer is made in earnest. In other words, the parties are truly very far apart on their assessment of the case. I hope we will see more of these case studies on Victoria's site. They are fun to consider.

But, attorneys in serious negotiation or mediation should be cautious about starting in a place that is unrealistic. That does not mean starting with your bottom line, but it does mean that the parties will do themselves a big favor by realistically assessing the case, and the merits of both their position and the position of the other side. Starting outside of at least shouting distance from a realistic range can kill what would otherwise be a good result, and it really avoids the necessary hard bargaining. Trials can be a real crap shoot, depending on the court. Negotiate with care and with a purpose.

Gavin Craig

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