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Arbitration proceedings can go forward even if one of the opposing parties cannot afford to pay its share of the anticipated fees, the Ninth Circuit U.S. Court of Appeals ruled Tuesday. The seven-page ruling reverses U.S. District Judge Vaughn Walker, reinstating an arbitrator’s decision to give Lifescan Inc. the option of advancing fees for opponent Premier Diabetic Services Inc., with the understanding that Lifescan, a division of Johnson & Johnson, could recoup its money as part of any award. Walker ruled that Premier was compelled by the Federal Arbitration Act to proceed with arbitration despite its lack of funds. The Ninth Circuit decided, however, that Walker had overstepped his authority, noting that the American Arbitration Association permits arbitrators to apportion fees and expenses in whatever way they deem appropriate. “This may not be an ideal solution to the problem of a party’s failure to pay its share of the fees,” Judge Alex Kozinski wrote, “but it is well within the discretion of the arbitrators.” Judges Susan Graber and Marsha Berzon joined in the opinion. Premier, based in Florida, had contracted with California-based Lifescan in 1997 to purchase glucose monitoring strips and meters at a discount, with the provision that they would be sold only to Medicare patients. Lifescan stopped shipping in 1998 based on its belief that Premier was violating that agreement. Once Premier announced its inability to pony up its share of the fees for arbitration, Lifescan refused to bail its opponent out, demanding that arbitration proceed and that Premier be barred from presenting evidence. The AAA refused. In his ruling, Kozinski said that the AAA rules apparently give arbitrators “the flexibility to make the best of a bad situation.” “Unlike the more inflexible Federal Rules of Civil Procedure,” he wrote, “the AAA rules allow the arbitrators to adjust the payment of costs in light of circumstances.” Kozinski also rejected Lifescan’s claim that the California Codes of Civil Procedure provide an independent authority for requiring Premier to put up its share of fees. The California law, he held, comes into play only if the parties’ agreement is silent about fee apportionment. “The agreement between Premier and Lifescan is not silent because it incorporates the rules of the AAA, which do cover the apportionment of fees,” he wrote. “They leave it up to the arbitrators.” Leon Bloomfield, a partner at Oakland’s Wilson & Bloomfield who represented Premier, couldn’t be reached for comment. Neither could Lafayette & Kumagai partner Gary Lafayette, who represented Lifescan. The ruling is Lifescan, Inc. v. Premier Diabetic Services, Inc ., 04 C.D.O.S. 3186.

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