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In the 1980s, the U.S. Supreme Court made clear in case after case that it favored arbitration as a method of dispute resolution. Now, as arbitration is increasingly used by companies to resolve disputes, the court again is stepping into the fray. During its current term, the court decided one relatively minor procedural arbitration case — Cortez Byrd Chips Inc. v. Bill Harbert Construction Co., 120 S. Ct. 1331. But in the next term, beginning in October, the court is scheduled to hear three such cases, all raising harder and more consequential questions than Cortez. “It’s an area that has certainly piqued someone’s interest,” says Florence Peterson, the general counsel for the American Arbitration Association. The not-for-profit group, which has 14,000 arbitrators to hear labor, contract and other disputes, saw case filings stagnate around 60,000 in the first half of the 1990s, then jump to 72,200 in 1996, to 95,000 in 1998, then pass 140,000 in 1999. “It seems [the Supreme Court] is trying to set guidelines and boundaries for the role of lower courts in arbitration, and that’s very important,” Peterson says. In Cortez, the court unanimously ruled that the venue provisions of the Federal Arbitration Act (FAA) allow a motion to confirm, vacate or modify an arbitration decision to be brought in any district that is proper under the general federal venue statute. The FAA’s venue rule — which states that parties may file suit in the district where the arbitration was brought — was intended to expand, not limit, the choice of venue for suits regarding arbitration awards, the court said. From there, the issues get harder. In 1996, Larketta Randolph sued the company that financed her purchase of a mobile home, alleging violations of the federal Truth in Lending Act and other laws. The company argued that Randolph’s finance contract contained a mandatory arbitration provision. A federal judge agreed, and Randolph appealed. The 11th U.S. Circuit Court of Appeals reversed, rejecting the company’s argument that the appeal had to await the end of arbitration. The court said that it was a final decision subject to immediate review. The 11th Circuit ruled that the arbitration provision was unenforceable because it said nothing regarding costs and fees. The unknown size of the potential financial burden might dissuade complainants from invoking the mandatory arbitration clause — their only method of vindicating their statutory rights. The company appealed to the Supreme Court. Green Tree Financial Corp. v. Randolph, No. 99-1235. NO EASY ANSWERS Charles Craver, a professor at George Washington National Law Center who specializes in labor law and is a member of the National Academy of Arbitrators, argues that the cost question lacks easy answers. In a labor contract, for example, “if the employer pays the costs, you worry that the arbitrator will be biased — but at least one court has said it’s not fair for the employee to even pay half,” he says. But don’t underestimate the importance of the interlocutory appeal question, says Jean R. Sternlight, a University of Missouri-Columbia School of Law professor who teaches ADR and has written five law review articles on arbitration. The question of which proceeds first — the court-ordered arbitration or the losing party’s appeal — “will affect almost any case with a dispute on arbitrability,” she says. “From a litigator’s standpoint, that’s huge.” On the other hand, Sternlight says, the question raised by the second case in the upcoming Supreme Court trio — that of when judges should be able to overrule arbitrators’ decisions — is somewhat less momentous than it sounds. Eastern Associated Coal Corp. v. United Mine Workers, District 17, No. 99-1038, concerns a company truck driver, James Smith, who twice was fired after testing positive for marijuana. Both times he went to arbitration under the union contract and was suspended without pay. Eastern sued, arguing that the arbitrator had exceeded his authority under the labor contract and that the decision violates public policy. A federal judge sided with Smith, ruling that company policy did not mandate termination for drug use, that the arbitrator did not exceed his authority under the contract and that the reinstatement of workers who have used drugs in the past violates no clear public policy. On appeal, the 4th Circuit upheld the lower court, saying that public policy only opposes the ongoing use of drugs by workers in safety-sensitive positions. This is less momentous than it sounds, Sternlight insists, because however the court rules, it is highly unlikely to open the floodgates for disgruntled parties to sue to reverse arbitral awards. “By and large everybody knows that arbitration awards are not going to be vacated,” she says. Finally, in Circuit City Stores Inc. v. Saint Clair Adams, No. 99-1379, the court will decide whether the federal arbitration law will apply, in an increasingly popular situation, to all of a company’s nonunion workers. In Circuit City, a prospective employee signed a document agreeing to arbitrate any disputes arising out of the application or subsequent employment. The 9th Circuit — alone among the circuits — declared that the FAA provision excluding from its purview “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” applies to virtually all employment contracts because virtually all employees work in interstate commerce. Sternlight says the legislative history of the federal law indicates that the drafters did indeed intend to exclude labor relations from the FAA — but that if the court upholds the 9th Circuit, that doesn’t mean labor arbitration provisions will be unenforceable. Every state has statutes that govern arbitration, she says, although many contain provisions that seek to protect employees, something the FAA lacks.

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