Chapter 1–Abuse and Exploitation

Arbitration is defined as a form of alternative dispute resolution in which the two parties agree not to take their dispute to court, but instead to resolve the dispute by hiring an arbitrator to hear both sides. The arbitration process is shorter than litigation because many of the procedures of evidence are not included. The decision of the arbitrator is final and while an appeal of the arbitrator’s decision is possible, it is not probable on the merits of the case. Many consumer, franchise, employment, and other business contracts include an arbitration clause; some of these clauses require mandatory arbitration.

This was very popular 15 years ago and I did incorporate an arbitration clause in the employment agreements I had with key employees of many of the companies I owned. I had such an unbelievably poor experience with it however that my recommendation to you is to not do it. Avoid signing any document with an arbitration clause. Why? Because Arbitrators are for the most part incompetent, relying more on who they like as opposed to the evidence. Abuses that can be exposed in court cannot easily be dealt with in arbitration. In the interest of keeping arbitration decisions out of court, appeals on poor decisions and even clear and irrefutable bias get no traction. In fact mistakes of almost any kind will not be reviewed and reversed by our courts. You are better off in court.

This story is about an arbitration involving one of my companies and a former IT manager who shall go by the name of M. He was terminated for a variety of job performance reasons. His fiancée practiced as an attorney for a time and during his employment with us they lived together in a small town in New Jersey. A year or so before M’s false complaint, he was caught conspiring with another employee of ours in a plan to set up a company competing with my company. That of course was a violation of our non-compete agreement.

 

The Legal Complaints

M filed two legal claims against us. The first was an Oregon Whistle Blower claim. The second claim was a wrongful discharge claim. “The general rule is that most employees may be fired at any time—for any reason or for no reason at all—under what is known as the at-will employment doctrine. However, in the past half-century, many exceptions to the general rule have emerged. Exceptions to this general rule can come from two sources: (1) courts, which modify and make “common law protections” or (2) the legislature, which enacts “statutory protections.” Statutory protections tend to be specific, addressing certain subject areas (such as discrimination, workers’ compensation, etc.). Yet, legislators often lack the foresight to address every possible situation of retaliation. Common law protections, on the other hand, tend to “fill the gaps” where no statute exists for a given situation,” from Zuckerman Law.

The Whistle Blower claim filed sought damages because he claimed he was discharged (or discriminated against) in retaliation for performing any one of the following protected activities:
• Reporting criminal activity by any person. The report must be made in good faith.
• Causing criminal charges to be filed against any person.
• Cooperating with any law enforcement agency conducting a criminal investigation.
• Bringing a civil proceeding against an employer. The civil proceeding must be brought in good faith.
• Testifying at a civil proceeding or criminal trial. The testimony must be made in good faith.

These are the broad categories of this claim. And you will note that they need to be made in good faith. In our opinion they were not made in good faith and more importantly he was terminated before the complaint, eliminating this section altogether.
Max also filed a wrongful discharge claim, which is rather large catch all of possible violations also themed in retaliation for protected behavior, but is broader than the Whistle Blower Statute.

All of his claims are identified to being terminated for having informed the Oregon Department of Justice of alleged over-billing and/or Do Not Call Violations. Later M would testify that he never claimed what he alleged we were doing was illegal, only inappropriate, with respect to billing and we were exonerated by the arbitrator. His attorney claimed that the complaint was for DNC only and that the support the ODJ requested from M was never provided.

I know the aforementioned provisions play an important role in protecting all of us. Again, if you were fired before a criminal complaint was filed you by and large have no claims under these provisions. if you were fired because or over the protected behavior you may have a claim.

The question of whether someone who filed a complaint did so in good faith is a matter of some discussion. For example, if a disruptive employee was about to be fired and realized that and filed a criminal complaint claiming his boss had gone 55.05 mph in a 55 mph zone and then further notified his employer that he could not be fired because of the complaint, would that result in the protection the employee was looking for? And wouldn’t the employee’s disruptive behavior just then be enough in addition to other performance problems so that the employer did fire him? Would that be a Whistle Blower event? I just don’t see it. There needs to be some standard of reason here.

But that’s where we were. M claimed he was fired for notifying the DOJ that one of the employees of my company was doing something inappropriate (not criminal), something comparable to going 55.05 mph at a moment in time in a 55 mph zone. We on the other hand said he was already fired and moreover even if that had not been the case, the complaint was not made in good faith.

From my perspective it just seems that attorneys are not busy enough with real litigation for this to have enough merit to last more than 7 days let alone 7 years. But it did.

The Essence
The essence of M’s fiancée’s litigation position was that he was fired for filing a complaint with the Oregon Department of Justice about my company modifying hours we billed clients. We did not. In fact he did not file such a complaint. His fiancée contacted an attorney in Albany, Oregon, who filed the complaint on their (his) behalf. When the Oregon Department of Justice requested evidence supporting the complaint, nothing more was provided. In fact the file was opened and closed within 48 hours. We believe the attorney that filed the complaint also contacted the Department again and retracted it. But it set in motion litigation under the arbitration section of our agreement.

Eventually M testified as to what his complaint was and he claimed that it was based on a document, an excel spreadsheet, he received from a former employee. He refused to identify who the employee was at first. He refused to turn over the email by which he claimed to have received the spreadsheet. He did turn over the spreadsheet in hard copy form. It showed a company writing off time on a group of unnamed clients and in some cases writing up time. When M testified on the spreadsheet he claimed that writing off time, as in my company billing less than we could, was inappropriate because it gave us an unfair advantage against other companies (like the one he was setting up) that may want to compete for that business. What a stunning epiphany. The analogy I would draw is that he essentially claims that anyone offering a product or a service for a discount is doing something inappropriate, if not criminal. When the car companies put their cars on sale, they are according to M engaging in criminal activity…but not really criminal, just inappropriate.

The Arbitrator is a gentlemen with a long and honorable commitment to the Bar, his profession and his community. He is 85 years old or so by now. He is not longer a partner in a Regional Law Firm called Schwabe Williamson. I know a number of the partners there and think it generally a good firm. Bill use to be a partner in a law firm called Miller Nash. That will become important here pretty quick. Bill has served as president of the Bar and Chairman of the Ethics Committee responsible for disciplining attorneys.

M had a number of attorneys on the case. The first wanted to litigate this in New Jersey, in violation of our agreement. We fought and won that battle. Two plus years later the case came back to Oregon. Five law firms and five years later M ended up with an attorney who represented him through the arbitration, a woman named Linda Marshall.

We questioned how M came to find Linda Marshall, but he refused to answer this question even under oath. It is our opinion that recommendation came from Bill. M had previously written arbitrator asking for an extension. Linda Marshall was his former partner at Miller Nash. I discovered this when the arbitration was almost over. My attorney had not told me. This is shocking stuff. And so I asked my attorney to sit out and pursued the arbitration myself.

When we filed the closing briefs I took a position that we wanted to preserve for appeal the apparent bias shown Bill’s former partner. The Arbitrator immediately stepped down from the case. He recused himself. Linda Marshall objected telling him that he did not have the right to step down because that was the exclusive right of the Arbitration Service of Portland. And these are the games that lawyers play, conspiring together to steal someone’s money under the umbrella of a legal proceeding…a kangaroo proceeding. The Arbitration Service of Portland agreed with Marshall, but that defies all logic. A conflict of this nature if it exists only exists when there is an element leading to bias and that can only exist at the individual level. If it were about appearances alone there would be bias. After all the arbitrator and Marshall practiced together. But it’s more than that. While initially I thought this was a clear case of corruption, I don’t believe it was arbitrator corruption. Now I believe it was an attorney in whom the arbitrator placed some faith taking advantage of an arbitrator who no longer had the stamina to keep up, who was lead down a garden path.

At the beginning of every session Bill asked Marshall where we left off from the day before. And she told him. He never asked me. Marshall often told the arbitrator what and when to think and Bill, perhaps only out of confusion sometimes followed the lead. I wish it was that easy. Perhaps the larger story is how the arbitrator was manipulated. And thee is a story about how long my own attorneys exploited THE STING.

When M was asked under oath I asked him how he found Linda Marshall or if someone close to this arbitration referred her to him or referred him to her, he refused to say. Marshall objected of course. No one wanted the truth of this referral to be revealed. Subsequently, I interviewed the arbitrator. It changed my perception of what happened at the hearing and with his opinion and order. However, he had many opportunities to dismiss M’s complaint years earlier and did not.

It is of course clear that the referral to Marshall may not have been in Bill’s mind an ethics violation. This is a sign that the cognitive skills of an arbitrator or judge is slipping. They make a clear violation of an ethics rule. A referral to a former partner, even someone he had not worked with for some time, nonetheless raises a question of the appearance of bias. Bill may have done this out of sympathy for the defendant M in being unrepresented. He may have known that Marshall had few clients as well.

And we will tell this story which reflects our opinion of influence, of the appearance of cronyism, of corruption and fraud by the attorneys involved. And it spans over 7 years.

This story will upset you. What will become apparent is that the opportunity for abuse is far too great in the arbitration form and unless the courts take a more active role in returning it to an honest opportunity, it should be avoided at all costs. And one of the key lessons here is that the Bar is not well prepared to deal with an arbitrator who gets it wrong in a big way. The attorney who exploits the opportunity gets away with it. The arbitrator once exposed may be embarrassed but continues until forced to retire. Few want to retire. I can’t blame them.

Our initial post has been edited to remove the emotional finger pointing and offers instead evidence that I think you’ll find persuasive.

Let’s dive into the story.

 

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