October 20, 2020 Dispute Resolution Magazine

Case Law Update

Lindsey Anderson and Andrew Jordan
Case Law Update

Case Law Update

No Ombuds Needed amid COVID Concerns,  Bankruptcy Court Finds

Safety concerns created by the COVID-19 pandemic contributed to a United States bankruptcy court denying a request to appoint a patient care ombudsman in In Re: Thomas Health System, Inc., et al., Debtors., 2:20-20007, 2020 WL 2026658 (Bankr. S.D.W. Va. Apr. 6, 2020). The United States trustee argued that an ombudsman was necessary to ensure patient care standards are maintained throughout the process and said that the pandemic only increases that need. Conversely, the debtors argued that internal controls were already in place to ensure patient care and that an ombudsman would not only be redundant but potentially a safety risk due to COVID-19. The court agreed that the nature of an ombudsman’s practice could be potentially disruptive to current operations during the pandemic and might create potential safety concerns because of increased personal contact. In this case, the court found, significant internal patient care protections were in place, in addition to external safeguards. Furthermore, it found, no allegations of deficient patient care precipitated the bankruptcy. These two factors, coupled with the concerns regarding COVID-19 and significant cost to the debtors’ estates, led the court to deny the request.

Protected Communication Status Extended to Threatening Statements in Texas Mediation Case

Threatening statements made in mediation were deemed inadmissible in a motion for relief in Areizaga v. ADW Corp., 796 Fed. Appx. 205 (5th Cir. 2020) (unpublished). The United States 5th Circuit Court of Appeals upheld the lower court ruling, reiterating that the alleged threats were protected communication under Texas state law. Areizaga filed the motion more than one year after what appeared to be a successful mediation resulting in dismissal of the case. In his motion for relief, Areizaga claimed that the only reason he settled was that threats made during the mediation caused him to believe he could lose his current job. This, in turn, he argued, should not be protected communication under the crime-fraud exception. Further, he alleged that ADW Corp. waived its right to confidentiality by reaching out to his current employer. The Court of Appeals noted that the crime-fraud exception did not apply because the section cited by Areizaga, §154.703 of the Texas Civil Practice and Remedies Code, contains no clear exception for crime fraud or waiver. Additionally, if a waiver exception did exist under the Texas law, the court said, it would not apply because nothing in the record indicated that ADW ever waived confidentiality. Accordingly, without competent evidence of the threats alleged, the content of the mediation was upheld as protected communication.

No Evidentiary Hearing Needed to Overturn Judgment in Mediation Case, Court Rules

In Pohlman v. Pohlman, 344121, 2020 WL 504775 (Mich. App. Jan. 30, 2020), an appellate court in Michigan found insufficient evidence to overturn a judgment enforcing an agreement reached in mediation. The plaintiff had argued that the judgment should be set aside due to coercion and duress stemming from three main factors: the mediator failed to follow domestic violence screening procedures; the plaintiff felt pressure to settle from their attorney and the mediator assigned to the case; and the plaintiff was denied a requested evidentiary hearing to evaluate the claims of coercion and duress. Regarding an evidentiary hearing, the appeals court said, the lower court did not have to hold one because it could rule on the issue based on the evidence at hand. In this case, the record clearly showed that the alleged pressure did not come from the defendant. Accordingly, the trial court had sufficient evidence to decide on the validity of the mediation settlement without another hearing.

One-sided Arbitration Clause Held “Unconscionable” by New Mexico High Court

In Peavy by Peavy v. Skilled Healthcare Group, Inc., S-1-SC-37370, 2020 WL 1672428 (N.M. Apr. 6, 2020) the Supreme Court of New Mexico considered the conscionability of an agreement that requires residents to arbitrate any claims against the facility while the facility could opt to litigate if it desired. The court held the facially one-sided agreement to be unenforceable. Although there is no bright line rule for conscionability in New Mexico, the court held that if the agreement gives the drafting party rights that the other party does not get, the agreement can be considered to favor one side, thus making it potentially unenforceable. The drafting party was allowed to present evidence to show rationale for the one-sided clause. Absent that, however, the court upheld the determination that the clause was unconscionable.    

College Board Terms and Conditions Deemed Enforceable in Southern District of New York

The US District Court for the Southern District of New York examined an arbitration agreement between the College Board and students taking standardized tests for its conscionability in Doe #1 v. College Bd., 19 CIV. 6660 (LGS), 2020 WL 882019 (S.D.N.Y. Feb. 24, 2020). In this case, one issue arose from a group of tests where signs of cheating were found, and the College Board invalidated the scores of that group. The plaintiffs claimed that there was a breach of contract while also claiming the contract was unenforceable. The court pointed out that the contract could not be unenforceable and breached at the same time because the contract would have to be enforceable to be breached. When the College Board moved to arbitrate, the plaintiffs claimed that the contract was unconscionable, since there is no mutual agreement and plaintiffs are forced to agree if they want to take the test. The court noted, however, that although the plaintiffs were under 18 years old, there was no pressure to sign. It further rejected the argument that the contract was unconscionable, writing that because the test is made primarily for people under 18, there was not a better way to have a parent or guardian agree to the terms for the minors.

Is Service by FedEx Sufficient? Court Says Hague Convention Doesn’t Preclude Informal Service

In Rockefeller Tech. Investments (Asia) VII v. Changzhou SinoType Tech. Co., Ltd., 460 P.3d 764 (Cal. 2020), the Supreme Court of California examined whether previous agreements can preempt provisions from the Hague Service Convention. After the American and Chinese companies signed an agreement and consented to the jurisdiction of California, a dispute arose, and the plaintiff attempted to compel arbitration in California. The defendant did not appear, and an award was given to Rockefeller Tech Investments. However, the main issue arose from the 10th clause in the Hague Convention, which states the parties cannot give personal service if the country does not allow for it. China never signed onto the 10th clause, and the defendant claimed that service by Federal Express Mail was not sufficient. The California Supreme Court held that notice and personal jurisdiction requirements can be waived from a preexisting contractual agreement. The court noted that this contract was made in good faith and had clearly outlined the procedure for arbitration and service of claims. While the Hague Service Convention applies in most cases, the contract had clauses that were outside the scope of the convention and the parties had agreed to an informal service by mail. Therefore, the court held that the convention did not preclude the informal service and confirmed the arbitral award.

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Lindsey Anderson and Andrew Jordan

Lindsey Anderson and Andrew Jordan are law students at the University of Oregon School of Law and serve as law student editors for Dispute Resolution Magazine.