MAY 202 1 VOLUME 1 8 / NUMBER 3 TODAYSGENER ALCOUNSEL.COM
Problems When Employees Return To the Traditional Workplace
• Legislating Issues in the Transformed Workplace • Alternatives to Bankruptcy • States Mandating Board Diversity • Big Bad Mistakes in Arbitration
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General Counsel Interview with Mara Jockers of FirstService Residential
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contents
MAY 2021 Volume 18 / Number 3
4 EDITOR’S DESK GENER AL COUNSEL INTERVIEW
8 Q&A WITH MARA JOCKERS An unusual legal department structure with two general counsel.
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LABOR & EMPLOYMENT
10 EXPECT PROBLEMS WHEN EMPLOYEES RETURN TO THE WORKPLACE From the political zealot to the guy who wants to hug everybody. By Phillip Maltin COMPLIANCE
12 ROUNDUP OF BOARDROOM DIVERSITY LEGISLATION Many states are going beyond recommending, and imposing mandates. By Kathy Jaffari and Paul Hallgren
COLUMN WORKPLACE ISSUES
14 COVID IS ACCELERATING THE GIG ECONOMY And it’s getting harder to call them independent contractors. By Michael A. Chichester, Jr. and Sophia Behnia FEATURES 16 A BETTER ALTERNATIVE TO BUSINESS BANKRUPTCY Assignment for the Benefit of Creditors is not reportable. By Geoffrey L. Berman and Steven L. Victor 18 TOP SEVEN TERRIBLE MISTAKES LAWYERS MAKE IN ARBITRATIONS Stubbornly sticking to losing positions is a loser. By David K. Taylor MAY 202 1 TODAYSGENERALCOUNSEL.COM
3
EDITOR’S DESK
W
hen corporations look for ways to cut costs, labor is usually the first option. Other costs may be tied to the price of raw materials, levied by entities that are pow-
erful enough to protect their own interests, or simply elements in supply chains that are complicated and suffer from disruption. But labor has been easy to bid down since the demise of unions. One means of cutting labor costs, however, may be hitting the wall, and that’s the subject of an article by Michael A. Chichester, Jr. and Sophia Behnia in this issue of Today’s General Counsel. They predict that remote work will hasten the rise of the gig economy but note that states are already limiting employers’ ability to call workers independent contractors, and movement toward a stringent nationwide test is gaining traction. Kathy Jafari writes about another legislative trend to keep an eye on — states mandating diversity on corporate boards; and Geoff Berman and Steve Victor describe an often-advantageous alternative to bankruptcy. Phillip Maltin discusses issues that will arise as the pandemic wanes and employees return to the workplace, and David K. Taylor pinpoints some common mistakes that lawyers make in arbitration, including failure to understand pre-hearing discovery limits and stubbornly sticking to your weak arguments along with your stronger ones. Also in this issue, the first of what will be a recurring feature in Today’s General Counsel, a Q&A interview with a general counsel. In this issue, we talk to Mara Jockers, General Counsel of FirstService Residential, a Florida-based, multi-state property management company.
Bob Nienhouse, Editor-In-Chief bnienhouse@TodaysGC.com
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General Counsel Interview With Mara Jockers
M
ara Jockers serves as General Counsel for the South region of
FirstService Residential, a Torontobased, publicly traded company that provides property management services for private residential communities. Jockers, who joined FirstService Residential in 2010, oversees all legal matters and risk management for the organization. She is a member of the Property, Probate and Trust Law Section of the Florida Bar, and provides pro bono legal services through Legal Services of the Greater Miami Tenants’ Equal Justice Clinic.
How is the legal team at FirstService Residential structured? Jockers: The legal team structure in the South region of FirstService Residential is unique in that the team is led by two general counsels, including me. We find this provides a more collaborative approach to running the team, including addressing employee issues and hiring paralegals, contract managers, and legal assistants.
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What are the key issues you deal with?
How do you work with other departments?
Jockers: While both counsels handle all types of
Jockers: My team and I collaborate with all the
issues, our department is generally split into two sections — contracts/association and business issues, and claims and litigation. Much of my time is spent managing our contracts and addendums with our clients, dealing with contract disputes, terminations, and collections. I also review and draft contracts with third-party vendors, review and negotiate company leases, and handle complaints related to our license and address resident issues. I problem solve with the company’s leadership and provide counsel to property managers as part of my normal routine and generally handle legal issues that affect FirstService Residential’s South region as well as assisting with standard operating procedures and forms.
departments in the organization. On association related issues, the Operations teams — property managers and their leaders — are invaluable. We collaborate with Accounting on everything from collections to fraud investigations. I provide legal guidance to the marketing team when they are preparing media statements, and review articles and publications for legal compliance. Our IT team is essential in assisting with discovery by compiling the emails from our server that may be responsive to requests for production or subpoena for the legal team to review and search. IT also educates us on how to store electronic records in our system, protocol with former employees’ computers, and assists us with litigation holds.
How do you delegate work in-house and/or to outside counsel? Jockers: We don’t do any litigation in-house. Most of the lawsuits FirstService Residential is involved with are related to our role as managing agent, so we are generally provided with defense and indemnity by the association’s insurance carrier, and counsel is appointed. We choose from the law firms on the insurance carrier’s counsel list, and delegate all other litigation to outside counsel. Outside of Florida, which is the largest state in the South region, we may use local counsel. We also work with subject matter experts in particular areas of the law to provide us with guidance in areas such as employment, administrative rules and regulations, real estate and intellectual property.
Any thoughts on the legal technology you’ve adopted, and what, if any, you’ve rejected? Jockers: We use a combination of proprietary software and third-party platforms. Internally, we developed our own contract management system. We use third-party platforms to manage lawsuits and claims, and a system to perform searches related to subpoenas and RFPs.
What kind of IP issues arise in property management? Jockers: Mainly they involve protecting our brand, others using a name similar to ours, or misappropriating our logo. Recently, during the Covid pandemic, some of our vendors and partners created videos for our residents to enjoy while sheltering at home. Some of them then requested payment for their videos, claiming that they owned the material in the video, despite our non-payment agreement. BACK TO CONTENTS
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9
L ABOR & EMPLOYMENT
Expect Problems When Employees Return to the Workplace By PHILLIP MALTIN
A
ccording to Pew, 71 percent of American workers now work from home most of the time. As the pandemic wanes, the need for social connection outside of the home will grow. According to psychologist Matthew Lieberman, “Being socially connected is our brain’s lifelong passion.” The desire for social interaction will drive some people to return to a centralized workplace. Couple that with businesses wanting workers to return to a common worksite, and employment reintegration will rise as Covid-19 infection rates drop. With so many people working alone for the past year, the reintegration may lead to struggles with behaviors that have developed in
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private. This article surveys these issues, discusses an employer’s legal obligations and proposes ways to counter problems that may arise. The Employee Who Refuses the Vaccine for Political or Religious Reasons: Employers may require their employees to receive a vaccine against Covid-19 before returning to the worksite. The Centers for Disease Control recommends that employers administering the vaccine or providing it through a third party ask medical-related questions to prescreen those receiving the shot. The questions may qualify as a disability-related inquiry under the Americans with Disabilities Act (ADA). Consequently, employers
providing the vaccine must demonstrate that pre-injection questions are “job-related and consistent with business necessity.” This means that an employee who refuses to answer the questions or receive a vaccination, and who the employer refuses to return to work, must “pose a direct threat to the health or safety” of themselves or others. A direct threat is something that “reasonable accommodation” (meaning modifications to the job or the workplace) cannot eliminate or reduce. In evaluating whether a direct threat exists, employers should determine things such as the duration of the risk, its nature and severity, and the likelihood that harm will occur. The Equal Employment Opportunity Commission has information detailing “What You Should Know.” (See tab on the EEOC’s website.) An employer that requires but does not administer the vaccine may encounter the two legally significant reasons why an employee may object to receiving the vaccine: (1) It violates the employee’s sincerely held religious belief or (2) it affects a medical or emotional condition the employee has that qualifies as a disability under the ADA. In both cases, the employer must engage in the “interactive process,” a good faith dialogue with the employee BACK TO CONTENTS
addressing the person’s religious commitment or medical limitation and considering ways to help the person perform the essential duties of the job. (The “essential functions” are the responsibilities for which the business created the job.) Business leaders must not question the employee about the disability, only about the restrictions it causes. The Employee Who Provokes Political Debates: Most states prohibit an employer’s attempt to coerce or influence employees to engage in political activities. These laws, however, permit an employer to control the workplace. Business leaders may prohibit employees from arguing about politics while on the clock, just as they may curb other activities that disrupt the workplace. A business should have a policy that permits off-hours political activity but prohibits them while on duty. The policy should restate the company’s commitment to diversity and inclusion and its policies against discrimination, harassment and bullying. It should remind employees to respect different views. Employers should forbid disruptive political conversations on the clock, not because a person articulates a political position but because the conversation disrupts work. Employers should recognize that political discussions can clash with legally protected union organizing or “concerted” activities. Section 7 of the National Labor Relations Act protects employees trying to establish collective bargaining or collective forms of protection. Protected discussions can include conversations about wages, leaves of absence and criticisms of the employer. The Employee Who Wants to Hug: Some people may have BACK TO CONTENTS
lost their perspective on personal boundaries during their time at home. Some may never have developed them. Either way, business leaders must curb over-affectionate colleagues. Begin with a well-crafted anti-harassment policy stating that an employee may not hug a co-worker or independent contractor against their wishes. Whether to hug or shake hands should be part of anti-harassment training. Deciding which to do in real time sometimes leads
or psychological conditions protected under the ADA. A clear policy describing the business’s expectations regarding appearance and cleanliness is essential for responding to defiant employees who continue to act in objectionable ways. Businesses must enforce their appearance and hygiene policies consistently. Selective enforcement may invite claims of disparate treatment discrimination. When the employee’s issues derive from a disability or condition the ADA
Employers providing the vaccine must demonstrate that pre-injection questions are “job-related and consistent with business necessity.” to the hugshake, that awkward moment when people shake hands and embrace at the same time. But a hugshake is better than a shakedown, which is how some businesses view lawsuits arising out of workplace misconduct. Now is a good time to revisit and update the policy. The Employee Who Neglects Personal Care: The stress of returning to the workplace, or habits developed while working from home, can lead to poor hygiene — appearing disheveled, failing to wash hands, and failing to bathe or use deodorant. An obvious solution to these problems exists, but it’s buried in a legal minefield. Simply address the issue with the employee in private. Some people may be unaware and appreciate the confidential exchange. Others may react defensively. Business leaders, however, must recognize that some things appearing to be the result of careless personal hygiene can arise from medical
protects, engage in the interactive process to propose reasonable accommodation. Workplace policies are necessary, but they are not enough. Business leaders must address employment-related problems as they arise. Require returnto-work reorientation meetings that survey the problems workplace reintegration may prompt. Individual reorientation, department meetings or business-wide state-of-the-business updates should include reminders to observe personal boundaries and to report problems immediately.
Phillip Maltin is a trial lawyer, employment law expert and chair of the Commercial & Employment Risk Control Department in the Los Angeles office of Rains Feldman LLP. pmaltin@raineslaw.com
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COMPLIANCE
Roundup of Boardroom Diversity Legislation By KATHY JAFFARI AND PAUL HALLGREN
A
lthough advocacy groups and institutional investors have long pushed for greater boardroom diversity, state legislatures have begun enacting or proposing legislation aimed at accelerating such efforts. California was the first state to pass a law legislating diversity, requiring publicly traded domestic and foreign corporations with headquarters in California to have at least one
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female on their boards. By the end of 2021, companies must have three females for boards with six or more directors, two for boards with five directors, and one female with boards of four or fewer directors. In September 2020, California enacted a law that requires board representation from under-represented communities — Black, African American, Hispanic, Latino, Asian, Pacific Islander,
Native American, Native Hawaiian or Alaska Native, or who self-identify as gay, lesbian, bisexual or transgender. By the end of 2022, the minimum number of directors from under-represented communities must be three if the board has nine or more directors, two if the board has five to eight directors, and one if the board has four or fewer directors. Though it does not come with specific diversity mandates BACK TO CONTENTS
or disclosure requirements, Colorado has passed a resolution encouraging “equitable and diverse gender representation on corporate boards.” The resolution urges public corporations in Colorado with nine or more directors to have at least three women; with five to eight directors, two women; and with fewer than five directors, at least one woman on the board. Publicly held domestic and foreign corporations with principal offices located in Illinois are required to provide certain disclosures in connection with diversity in their annual reports to the Secretary of State. They include the self-identified gender of each board member; whether or not board members self-identify as members of a minority group and if so, which group; a description of the company’s process to identify and evaluate board and executive officer nominees demonstrating
least 75 percent family members are exempt from this law. There is a sunset provision providing that it will remain in effect until September 30, 2029. New York’s board diversity law mandates a study regarding women directors on the boards of New York-based companies. Both public and privately held domestic and foreign corporations authorized to do business in New York must report the number of female directors on their board, along with the total number of directors. Effective June 2020, Washington State passed a law requiring specific diverse board representation. The law generally applies to public companies incorporated in Washington and requires that these companies either have a “gender-diverse board” or provide shareholders with a “board diversity discussion and analysis” as to why not.
In September 2020, California enacted a law that requires board representation from under-represented communities. how diversity factors into the process; and a description of the company’s policies and practices for promoting diversity, equity and inclusion. In 2020, new legislation was proposed that closely tracks California’s board diversity law. Maryland tax-exempt, nonstock domestic corporations with operating budgets of more than $5 million and domestic stock corporations with total sales of $5 million or more must include in their state annual reports the number of female board members as well as the total number of board members. Private companies with share ownership of at BACK TO CONTENTS
Board diversity legislation has been proposed in several states. Proposed Massachusetts legislation requires that by the end of 2021, publicly held domestic and foreign corporations with principal executive offices in the state must have a minimum of one person self-identifying as female director on the board. Additionally, by the end of 2023, such companies would need three female directors if the board has six or more directors and two female directors if the board has five or fewer directors. Violations carry a $100,000 penalty. Michigan’s proposed legislation would require that publicly held
domestic and foreign corporations with principal executive offices in the state currently have at least one person self-identifying as female director on the board. Additionally, by January 1, 2023, such companies must meet numerical requirements that align with California’s gender requirements. Violations carry penalties similar to California. In 2019, a resolution was proposed in Pennsylvania encouraging equitable and diverse gender representation on boards, along with broadly calling for leadership opportunities for women. The resolution urges that by 2021 Pennsylvania companies meet the same requirements set forth in the California statute with respect to under-represented communities.
Katayun I. Jaffari is chair of Cozen O’Connor’s Corporate Governance & Securities Group. She handles complex securities transactions for businesses in industries including life sciences, energy, technology and fintech. kjaffari@cozen.com Paul D. Hallgren is an associate at Cozen O’Connor. He is based out of the firm’s Minneapolis office. phallgren@cozen.com
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WORKPL ACE ISSUES
Covid Is Accelerating the Gig Economy By MICHAEL A. CHICHESTER, JR. AND SOPHIA BEHNIA
C
ovid-19 has accelerated a transformation of the workplace that was underway long before the pandemic. The technological revolution, combined with the need to quickly adapt workplace policies and practices to a shifting and unpredictable environment, has created novel issues for employers worldwide. These range from employees demanding new ways of working, to the need for entirely new skill sets in the workforce, to a greater focus on using data analytics to shape strategies and improve outcomes. In this article, we focus on one key impact of this transition: how
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the realities of automation and a shift to more permanent remote work could accelerate the gig economy and independent contractor work. Since the Industrial Revolution, technology has served as a catalyst for businesses to operate more efficiently and provide workers with more autonomy in performing their jobs. Today, advances in artificial intelligence, automation and robotics are rapidly changing how workplaces operate and how employment-related decisions are made. Not only did the pandemic accelerate the recognition that work can often be done from
anywhere, but it accelerated deployment of the technology needed to enable remote work. The gig economy provided flexibility for workers struggling with the disruption and uncertainty of the pandemic. As companies continue to rely on more remote workforces, they will inevitably outsource more flexible functions — information technology, accounting, software and web development, to name a few — to independent contractors. The benefits of using independent contractors have given rise to the burgeoning gig economy we see today. Technology and automation have made it easier BACK TO CONTENTS
for companies to connect directly with independent contractors and gig workers, and to ensure that workers fit the company’s needs. At the same time, we have seen more workers seeking greater flexibility in the type of work they do, along with when and where they do it. Although gig worker jobs may eventually be supplanted by AI and automated technology, e.g., drones delivering packages and robots performing household tasks, loss of those jobs may be partially offset by the creation of new independent contractor work due to the technology itself. Companies at the forefront of developing these processes may look to independent contractors for designing, maintaining, implementing, marketing and disseminating automated technology. But this will not be an immediate shift. In the near term, innovation has clearly led to increased opportunities for workers to pursue varied avenues for earning a living.
SHIFTING LEGAL LANDSCAPE Growing demand for independent contractors and gig workers has also led to a shift in the legal landscape, including the passage of several state laws that make it more challenging to classify workers as independent contractors. In 2018, the California Supreme Court announced the ABC test for classifying independent contractors. A worker is considered an employee unless the hiring entity can demonstrate that: (a) the worker is free from the company’s control and direction in how they perform their work; (b) the worker is performing a job that is outside the normal business activities of the company; (c) the worker is BACK TO CONTENTS
typically engaged in independent work of the same type they are performing for the company. The ABC test sets the bar much higher than the former Borello test, which was a multi-factor test focused on the company’s control over a worker’s manner and means of accomplishing the job. Although California loosened its limitations on independent contractor classification through the passage of legislation that broadens exemptions for the types of workers considered employees, California’s ABC test is still viewed as a gold standard in protecting workers’ rights. For instance, President Joe Biden expressed a desire during his campaign to see a “federal standard modeled on the ABC test for all labor, employment, and tax laws” implemented across the United States. Even as policymakers move to make it more difficult to classify workers as independent contractors, it is apparent that the gig economy will persist. Several states, including California, have passed legislation making it possible for companies to classify gig workers as independent contractors, or as their own unique category of worker somewhere between employee and independent contractor. The passage of California’s Proposition 22 has initiated a broader push towards exempting gig workers from certain independent contractor classification requirements. With big-name companies spearheading the charge, voters are sure to see more legislation providing avenues to limit gig workers from being classified as employees. There is no question that the reality of remote work will accelerate the rise of the gig economy. However, the movement toward a
stringent independent contractor test nationwide is an issue for in-house counsel to watch. It may hinder the ability of their companies to engage with independent contractors. Above all, to address transformational workplace issues, employers must set their strategies with an eye toward the future. They will need to manage their workforces based not only on addressing the challenges in front of them today but also on seeing around corners to what lies ahead. To download Littler’s Global Workplace Transformation Initiative, which covers the rise of the gig economy and the myriad forces transforming the workplace, visit: https://www.littler.com/ service-solutions/global-workplace-transformation-initiative.
Michael A. Chichester, Jr. is a shareholder at Littler Mendelson and co-chair of the firm’s Global Workplace Transformation Initiative. He counsels employers on the impact of advanced technologies and other transformational issues impacting their workplaces. mchichester@littler.com Sophia Behnia is a shareholder at Littler and a member of the Global Workplace Transformation Initiative core team. She has extensive experience defending clients against claims of independent contractor misclassification. sbehnia@littler.com
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FEATURE
A Better Alternative to Business Bankruptcy By GEOFFREY L. BERMAN AND STEVEN L. VICTOR
Y
ou are sitting in your office and an associate counsel comes to you. The company is facing an immediate liquidity crisis and is looking for advice. For general counsel of private equity or venture capital firms, assume that the scenario is the same but the entity in question is one of the firm’s portfolio companies. You deal with a host of issues company-wide, but avoiding a bankruptcy or a winddown is not your sweet spot. The company is a Delaware corporation and has secured debt of $10 million, with mezzanine debt of another $10 million plus an equity stake in the company. The board includes the mezzanine debtor. Revenues are less
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than projected. The company has been hemorrhaging money by the tens of thousands weekly. Your assets are almost all patents and other intellectual property developed for your product. What do you do? First, you should consider contacting bankruptcy (or insolvency) counsel. It is important to have the right advisor and to make certain that the fiduciary responsibilities of the board of directors are revisited at this time. Recognizing the desire to avoid the publicity and the relatively high cost and manpower of a bankruptcy, what other alternatives do you have? Assume that the secured lender has been cooperative and doesn’t want to liquidate
its collateral, which includes all the intellectual property. Your outside counsel raises the possibility of making an assignment for the benefit of creditors (an ABC). Great, but what is an ABC?
AN ABC IS A STATE PROCESS An ABC is a state law process to liquidate the assets of a business. Each state has rules or statutes that govern the process. It is not a bankruptcy, as bankruptcy is governed by federal law. ABCs can be done under court supervision in states such as Delaware and Florida; turned into a receivership action as in Minnesota, North Carolina and Washington State; or done as an out-of-court process, as in BACK TO CONTENTS
California and Illinois. No matter what rules govern, the process itself is straightforward. A person or firm experienced in administering ABCs is chosen by the company’s board of directors (or members per the operating agreement of an LLC). The board’s action needs to be ratified by a majority of the shareholders. The board, in making the decision to
An ABC is a state law process to liquidate the assets of a business. liquidate, will want advice from outside counsel to protect exercising its business judgment to make the ABC and the choice of the assignee. Once the ABC has been authorized and shareholders have consented, the company will execute a form of trust agreement called a General Assignment or Trust Agreement. (Based on applicable state law, it’s a distinction without a difference.) This is the contract transferring all rights, title and interest in the company’s assets to the assignee. The assignee is a fiduciary, responsible for liquidating the assets and distributing them to the company’s creditors. With the secured creditor in our example, the assignee will want the secured lender’s “consent” to liquidate the lender’s collateral and to be paid for its service as assignee. The assignee will have to validate the lender’s security interest to be able to affirm to creditors and an applicable court that the lender’s lien is properly perfected. In our example, the intellectual property has some interest from BACK TO CONTENTS
third parties, but nothing that will likely get the secured lender and the mezzanine debt paid in full. The assignee will try to find parties interested in the intellectual property portfolio. How that is done depends on many factors including, for example, pre-assignment marketing of the company, interest from insiders to the company, and so forth. We will assume that two parties express interest in using the intellectual property portfolio, and that the mezzanine debt holder is one of the interested parties. In this scenario, the assignee will conduct an auction-type sale where the parties can bid against each other on terms that are similar for both. No “credit bidding” will be allowed, and the bids are all cash. At the conclusion of the sale, the high bidder is declared, and the money is paid to the assignee. A bill of sale is executed along with the necessary transfer documents and a release of the lenders’ liens. The assignee will use the proceeds to complete the liquidation and pay the creditors according to a “waterfall” based on the priorities established by law.
from a bankruptcy court or from an assignee for the benefit of creditors. The fact that a wind-down process is being done by a reputable third-party fiduciary goes a long way to making this process work. Similar to a trustee in bankruptcy, an assignee is not liable for the debts of the assignor company. However, the assignee must use its business judgment to try to maximize the asset value for creditors. One other point of interest for the company’s general counsel: Bankruptcies are reportable by board members who serve on a public company board. ABCs have generally been deemed not reportable because they are not a bankruptcy. It is another key advantage to this alternative. Your outside insolvency counsel can refer you to resources that will help you learn more about an ABC, as well as refer you to assignees who can answer questions that are general or specific. Most importantly, knowing about the alternative will help you address your specific issues as they arise.
ABCS ARE FLEXIBLE This simple example shows the flexibility of the ABC process. Where the process is court supervised, it is a bit slower, as the sale is governed by motion practice. Otherwise, it is close to what you think of in a bankruptcy sale. Creditors are generally amenable to the ABC process because the assignee provides creditors with a Notice of the ABC and a place to file claims. A good assignee will make sure to attend to the creditors’ concerns and timely respond to questions. Most accounting departments are familiar with claim forms either
Geoffrey L. Berman is a Senior Managing Director of Development Specialists, Inc., a national management and financial advisory services firm. gberman@dsiconsulting.com Steven L. Victor is a Senior Managing Director of Development Specialists, Inc., a national management and financial advisory services firm. svictor@dsiconsulting.com
MAY 202 1 TODAYSGENERALCOUNSEL.COM
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FEATURE
Top Seven Terrible Mistakes Lawyers Make in Arbitrations By DAVID K. TAYLOR
T
here is a great argument that lawyer advocacy in an arbitration is more essential than at trial in court. Agreeing to arbitrate disputes is a serious decision for any general counsel. There are many pros and cons, but when a dispute is arbitrated, finality is the rule rather than the exception. Great arbitration lawyering is therefore essential. The following are the top seven mistakes I have seen while representing parties in arbitrations, as well as while serving as an arbitrator.
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1
Mangling the Arbitration Clause. Arbitration is a matter of contract. There are detailed articles on drafting arbitration clauses, but far too often drafters fail to consider the basics. Which disputes will be subject to arbitration, “any and all” disputes or only limited issues? Pre-hearing discovery is limited, so what information will you need in the event of a dispute over this contract? What rules will apply? What discovery will be allowed? Who will choose the arbitrator and how will she/he be chosen? Will there
be one arbitrator or a panel of three, and should qualifications be listed? Will you need to formally include third parties in the event of a dispute, and if so, allow for such consolidation in the clause?
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Not Performing Due Diligence on the Arbitrator. After an arbitration demand is filed with the alternative dispute resolution (ADR) agency, all counsel are sent a list of potential arbitrators with bios. The selection process is like selecting a jury. Cross off unacceptable arbitrators; list the rest BACK TO CONTENTS
in order of preference; send the list back to the administrator. Soon you will be assigned an arbitrator. Remember, this is the person who will render a final and non-appealable decision. The mistake is not researching beyond the provided bios. You want someone who will “call balls and strikes” with no conflicts. Look for presentations or articles. Call colleagues. When you are assigned your arbitrator, start the process all over again to find out the arbitrator’s preferences and dislikes.
Unlike in a court trial, there is no right to third-party discovery. This is a huge factor in agreeing to arbitration in the first place. Federal circuit courts differ on the enforceability of such subpoenas. The arbitrator has no power to enforce any subpoenas.
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Not Folding Bad Claims/ Defenses. As the late philosopher Kenny Rogers sang, “You gotta know when to hold ‘em, and when to fold ‘em.” Don’t present every possible claim or defense to the arbitrator and refuse to concede positions. An arbitration is not a hearing before a judge who may not know anything about the subject matter. The arbitrator is an industry expert. A party’s credibility on all positions is vital. Presenting four great claims and two highly questionable ones, or stubbornly sticking to losing positions, is an error. Conceding certain claims/ defenses during a hearing can increase your credibility to the arbitrator.
Not Getting the Exhibits Right. In arbitration, exhibits are introduced, but remember, the rules of evidence do not apply. Typically, on the day of the hearing each side shows up with its own set of exhibit books. This is a mistake, and can cause confusion and an unhappy arbitrator, as many times there are identical exhibits that have different exhibit numbers. Counsel should first exchange a list of proposed exhibits and then work together to create a joint set of exhibit books. Create an index that can also include tabs for pre-hearing briefs, summaries of damages, and pictures. A joint exhibit set allows everyone to “sing from the same song sheet.” It is also extremely helpful for counsel’s pre-hearing preparation to know all the exhibit numbers. If the arbitration is document intensive with multiple exhibit books, use binders that are easy to open and close. In addition to the index, include a dated exhibit list.
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Not Understanding PreHearing Discovery Limits. In arbitration, party document discovery is always allowed. The mistake is not knowing your arbitration pre-discovery rights and limitations. Does the arbitration clause address pre-arbitration discovery? The rules of civil procedure do not apply in arbitrations. Depositions may not even be allowed. What about pre-hearing “third-party” document discovery? BACK TO CONTENTS
Not Being Creative at the Hearing. In court, there may be key witnesses or experts who testify on day one, and the witnesses who rebut that testimony may testify days later. No witnesses can be taken out of turn, regardless of circumstances. In arbitration, creativity is the key. If there are experts, you can suggest a “hot box” and have them testify back-to-back or even at the same time, presenting their multiple
opinions one at a time. There may be key witnesses on both sides on more than one issue. Suggest having them testify back-to-back, take them out of order, or testify via zoom. Always remember that the arbitrator is being fed facts and arguments through a fire hose.
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Not Making the Arbitrator’s Post-Hearing Decisions Easier. Well before the time that the proof in an arbitration is closed, think how you can help the arbitrator make a well-informed award. Offer to submit post-hearing summaries that link up specific issues or claims to witnesses and exhibits. Be clear about the damages and relief you are requesting. Although most arbitrators do not request formal posthearing briefs, it may help to offer a short and pointed summary of your damages or defenses, or answer a specific question of law. The takeaway is this: Don’t let the informality of arbitration cause you to not prepare as you would in court. Great arbitration lawyering is essential to get to the best possible result. An award is, with very few exceptions, final.
David K. Taylor is a partner with the Bradley Arant law firm and chairs his firm’s ADR and Construction practice. He frequently writes and speaks on ADR topics such as arbitration and has been an arbitrator more than 100 times. dtaylor@bradley.com
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