Tuesday, September 10, 2013

AAA amends the Commercial Arbitration Rules and Mediation Procedures, effective October 1, 2013

Many distribution agreements require mandatory arbitration of disputes and a substantial number falls under the supervision of the American Arbitration Association. AAA arbitration matters arising from Puerto Rico are managed by AAA’s International Center for Dispute Resolution in New York. The procedures for Large, Complex Commercial Disputes incorporated in the AAA’s Commercial Rules apply to claims that meet or exceed $500,000. It goes without saying that the AAA Rules are important to practitioners when drafting arbitration agreements or when litigating disputes governed by the AAA Rules.

The Commercial Arbitration Rules, including procedures for large complex cases have been substantially revised with the changes becoming effective October 1, 2013. The new rules and amendments “shall apply in the form in effect at the time the administrative filing requirements are met for a demand for arbitration or submission agreement received by the AAA.” Apparently, the amendments would not apply retroactively to a pending arbitration, unless the parties consent. Rule 38 (governing emergency measures of protection) applies to arbitration agreements entered after October 1, 2013.

A significant amendment is that, for claims over $75,000, the Rules require mediation under the AAA’s Commercial Mediation Procedures. Any party may unilaterally opt out of the mediation. Unless otherwise provided, the mediation runs concurrently with the arbitration. Unless all parties and the mediator agree, the mediator shall not serve as an arbitrator in the dispute. R-9.

There are new rules governing the preliminary hearings with a checklist of topics to be addressed by the parties and the arbitrator(s). P-1-2.

New rules include the duty of the parties to disclose conflicts with the arbitrator(s) and failure to disclose may constitute a waiver to later object.

Other significant changes include:

Dispositive Motions – guidance is provided on the standards to be applied by arbitrators when considering dispositive motions. R-33. That is, the arbitrator(s) may allow the filing of dispositive motions only upon a determination that the moving party has shown it is likely to succeed and dispose of or narrow the issues. (Author’s Note: allowing the filing of dispositive motions as of right can be inconsistent with a streamlined and cost-effective arbitration process and that may be why the rule does not allow filings as of right. The new standard, however, appears to be similar to the standard for preliminary injunctions but in the context of summary judgment. As it stands, the new rule may invite collateral litigation on the propriety of summary adjudication and may require the filing of dispositive motions for the arbitrator to determine likelihood of success. It remains to be seen how the arbitrator can avoid prejudging the merits of the dispute to decide whether to allow any dispositive motions without the benefit of the motion itself and the opposition).

Emergency relief- formerly existed as optional procedures, but are now included in the Rules themselves. R-37-38.

Greater Arbitrator Control
o over the exchange of information, power to order reasonable document exchange
o with the ability to put boundaries on discovery and e-discovery
o with the power to allocate costs
o with sanction power for abusive or objectionable behavior
o and guidelines for dealing with non-paying parties

Monday, September 9, 2013

Puerto Rico Supreme Court “federalizes” summary judgment practice with implications in all civil cases

Depending on whose interests are at stake, one of many factors to consider on whether to remove a Law 75 or Law 21 case to federal court should be the difference in the procedural rules and the approach for the resolution of summary judgment motions between local and federal courts.

Generally, principals in Law 75 cases perceive the federal court, with its history of Law 75 precedents, as being more receptive to resolve by summary judgment in some measure due to the rigorous and uniform summary judgment procedure, and the “anti-ferret” rule (where the opponent cannot rest on vague and unsubstantiated factual allegations). At the federal district court level, the Local Rules incorporate the “anti-ferret” rule demanding litigants to specify and support their allegations and counter-allegations of the undisputed and disputed material facts.

On the other hand, for decades, at least since the Bishop case in 1986 (Corp. Presiding Bishop v. Purcell, 117 D.P.R. 714 (1986)), the Puerto Rico Supreme Court has been reluctant to approve the use of summary judgment in civil cases treating it as an “extraordinary remedy” appropriate in the clearest of cases where the “court has before it the truth of all the relevant facts.” As a result, summary judgment practice in the local courts has become increasingly rare if not a dead letter (First Amendment cases may be an exception), unpredictable, and procedurally disjointed as some litigants successfully defeat summary judgment motions with vague, unsubstantiated, contradictory, and generalized allegations.

The change to adopt federal procedural practice may have begun in 2010 with the amendments to Puerto Rico’s Rules of Civil Procedure tracking many of the Federal Civil Rules, including Rule FRCP 56 and leading up to the case under consideration: José Zapata Berrios v. J.F. Montalvo Cash & Carry, Inc., CC-2012-0152 (T.S. Aug. 27, 2013). There, by a vote of 5-4, the Court held that Rule 36(b)(c) of the Rules of Civil Procedure (2010) incorporate “anti-ferret” requirements whereby the moving party must substantiate its allegations with evidence and record support and the opponent must answer the factual allegations with admissible evidence and cites to the record. The Court also held that the lower court must disregard a “sham” affidavit; one that is directly and materially contradictory to the declarant’s deposition testimony-a rule having widespread acceptance in the federal courts.

More to say about the facts. Defendant JF Montalvo, a wholesaler and retail groceries chain, terminated Plaintiff, an Assistant to the President, because of an alleged bona fide restructuring of its operations for economic conditions and a substantial reduction in sales. Plaintiff filed suit alleging a termination without cause under P.R. Law 80, a special law protecting certain employees from unjustified termination of their employment. Defendant filed an MSJ with proposed uncontested facts citing to the record. Plaintiff failed to contest each of the facts and opted to allege that the termination was pre-textual based on an additional set of facts. For Plaintiff’s failure to comply with the anti-ferret rule, the Court held that the proposed uncontested facts should have been admitted as uncontroverted. Disregarding the sham affidavit and accepting the undisputed facts, the Court concluded that summary judgment was appropriate as a matter of law; the termination was justified under Law 80; and reversed the judgment below declining to enter summary judgment for the employer.

Time will tell, but it may now be that the difference in procedural standards may not be so prominent a factor when deciding whether to remove a Law 75 case to federal court.