• March 12, 2015

Scarecrow Wizard of Oz PointingUpdate (March 12, 2015): In original post, below, I set out the story of Jeff Davies’ frustrating loss of a $10 million arbitration award because, the Minnesota Court of Appeals held, he failed to bring the claim within the 90 day period required in his employment agreement. In recent weeks, the Minnesota Supreme Court denied Davies’ petition for review (discussed in the earlier update, below). So now it seems like the only way that Mr. Davies can recover will be if he is able to sue his Winthrop & Weinstine lawyers successfully for having missed the arbitration deadline.

In July, 2011, the Minneapolis law firm of Winthrop & Weinstine entered into attorney-client relationship with Jeff Davies in connection with a dispute Mr. Davies had when terminated from the hedge fund that had employed him, Waterstone Capital Management. On October 13, 2011, Davies and his lawyers appear to have let the 90-day limitation for bringing an abitration claim come and go. Two weeks later, Davies and his lawyers changed from hourly billing to a contingent fee agreement. The later contingent fee agreement included an arbitration clause.

Can the modified contingent fee agreement, which followed the alleged legal malpractice, be applied to force Davies into arbitration? The law firm of Winthrop & Weinstine has gone to U.S. District Court (D. Minn.) to obtain “the privacy of arbitration that the Parties bargained for and agreed to in the Contingency Fee Agreement.” Is there some irony in the law firm that blew past an arbitration deadline, apparently preferring that its client’s case should be tried in district court, then scrambling to get the subsequent malpractice case against it forced into arbitration? By the same token, Mr. Davies’ underlying claim was, ultimately, tried before an arbitrator and resulted in a resounding win for him (through he was stripped of it when it came time to enforce the award). Is there not some irony in Mr. Davies’ apparent resistance to arbitration for round 2?

Update (February 9, 2015) (under the headline, For Arbitration Geeks Only…): If you want to read some of the finest legal writing on the thorny and complex  interplay between the authority of courts and the authority of arbitrators to decide what is arbitrable and what is not, I recommend you work through the attached two petitions for Minnesota Supreme Court review in the mess described below (here and here).

Don’t try reading these petitions for further review after having had a beer or two. Don’t try reading these on a bus. Don’t bother trying to read these if you have not been to law school or at least have some familiarity and interest in the subject matter. They are grappling with difficult legal questions. Excellent work by Liz Kramer (and others) at Stinson Leonard for the petitioner and Sam Hanson (and others) at Briggs & Morgan for the cross-petitioner.

But there is nothing complicated about the fact that all of this all would have been avoided if the plaintiff had made a “provisional demand” for arbitration within the 90-day period for bringing an arbitration under the arbitration agreement while he first pursued the defendant with his lawsuit in state court, apparently his preferred venue.

(Counsel for Defendant Waterstone says in its cross-petition that Plaintiff “deliberately chose not to [make a provisional demand], apparently because of [Plaintiff’s] desire to avoid the confidentiality of arbitration and to use the publicity of a court filing to pressure Waterstone into an early settlement.” How, I wonder, would Waterstone be in a position to know whether or not Plaintiff “deliberately chose” not to make a provisional demand? How would making a provisional demand render the district court legal action confidential or water down its supposed force to pressure early settlement? Doesn’t the fact that Waterstone goes on to guess what Plaintiff’s motivation was, suggest that Waterstone does not have a clue as to Plaintiff’s decision-making? (And Plaintiff was supposedly trying to get publicity from his court filing? I don’t buy that. From a search of the news from around the time that Plaintiff brought his lawsuit, no news organization had any interest in the lawsuit.))

Photo by Carsten Tolkmit from Kiel, Germany

Photo by Carsten Tolkmit from Kiel, Germany

Original post (December 2, 2014) (under headline: A Critical and Costly Decision Regarding an Arbitration Clause & Its 90-Day Limitations Period)Warning: The result in the court decision described in this post might make you nauseous.

Jeff Davies consulted lawyers in regard to a dispute upon his departure from the hedge fund where he worked.

The employment agreement provided a 90-day period for arbitration of disputes. Within 27 days of his termination, Davies’ lawyers brought an action against the hedge fund, Waterstone Capital Management, in Hennepin County District Court. The lawyers argued that the arbitration provision was invalid because it was in conflict with a choice-of-law provision in the agreement.

 

Wrong pick. The Hennepin County District Court ruled that the arbitration clause was valid. Davies should have brought the claim in arbitration, the court ruled.

In the mean time, the 90-day period lapsed. Davies and his counsel were presumably untroubled because they brought the lawsuit within the 90-day period and the district court judge ruled that Davis had 90-days (less the 27 days between his termination and his lawsuit) to bring his claim in arbitration.

Following an arbitration hearing held over five days, the arbitrator issued a $9,000,000 interim award in favor of Davies and a final award allowing $1,000,000 in attorney fees and $34,091.57 in costs and disbursements in addition to the $9,000,000 damages award.

Yay for Davies, right? Maybe he should have sought arbitration in the first place?

Yes, he really should have.

The Minnesota Court of Appeals ruled ruled this week that the arbitration award must be vacated, that Davies failed to bring the arbitration action within 90 days, and that the trial court’s decision as to the unreasonableness of the time limit for arbitration was wrong.

Litigators who face arbitration clauses and who ignore them in favor of bringing a lawsuit in court face a risk of losing everything if they guess wrong on the enforceability of the arbitration clause (coupled with a time-limit for bringing the arbitration).

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