• February 14, 2014

Update (February 14, 2014): Western Digital retained appellate superstar Arnold & Porter partner Lisa Blatt to argue the Minnesota Supreme Court appeal of the Minnesota Court of Appeals decision adverse to Western Digital (unsuccessfully argued by Ms. Blatt). Ms. Blatt’s bio shows that she has argued thirty-three cases before the U.S. Supreme Court, prevailing in thirty-two of them (a 97% win rate (WOW)).

My unadulterated envy at Ms. Blatt’s brilliance triggers a snarky recollection of Jess Ventura’s supposed comment to Chris Kyle: “You deserve to lose a few.” (on page 5 in the attached defamation complaint).

I am sure, though, that Ms. Blatt deserves nothing of the kind. She was great before the Minnesota Supreme Court. Nevertheless, based on some of the blistering questions that Blatt and codefense counsel, George Soule, faced before the Minnesota Supreme Court, I think Ms. Blatt might notch a loss this time around.

Blatt emphasized that the $600+ million arbitrator’s award was based solely on a desire to punish Western Digital and the arbitrator never even found for Seagate on the merits of Seagate’s claim.  The arbitrator never found or identified any damages from the alleged misappropriation of trade secrets by Dr. Sining Mao or Western Digital.

Many justices seemed particularly persuaded by the fact that Dr. Mao specifically insisted on arbitration.  (I would paraphrase the argument like this: “You insisted on resolving the dispute by dueling pistols and now you complain because you got shot?”)

Lewis Remele argued on behalf of Seagate (and his own law firm’s unimaginably huge contingent fee perhaps?).  Remele faced perhaps the most directly critical questioning from those on the Minnesota Supreme Court concerned that this punitive award was overwhelmingly huge and would destroy Dr. Mao, an individual, financially.  I understood Remele’s response to be first that Dr. Mao had in fact engaged in brazen punishable deceit and second that Seagate would in all likelihood exact its punishment primarily if not exclusively on Western Digital.

Here is my prediction: Seagate (and Bassford Remele) will win. The take-away: the risk of arbitration is that it can be arbitrary (HT:WRS).

If my predicted outcome is borne out, this is a catastrophe and, probably, also an injustice, in my opinion, for Western Digital and Dr. Mao.  Mr. Remele praised arbitration’s great virtue of finality (“there is no ‘do-over’ and no ‘mulligan'”).  But, in my view, finality is no virtue when the end-result is a final arbiter being passive in the face of injustice.

On the other hand, if you insist on a duel and you get shot, it is hard to stir up great sympathy.

Update (October 28, 2013):  (Under subject line: The Risks of Arbitration, Fabrication, & The Largest Arbitration Award In the United States): This huge arbitration award was built on a premise that Sining Mao, formerly with Seagate, fabricated evidence when at his new employer, Western Digital.  Specifically, it is alleged that Mao doubled-back on a powerpoint presentation that he gave publicly while at Seagate to add to powerpoint slides after the fact, while at Western Digital.  This alleged fraud on the court was supposedly perpetrated so that Mao could avoid a “trade secrets violation” by pointing to the earlier presentation as having disclosed information publicly and therefore not entitled to trade secret protection.  

Hennepin County District Court Judge Janet Poston threw out the $600+ million arbitration award.  The Minnesota Court of Appeals reinstated it.  Now the Minnesota Supreme Court has accepted Western Digital’s petition for further review.

What if the evidence-manipulation that so influenced retired Hennepin County Judge Robert Schumacher’s decision (the arbitrator) was just wrong?  Tough luck?

Update (July 25, 2013):  It is so easy to alter electronic documents after the fact.  It is extremely difficult to avoid detection.  Ergo, it is probably the definition of stupid.  How stupid is it?  $634 million of stupid.

Original Post (October 15, 2012):  A seasoned litigator I know cautions his clients, “The risk of arbitration is that it can be arbitrary.”

Another common take is that arbitrations may result in a “split the baby” decisions, sometimes in an arbitrary way (where, for example, plaintiff’s case is a clean claim of liability for $1 million, say, and defendant’s defense is an equally absolute claim of $0 in liability and the arbitrator awards $500,000 without explanation).

Finally, a third take on arbitration is that “appeal is futile,” meaning that the grounds for appeal of the arbitrator’s award are so narrow that one is generally stuck with the arbitrator’s decision absent extreme circumstances (e.g., proven corruption of the process through bribes).

One recent case, Western Digital, Mao v. Seagate, however, may break all the molds.

1.  The arbitrator did not split the baby but, to the contrary awarded a massive award to one party, Seagate.

2.  Hennepin County District Court Judge Janet N. Poston rejected the arbitration award of Retired Hennepin County Judge Robert H. Schumacher, vacating the award in part.

[T]he Court has neither found nor been directed to any case wherein an arbitrator heard testimony and, after closing the record, determined that, while evidence of one element of the defense had been fabricated, the appropriate remedy was to impose a sanction disregarding all of the defense evidence as to every element.

By disregarding all of Defendants’ evidence regarding alleged trade secrets 4-6, the Arbitrator refused to hear evidence material to the controversy, substantially prejudicing Defendants, in violation of Minn. Stat. § 572.19, subd. 1(4).

If this dispute is not settled, Minnesota Litigator will go out on a limb and predict Judge Poston’s decision will be appealed but will not go further out on the limb to predict the outcome of any such appeal….

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