Ninth Circuit OKs Arbitration Challenge But Nixes Fees in Walmart Fight
Scott Graham writes for The Recorder, an American Lawyer affiliate.
Two Bay Area plaintiffs lawyers have won an arbitration battle but lost a bitter $28 million fee war.
The U.S. Court of Appeals for the Ninth Circuit ruled Tuesday that Carolyn Burton and Robert Mills may challenge the allocation of legal fees in multidistrict litigation against Walmart, even though they had previously agreed to "non-appealable" arbitration.
"Permitting parties to contractually eliminate all judicial review of arbitration awards would not only run counter to the text" of the Federal Arbitration Act, Judge Milan Smith Jr. wrote in In re Wal-Mart, "but would also frustrate Congress's attempt to ensure a minimum level of due process for parties to an arbitration."
But exercising that judicial review, the Ninth Circuit rejected the attorneys' fiercely contested claims that arbitrator Layn Phillips colluded with Frederick Furth and another plaintiffs attorney to get more Walmart mediation work, and then stiffed Burton and Mills on fees to punish them for refusing to play ball.
"There are mounds of allegations and claims and excoriations," Smith observed at oral argument Oct. 8. "You've said some horrible things about him."
Smith and Judges Dorothy Nelson and Sandra Ikuta turned away those claims Tuesday in a separate, unpublished opinion. "The district court correctly concluded that the arbitrator's decision was not procured by corruption, fraud, or undue means," their opinion stated. "The district court also correctly concluded that the arbitrator was not evidently partial or actually biased."
The upshot is that San Ramon's Burton, San Rafael's Mills and co-counsel Carol LaPlant of Berkeley will receive about $6.7 million in fees, while New Hampshire attorney Robert Bonsignore will keep $11 million. The remainder of the $28 million goes to some 40 state and local counsel who helped negotiate an $85 million settlement of wage-and-hour claims in multidistrict litigation across 30 states.
Bad blood in the case dates back to 2007, when Burton left the Furth Firm, accusing the famed attorney of cheating her out of bonuses and selling out the multidistrict litigation to get a better settlement of his California state court case. The federal litigation settled in 2008 for $85 million, and Phillips was chosen to arbitrate the division of the $28 million in fees.
While that decision was pending, Mills and Burton allege, Furth and Bonsignore retained Phillips to help settle a similar Massachusetts state court case against Walmart. Mills and Burton objected, and the Massachusetts judge rejected the deal. Mills and Burton claim Phillips then punished them by allocating the lion's share of the MDL fees to Bonsignore.
Phillips, a former federal judge who's now a partner at Irell & Manella, told the Daily Journal in 2011 that Mills and Burton's claim was "frivolous," which the attorneys cited as another example of Phillips' alleged bias against them.
The Ninth Circuit rejected all of the bias claims. Instead, Judge Smith seemed more interested in a provision of the MDL settlement agreement that provided arbitration would be binding and non-appealable. "This appeal presents a question of first impression in this circuit: Is a non-appealability clause in an arbitration agreement that eliminates all federal court review of arbitration awards, including review under Section 10 of the FAA, enforceable?" he wrote. "We conclude it is not."
The Federal Arbitration Act explicitly limits grounds for judicial review of arbitration awards, and the U.S. Supreme Court has made clear that parties cannot expand them via contract, Smith noted. The same reasoning "compels the conclusion that these grounds are not waivable, or subject to elimination by contract."