Court Opinion

ID: 9569322
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:12:54.280177+00
Date Added: 2024-06-11T11:53:39.269650
License: Public Domain

GILBERT, Justice
(concurring in part, dissenting in part).
In a 1968 United States Supreme Court case, Justice Black prophetically noted:
It is true that arbitrators cannot sever all their ties 'with the business world, since they are not expected to get all their income from their work deciding cases, but we should, if anything, be even more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have completely free rein to decide the law as well as the facts and are not subject to appellate review.
Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145, 148-49, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968).
I generally concur with the result reached by the majority and believe that alternative dispute resolution (“ADR”) plays an important role in our system of justice. However, the Federal Arbitration Act as implemented has some significant shortcomings. Most poignantly, it lends too much power to an arbitration system that does not properly account for impartiality and a lack of legal oversight. We must therefore be vigilant to preserve and improve Minnesota’s ADR system where possible and should not be so eager to defer to the federal system unless clearly required under federal law. I also respectfully dissent from the majority’s discussion and remand decision relating to the individual defendants.
Private adjudication is an alternative to the two primary dispute resolution forums that were established in our constitutions: courts and juries. See U.S. Const, art. Ill, § 1, amends. VI, VII; Minn. Const, art. I, § 4, art. II, § 1. Any substitute for these constitutional forums must be held to the highest standards of quality. Consequently, both the federal and the Minnesota ADR system should be thoroughly evaluated so that they may carry the same integrity that we require from our courts. This evaluation is especially important in current times, as record amounts of arbitration and mediations are occurring daily.
Minnesota’s system of ADR originated prior to statehood. The underpinnings of ADR in Minnesota have been with us since the territorial laws of the State of Minnesota were established in 1851. See Rev. Stat. (Territory) ch. 96, § 1. When the first legislature of the State of Minnesota convened, arbitration provisions from territorial days were incorporated in our statutes. See Minn.Stat. ch. 89 (1860). The statute preserved a common law right of arbitration. The first arbitration case in the Minnesota Supreme Court not only upheld an arbitration agreement, but also generally encouraged the settlement of differences by arbitration. See Washburne v. Lufkin, 4 Minn. 466, 471-72 (1860).
In recent times, the importance of ADR has grown and has not only continually been favored by both Congress and the Minnesota legislature for a number of years, but the Minnesota courts also adopted rules of practice to institutionalize ADR within the judiciary. See, e.g., Minn. Stat. § 65B.525, R. 10 (Qualification of Arbitrator); Minn. Gen. R. Prac. 114. Along with this development, Minnesota has adopted professional and ethical rules and standards by which arbitrators and mediators must conduct their affairs on behalf of our citizens. The Alternative Dispute Resolution Board has jurisdiction over discipline matters and complaints relating to actions of approved neutrals.
However, as pointed out in a recent law review article, arbitrators and mediators *360are relatively autonomous and unaccountable. See Adam Furlan Gislason, Demystifying ADR Neutral Regulation in Minnesota: The Need for Uniformity and Public Trust in the Twenty-First Century ADR System, 83 Minn. L.Rev. 1839, 1854 (1999). Furthermore, although 28 U.S.C. § 656 (2003) calls for a certification of arbitrators and the establishment of standards for federal court-appointed arbitrators, there appears to be a lack of standards or rules for a large portion of the ongoing extra-judicial arbitration. Extra-judicial arbitra-tions are now dominant in interstate commerce, but have largely been left to the devices of various industry groups to establish rules of qualification and selection. Several inherent problems therefore exist with the current system of ADR.1
First, the ability of arbitrators and mediators to be impartial is suspect. Many arbitrators and mediators have ties to the industries from which they derive cases. Large numbers of professional arbitrators have been recruited, trained, enlisted and rehired as arbitrators in industry or securities related groups whose cases they are now deciding. Many retail customer agreements contain standard arbitration clauses. Most arbitration associations also publish the amounts of the past awards of their “approved arbitrators.” Any large arbitration award will be documented and noted by industry groups who decide whether they are going to rehire an arbitrator. Arbitrators who have made significant awards could easily be excluded from any new arbitration on behalf of their large retail establishment solely because of a prior significant award. These removal decisions often have no legal underpinnings and are not based on the facts or the merits of the case or the professionalism of the arbitrator. Indeed, many professional arbitrators employed on a regular basis in interstate commerce have become dependent on the will of the industry groups they serve for their tenure in office and the amount in payment of their salaries or compensation. Cf. The Declaration of Independence para. 11 (1776) (“[The king] has made Judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries.”). The federal arbitration system in particular is tilted very strongly in favor of high-volume “repeat customers.”
A second major shortcoming of both federal and state arbitration proceedings relates to the lack of requirement that decisions be made according to a rule of law. Arbitrators are often told this as part of the industry training sessions. Initially, arbitration agreements were utilized by coequal parties who had entered into arms-length negotiations. Although that type of negotiation may have occurred between the appellant and respondents herein, it is not always the case. Now, notwithstanding the lack of negotiations concerning arbitration clauses, our legislature has provided that a court may vacate an award “[b]ut the fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award.” Minn.Stat. § 572.19, subd. 1(5) (2002). The Federal Arbitration Act specifies grounds for vacation of an award in 9 U.S.C.' § 10 (2003), but that does not have the same statutory provision. However, federal case law has developed a very high standard in regard to the legal grounds for vacating an award that is similar to the Minnesota statutory framework. The federal courts will generally not vacate an arbitration award that is *361based on an erroneous conclusion of law. See Ainsworth v. Skurnick, 960 F.2d 939, 940-41 (11th Cir.1992). Some circuits will not vacate an arbitration award absent a “manifest disregard of the law.” See, e.g., Kiernan v. Piper Jaffray Cos., 137 F.3d 588, 594 (8th Cir.1998).2
With the increasing use of arbitration we have to reevaluate whether or not the arbitrators should be bound to follow the law. We initially excused arbitrators from following the law because arbitrators may not necessarily be learned in the law, and they derive their powers from the parties and not from the law of the land. See Park Constr. v. Ind. Sch. Dist. No. 32, 209 Minn. 182, 186, 296 N.W. 475, 477 (1941). Now that the courts are officially advocating the use of arbitration and mediation in court cases, and more and more people seem to be involuntarily thrust into the ADR process, a provision that arbitrators follow the law to the best of their ability would be in order. With the help of jury instructions, we trust our juries to follow the law. We can and should expect no less from arbitrators who function as both judge and jury with the equivalent power of finality of a nonappealable judgment, which is set aside by the courts only in the rarest of occasions.
With these reservations in mind, I concur with the jurisdictional result reached by the majority in this case. However, the ADR system does need some immediate attention in an effort to improve the process as its use increases. If the arbitration process is going to continue to be a valid part of our system of justice, Congress and our legislatures have to be aware of significant shortcomings that have developed within the system. The long-term viability of the ADR process is fully dependent upon the trust and confidence of our citizens. In times of major government budget shortfalls on the federal and state level and in the interest of continuing to divert a large portion of our civil disputes into ADR process, we must work to professionalize the process, establish definite standards of ethical behavior and reincorporate the importance of the rule of law in the decision-making process.
Finally, I disagree with the majority’s discussion relating to the four individual defendants and whether or not they are personally entitled to invoke arbitration provisions of the lease between Onvoy and SHAL. The majority is correct in asserting that arbitration clauses are generally contractual and cannot be enforced by persons who are not parties to the contract. To enforce the arbitration clause in our case, the majority cites several federal circuit court decisions relating to equitable estop-pel, agency and third-party beneficiaries. In doing so, the majority constructs a line of reasoning that effectively nullifies the constitutional rights of citizens by restricting their access to our courts to adjudicate claims. This restriction is placed upon these citizens despite the fact that they *362never directly negotiated or signed into the arbitration requirement.
It is very common for individual principals to be called upon to personally guarantee agreements of companies in which they are involved. Similarly, personal arbitration provisions for principals, directors, officers and agents could also be included within the company’s arbitration agreements. In drafting arbitration agreements between sophisticated parties, it would be quite simple to incorporate provisions requiring the individual principals involved with the entities also to agree to abide by arbitration. This type of issue should be subject to discussion and negotiation when arbitration agreements are being drafted.
Similarly, individual employees who may be agents of one or both companies should only be compelled to arbitrate by clearly negotiated agreements rather than court opinions. The court should therefore enforce specific terms of the arbitration agreement rather than effectively amending the agreement to include nonparties. By doing so, these issues will likely be addressed through private negotiation rather than judicial intervention. It will prevent courts from being forced to step into a dispute in order to decide complex factual and legal issues relating to equitable estoppel, agency and third-party beneficiaries.

. For a detailed critique on the arbitration system, see Reynolds Holding, Private Justice: Can Public Count on Fair Arbitration?, S.F. Chron., Oct. 8, 2001, at A15.

. Recently, the Ninth Circuit moved away from the judicial trend to strengthen arbitration agreements. Ting v. AT&T, 319 F.3d 1126 (9th Cir.2003). In Ting, the court found unconscionable an AT&T arbitration clause that was included within a mass mailing. Id. at 1148-49. It held that a provision of AT&T’s arbitration clause that banned class-action lawsuits violated California uncon-scionability law. Id. at 1150. AT&T's arbitration clause also violated state consumer protection law because it required consumers to pay arbitration costs in excess of those they would have to pay if they had brought their claims in court. Id. at 1151. Additionally, a provision that required proceedings to be confidential was found to unreasonably favor AT&T, as it provided an undue advantage towards future arbitrations. Id. at 1152.