Divided Court affirms confirmation of arbitration award against employer without deciding whether “manifest disregard" of the law is an appropriate standard of review. The law did not manifestly require employer to discipline employee for HIPAA violation in this case.

 

Howard Center v. AFSCME Local 1674,  2023 VT 6 

 

REIBER, C.J. . Employer Howard Center appeals from a trial court order that confirmed an arbitration award in favor of grievant Daniel Peyser and AFSCME Local 1674. Employer asks this Court to adopt "manifest disregard" of the law" as a basis for setting aside an arbitration award and to conclude that the arbitrator violated that standard here. We do not decide whether to adopt the manifest-disregard standard because, assuming arguendo it applies, employer fails to show that its requirements are satisfied. We therefore affirm.

Employer issued a written reprimand to grievant for sharing client records with his union representative without redacting confidential information. The arbitrator concluded employer should have instead used informal counseling and directives rather than formal discipline, and that employer thus lacked just cause to reprimand grievant. Employer argues the arbitrator manifestly disregarded HIPAA, which it contends required it  to discipline grievant by imposing an "appropriate sanction[]" and it therefore had just cause to reprimand him.

"Vermont has a long history of upholding arbitration awards whenever possible." Shahi v. Ascend Fin. Servs., Inc. , 2006 VT 29, ¶ 10,  Review is limited to "whether there exist statutory grounds for vacating or modifying the arbitration award" and "whether the parties were afforded due process." Id. See 12 V.S.A. § 5677(a)(1)-(5). We have not yet decided whether to recognize "manifest disregard of the law" as an additional basis for vacating an arbitration award, although other courts have done so. See Masseau v. Luck, 2021 VT 9, ¶ 30  (recognizing that this "remains an open question" under VAA and under Federal Arbitration Act (FAA)

 We review de novo whether the arbitrator manifestly disregarded the law in this case. The HIPAA Privacy Rule mandates that covered entities "must . . . [e]nsure the confidentiality, integrity, and availability of all electronic protected health information" and "[e]nsure compliance with this subpart by its workforce." 45 C.F.R. § 164.306(a)(1), (4). In accordance with § 164.306, a covered entity "must" implement a sanction policy and "[a]pply appropriate sanctions" against employees who fail to comply with patient-confidentiality policies and procedures. Id. § 164.308(a)(1)(ii)(C)

 Neither the HIPAA statute nor regulation define the term "appropriate sanction" and there is no case law interpreting the term. The arbitrator found that grievant did not engage in "intentional misconduct" and, at worst, he "made an error in judgment." Because  the HIPAA Privacy Rule does not clearly require a certain type of sanction for violations, Employer fails to show that this case presents an "exceedingly rare instance[]" of "egregious impropriety," Masseau, 2021 VT 9, ¶ 31  that rises to the level of manifest disregard,

We conclude, as in Masseau, that "even assuming that courts are empowered to vacate an arbitrator's decision based on manifest disregard of the law -- which we do not decide -- the asserted legal error in the arbitrator's decision here does not rise to the level of manifest disregard." 2021 VT 9, ¶ 32.

EATON  J. dissenting. The majority's decision essentially transforms our limited review of arbitration decisions into no review. The arbitrator here recognized that the law required employer to sanction grievant for disclosing confidential patient information but the arbitrator chose to disregard that law and reverse employer's decision. The majority's refusal to adopt the manifest-disregard standard is harmful generally because it erodes confidence in arbitration awards and provides an incentive for arbitrators to avoid explaining the bases for their decisions. It is also detrimental under the circumstances of this case because it punishes employer for carrying out its obligations under federal law and ignores the harm to patients whose information was improperly disclosed. Because employer's decision to sanction grievant was supported and required by law and the arbitrator disregarded the law in overturning it, I would reverse and remand for the trial court to vacate the arbitration order. Therefore, I dissent.

I agree with Employer that the arbitrator manifestly ignored the law in concluding that employer lacked just cause to discipline grievant for violating patient confidentiality. I would adopt the manifest-disregard standard and allow courts to vacate an arbitration award when they find that (1) the arbitrator knew the governing law but refused to follow it or ignored it, and (2) the applicable law was well defined, explicit, and clearly applicable to the case.  Although mere legal error will not suffice to vacate an award, this Court should not turn a blind eye to intentional disregard of the law.

Here the arbitrator purposely ignored applicable law to excuse an unnecessary and unlawful breach of patient confidentiality by grievant who deliberately accessed and shared private health information of his patients solely for his own purposes. While the arbitrator did not find any malicious intent, there is no question grievant acted deliberately. The majority's failure to adopt the manifest-disregard doctrine in this case is essentially a rejection of it.

How cited

SCOVT affirms denial of motion to vacate arbitration award, because participation in arbitration waived objection to validity of arbitration agreement.

Adams v. Barr, 2018 VT 12 [filed February 2, 2018]

ROBINSON, J. The critical question in this case is whether a party who participates extensively and without objection in an arbitration proceeding for nearly seven months prior to the actual arbitration hearing waives an objection to the validity of the arbitration agreement. Lesley Adams, William Adams, and Adams Construction VT, LLC (collectively Adams Construction) appeal the trial court’s denial of their application to vacate an arbitration award in favor of Russell Barr and the Barr Law Group (collectively Barr Law Group) and against Adams Construction. Because we conclude that Adams Construction waived its challenge to the validity of the arbitration agreement, we affirm

A motion to set aside a default must establish a meritorious defense “with particularity.”

LaFrance Architect v. Point Five Development South Burlington, LLC , 2013 VT 115 (20-Dec-2013)

REIBER, C.J. Defendant appeals the trial court’s refusal to vacate a default judgment against defendant. In light of its conclusion that an internal law office failure like that claimed here did not amount to excusable neglect, the trial court declined to exercise its discretion to consider defendant’s claimed defenses. We hold that the trial court improperly declined to consider the strength of defendant’s proffered defenses to the underlying action in reviewing defendant’s motion to vacate the default judgment, but that defendant’s Rule 60(b) motion did not establish a prima facie case with sufficient particularity to support a meritorious defense. We therefore affirm the trial court.

A trial court should consider the following factors when conducting the Rule 60(b) analysis: whether the failure to answer was the result of mistake or inadvertence, whether the neglect was excusable under the circumstances, and whether the defendant has demonstrated any good or meritorious defense to the plaintiff’s claims.” With respect to the “excusable neglect” factor, courts should be particularly circumspect “when the initial fault, at least, appears to be that of a defendant’s attorney. Concerning the “meritorious defenses” factor, the trial court should give substantial weight to a meritorious defense when determining whether to vacate a default judgment.

One of the “meritorious defenses” defendant raised is a counterclaim based on alleged deficiencies in the services provided by plaintiff. Given that compulsory counterclaims are conclusively adjudicated by a default judgment, we conclude that a counterclaim arising from the same transaction as the underlying complaint, can constitute a “meritorious defense.” Defendant’s counterclaim satisfies the requirements of notice pleading under Rule 8(a), but is not detailed enough to satisfy the more exacting standards of a motion to set aside a judgment under Rule 60(b). We conclude that defendant’s Rule 60(b) motion did not plead a prima facie case of a meritorious defense arising from plaintiff’s allegedly deficient performance with sufficient particularity to warrant remand for the trial court’s consideration.

Defendant also points to the mandatory mediation and arbitration clauses in the contract between the parties as a defense to the trial court’s judgment. Given defendant’s delay in asserting its arbitration rights, however, we hold that defendant’s conduct amounted to an implicit waiver and thus does not constitute a meritorious defense for purposes of Rule 60(b).

Therefore, it is unnecessary to remand the case to the trial court, since defendant has no meritorious defenses and cannot prevail under Rule 60(b) as a matter of law.

ROBINSON, J., concurring in part, dissenting in part. I respectfully dissent from that part of the majority’s opinion relating to the question of whether we should remand this case to the trial court for consideration of the requisite factors, including the prejudice to plaintiff of setting aside the default judgment, the nature of defendant’s neglect, and the strength of defendant’s defense based on the mandatory mediation and arbitration clauses in the contract between the parties.

How cited

Arbitration. Court reverses ruling that court can decide arbitrability in the midst of an arbitration.

Bandler  v. Charter One Bank,  2012 VT 83 (Robinson, J.) 

This case presents the question of whether the superior court has authority to review questions regarding arbitrability in the midst of an arbitration, and outside of the specific review provisions in the Vermont Arbitration Act (VAA).  We conclude that it does not, and reverse the superior court’s ruling concerning the arbitrability of class claims in this case.

Arbitration in absentia confirmed. Untimely challenge.

UniFirst Corp. v. Junior’s Pizza, Inc., 2012 VT 13 (mem.)

This is an appeal by defendant Junior’s Pizza, Inc. from a superior court decision confirming an arbitration award in favor of plaintiff UniFirstCorporation. The trial court held that Junior’s waived its right to object to arbitration by failing to challenge the award within thirty days of receiving notice. Junior’s appeal argues that it did not waive its right to object to the arbitration award, and that UniFirst was required to petition to compel arbitration prior to engaging in arbitration without Junior’s participation. We affirm.

Under the Vermont Arbitration Act (VAA), 12 V.S.A. §§ 5651-5681, we must confirm an arbitration award unless grounds are established to vacate or modify it. Although Junior’s has not moved to vacate the arbitration award, it objected to the award in opposition to UniFirst’s motion to confirm. As an attempt to vacate the arbitration award, Junior’s objection is untimely. Under the VAA An application to vacate an award shall be made within 30 days after delivery of a copy of the award to the applicant,12 V.S.A. § 5677(c). Junior’s waived any objections it may have had by failing to seek a vacatur within 30 days. For this reason, the superior court correctly granted summary judgment for UniFirst.

In any event, Junior’s objection is groundless. UniFirst was not required to petition to compel Junior’s to arbitrate before proceeding with arbitration in Junior’s absence. The Commercial Arbitration Rules of the AAA. Rule 29 provides that the arbitration may proceed in the absence of any party or representative who, after due notice, fails to be present or fails to obtain a postponement The VAA provides that “arbitrators may hear and determine the controversy upon the evidence produced notwithstanding the failure of a party duly notified to appear.” 12 V.S.A. § 5666. Thus, an arbitration hearing may proceed without the participation of an unwilling party. There is no rule requiring a party to compel an unwilling adversary to participate in arbitration.

Arbitration: assignee of arbitration agreement has no right to arbitrate its own, pre-assignment conduct

Porter v. AT&T Mobility, LLC, 2011 VT 112 (mem.)

 Defendant AT&T appeals the trial court’s denial of its motion to compel arbitration.  AT&T claims the trial court erred by ruling that AT&T had not been assigned plaintiff Pike Porter’s cell phone contract before sending him unsolicited text messages and erred in failing to hold an evidentiary hearing on this issue.  AT&T also argues that even if Porter’s claims arose before AT&T purchased his contract; the trial court erred as a matter of law in holding that AT&T cannot enforce the binding arbitration agreement in Porter’s original cell phone contract.  We affirm. 

AT&T claims that as an “assignee” or “successor” of Unicel, a party to the original contract, it has the right to elect to arbitrate a claim, even one arising out of conduct it may have undertaken before it was assigned the contract, because such a claim involves a “prior dealing.” The key provision of the contract states that claims “arising out of . . . any prior or future dealings between you and us [may be] resolved by binding arbitration.”  While AT&T, as Unicel’s assignee and successor, certainly took “whatever interest the assignor possessed” when it assumed Porter’s contract, In re Ambassador Ins. Co., 2008 VT 105, ¶ 19, 184 Vt. 408, 956 A.2d 486, that “interest” did not include the ability to compel arbitration between Porter and AT&T.

Limitation of liability; liquidated damages; exculpatory clause; arbitration. Divided court rejects as unconscionable a limitation of liability clause and an arbitration clause in home inspection contract.

  Glassford v. BrickKicker and GDM Home Services, Inc. (2009-362) (04-Nov-2011) 2011 VT 118 (Skoglund, J ) (Dooley, J., concurring and dissenting.) (Burgess, J., joined by Chief Justice Reiber, concurring and dissenting).

Plaintiffs, who brought suit to obtain compensation for an allegedly negligent home inspection, appeal the superior court’s order granting summary judgment in favor of the home inspector based on the terms of a binding arbitration agreement in the parties’ contract.  At issue is whether the superior court erred in rejecting plaintiffs’ contention that the terms of the home inspection contract are unconscionable under the common law.  The  contract limited defendant’s liability to no more than the $285 charged for its inspection.  Yet homebuyer would have to pay, at minimum, a $1350 arbitration fee to recover no more than the $285 inspection fee. We find unconscionable the contractual provisions limiting liability to the cost of the inspection and yet requiring arbitration that would necessarily cost more than the amount of the liability limit.  Because the limited liability and arbitration provisions are interconnected in creating the substantively unconscionable illusory remedy, we strike both of them, notwithstanding the contract’s boilerplate severability clause.   Accordingly, we reverse the superior court’s decision and remand the matter for further proceedings consistent with this opinion.

The limitation of liability clause in this case fails to meet any of the elements of the test for a valid liquidated damages provision.  It also fails the Dalury  public policy test under which an exculpatory agreement is invalid if it exhibits some or all of the following characteristics:

[1.] It concerns a business of a type generally thought suitable for public regulation. [2.] The party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some members of the public. [3.] The party holds [it]self out as willing to perform this service for any member of the public who seeks it, or at least for any member coming within certain established standards. [4.] As a result of the essential nature of the service, in the economic setting of the  transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks [the party's] services. [5.] In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract of exculpation, and makes no provision whereby a purchaser may pay additional reasonable fees and obtain protection against negligence. [6.] Finally, as a result of the transaction, the person or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or [the seller's] agents

Dalury, (quoting Justice Tobriner of the California Supreme Court in Tunkl. )

Dooley, J., concurring and dissenting, agrees with the majority’s decision to strike the limited-liability provision. Because it fails the Dalury standard for an exculpatory clause and is not a valid liquidated damages proviso, it is unconscionable as a matter of law.   However Justice Dooley would remand for the superior court to reconsider whether the arbitration requirement is unconscionable in light of the decision regarding the limitation of liability. In general, if a contract or a term within a contract is unconscionable, a court can choose either to refuse to enforce the contract, or it may choose to enforce the remainder of the contract with the unconscionable term excised so as to avoid any unconscionable result.  Restatement (Second) of Contracts § 208 (1981).

Burgess, J., joined by Chief Justice Reiber, concurring and dissenting, agree with the majority’s decision to strike the arbitration provision as one-sided and “so ridiculously unfair that it defies reformation.”  However they disagree that Dalury applies and conclude there is no unconscionability per se in the limitation of liability.

Arbitration proceeding not res judicata to later claim outside the scope of reference.

In re Shelburne Supermarket, Inc. (2009-181) (09-Apr-2010) 2010 VT 30 (Reiber, C.J. )
Parents Harry Clayton and Lucille Clayton appeal from the trial court’s order in this long-running family dispute over stock shares. An arbitrator concluded in 2002 that son Steven Clayton, rather than parents, owned certain disputed shares. The trial court confirmed this decision on appeal. Following additional proceedings, the trial court also concluded that son was entitled to $514,964.26 in past dividends paid on these shares. Parents argue that the court erred in awarding son this sum.

We affirm. As the trial court found, son was not “splitting his claim” because the issue of dividend payments was not within the scope of the agreed-upon arbitration. The requirements of res judicata are plainly not satisfied here.

It is true that “an arbitration is in the nature of a judicial inquiry, and thus has the same force and effect of an adjudication in terms of precluding the same parties from relitigating the same subject.” Unlike a judicial proceeding, however, the scope of an arbitration is a creature of contract.

Thus, as the trial court stated, the parties are free to arbitrate some parts of their dispute while setting other matters aside, regardless of the legal implications that would attach if the issue had been litigated rather than arbitrated. See also Restatement (Second) of Judgments, § 84, cmt. d. (1982) (“A preliminary question in giving res judicata effect to an arbitration award is whether the claim or issue was within the scope of the reference to arbitration.”). In this case, the parties did not agree to arbitrate the issue of payment for the shares and recovery of dividends.