Attempt to Conjure Fake Victory Out of Settlement & Subvert Justice Foiled

by Victoria Pynchon on October 31, 2008

Guest Post by Victoria Pynchon

This just in from my IP ADR Blog colleague Mike Young of Alston + Bird

I wish I was clever enough to make this stuff up, but I’m not.  Only reality can be this bizarre.

A sexual harassment defendant settles the case for $1.3 million.  Not satisfied with the usual “no admission of liability” clause found in most settlement agreements, Mr. Harasser insists on an adjudication of NON-liability as a condition to paying the $1.3 million.

Here’s how the parties work it:

As part of the settlement, the harassment dispute will be “arbitrated” based on stipulated facts.  The defendant will have sole discretion in the selection of the “arbitrator” and will pay the entire fee.  The stipulated facts are, essentially, “defendant is innocent and plaintiff is wrong.”

Not only does the settlement agreement set forth the stipulated facts for the “arbitration,” it also dictates the arbitration award, word for word (essentially “the defendant is innocent and the plaintiff is wrong), and then spells out the press release that will follow the “arbitration,” that the defendant was totally vindicated in the lawsuit by a defense award (leaving out, of course, the part about paying $1.3 million to the plaintiff).

With me so far?

A fake arbitration to be followed by a false press release…and then the defendant pays the $1.3 million.

This is pulling a fast one on the public and a perversion of the justice system since the fake arbitration award would inevitably be followed by an uncontested entry of judgment based on the arbitral award.

Were I the defendant, I would be pretty careful to select an arbitrator who I knew would go along with this, like my [hypothetical] sociopathic uncle.  I certainly wouldn’t select a former judge and one of the State’s top private jurists.

But, what do I know.  In this case, the defendant with the unilateral right to select the arbitrator for this “arbitration” selected a former San Francisco judge sitting on the prominent JAMS panel, Daniel Weinstein.

To no one’s surprise except maybe the defendant, the plaintiff didn’t show up for the “arbitration.”  Why should she?  Based on the stipulated facts, she already “lost” the “arbitration.”  For reasons that are not fully explained in the subsequent legal opinion, but probably because Weinstein is smart and ethical enough to know a rat when he sees one running across his conference room table, Weinstein refused to participate in the sham proceeding.

As the defendant, what would you do now? I’d probably pay the $1.3 million and call it a day. Because the case had not been dismissed, the court called the parties in to see what was going on.  The plaintiff said she wanted to enforce the settlement.  The defendant said the plaintiff breached the settlement agreement by not showing up to the “arbitration,” and that the settlement agreement had a real arbitration provision so that any dispute over the agreement had to be arbitrated (the old fashioned way).  The trial court read the settlement agreement for the first time, and then denied the defendant’s motion to compel arbitration.

Now would be a good time to pay up and move on.  There’s been no publicity and no public disclosure of this bizarre effort to fool the press and public with a sham arbitration proceeding.  But no.  This defendant decided to appeal the denial of the motion to compel arbitration, making everything public.

Sure enough, the appellate court issued an opinion, not officially published but available on the web for the world to see at http://www.onpointnews.com/docs/charney2.pdf, in which this entire fake arbitration process is shared with readers like you and me.

Here you have an effort to create a false record for the purpose of issuing  a misleading press release to fool the public into believing the defendant was exonerated. It’s certainly fraud but is it actionable by anyone? And because the attempt was foiled by this new Darwin Awards winner, no harm was ever done.

We praise the ethical decision of JAMS neutral Daniel Weinstein in refusing to join in this attempt to use JAMS, and eventually the Courts, to perpetrate a public fraud.  Is there any question that an arbitrator who would go along with this sham would be violating his/her professional responsibilities (not to mention undermining JAMS’ sterling reputation)?

But where is the judicial outrage?  In the appellate court opinion, none of the justices took the defendant to task.   There is no indication that the trial court was shocked or concerned by the possibility that it was overseeing a settlement whose goal was to defraud the public.

The “A” in ADR does not mean “A”nything goes in the pursuit of expedited calendars.  It is alternative, not anarchic.

[editor's note: see also Nov. 16 (American Apparel's view of episode)]

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Dov Charney, the sequel
10.31.08 at 12:21 pm
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11.07.08 at 2:45 pm

{ 10 comments }

1 matt 10.31.08 at 12:45 pm

thanx now my head hurts . . .im sorry but i have to ask are you sure this is real?

2 Victoria Pynchon 10.31.08 at 1:08 pm

Yup. I’ve linked to the legal opinion recounting this tale. As JOE THE PLUMBER would say — check out the facts yourself to understand what I’M thinking. Huh?

3 Edward Wiest 11.01.08 at 12:50 am

I completely agree that Judge Weinstein (ret.) acted properly in refusing to acquiesce in the creation of a stipulated arbitration award exonerating the defendant without hearing any evidence. The case, however, should be seen as one in which a crude method failed to solve a real problem for many litigants–the fact that the public airing of a claim, even of little merit, can harm a defendant, and a settlement agreement which states that an exchange of money for a release is not an admission of liability will not be so interpreted by most laymen (e.g., the general public).

The question of whether settlement can be employed as a means of removing some of the stain a publicly-aired claim imposes on the defendant is being wrestled with by the courts (see, e.g., Asti Comm. v. The Shaar Fund, Ltd., 2d Cir. No. 08-1815, decided October 20, 2008 (available at http://tinyurl.com/6bcz2c )(refusing to vacate District Court sanction order as provided for in settlement)) and self regulatory organizations in the securities industry (see FINRA/NASD Rule 2130 (available at http://tinyurl.com/59d64o )(requiring arbitration panels to issue express evidence-based findings in order for settlement agreements providing for “expungement” of reference to claim against securities brokers from publicly available records)). The crude means that this defendant sought to employ to permit settlement to be seen as exoneration should not obscure the fact that such exoneration is often a valid goal when adversaries seek to settle a messy dispute.

4 William Nuesslein 11.02.08 at 10:03 am

Correct me if I am mistaken, but wasn’t the harassed willing to effectively stipulate that her claims were bogus to get the money. What exactly is sham? I hope that Judge Weinstein will voice objection to a system that leads to a $1.3 million payment for hurt feelings. Only then will I be able to admire his ethics.

5 Vickie Pynchon 11.02.08 at 11:34 am

Rarely does anyone pay $1.3 million for a bogus claim. I frankly don’t know what the facts are, but CONTINUOUS harassment by a superior on the job for any reason causes more than just “hurt feelings.” Our emotional well-being is very often more important to the quality of our lives than our financial well-being. This is why you see people with families live longer statistically than single people; married men live longer with wives than without them, etc. We’d LOVE it sometimes if life were entirely rational but none of us are Mr. or Ms. Spocks. We’re emotional creatures who love, hate, help or kill based upon “feeling.”

6 Mike Young 11.02.08 at 7:38 pm

As the original poster, I feel the need to weigh in. Having represented employers for years (decades), I have no doubt that there are times when a harassed employee deserves to be compensated for outrageous behavior perpetrated generally (but not always) by male superiors utilizing their position of power to obtain benefits (usually sex) unrelated to the workplace or the job. It’s not so much sexual harassment as it is an abuse of power, and I have no doubt that our law is moving towards the day when abuse of power becomes the tort, regardless of the existence of a protected class. But that day is not here yet…. And I’m already off topic. That’s not the point of my post.

It is also true that employers get hit with frivolous lawsuits all the time, especially here in California. Too many plaintiff’s attorneys and too few legitimate instances of employment abuse.

And so I understand completely the need for defendants to settle and exonerate themselves at the same time.

However, fraudulent arbitrations is not the way to do it.

Settle with a confidentiality agreement, and a liquidated damages provision for its breach. The LD can be a return of the settlement amount.

Or how about skip the fake arbitration and just issue a stipulated press release that both sides agree on. The plaintiff dismissed the case because of difficulty in proof, or because it turned out to be a legitimate miscommunication that has been resolved, not sexual harassment (or whatever) at all. For $1.3 million, the plaintiff will probably agree to it. With careful wordsmithing, the press release may even be not completely misleading.

The point is, there are other ways for the defendant, even a wrongly accused one, to exonerate itself in the public’s eye without resorting to a sham “legal proceeding” that risks diminishing the legitimacy and acceptance of arbitration as a viable alternative to the courts for a just method of resolving real disputes.

7 Vickie Pynchon 11.02.08 at 8:12 pm

Well said, Mike, as always!

8 William Nuesslein 11.03.08 at 2:26 pm

“Rarely does anyone pay $1.3 million for a bogus claim.”

The average 1.6 million dollar payments to 9/11 families were part of a settlement mainly to avoid litigation. My heart went out to those families, but payments should have been based on social welfare needs only. Otherwise we have the victims of the Oklahoma city bombing feeling snubbed.

All the harassment cases that I know about have been shakedowns, even the O’Reilly suit. But, Mike, in general, payments of significant sums of money will be admission of guilt no matter what legal kabuki is brought to the case.

I can’t see how Victoria can justify $1.3 million for hurt feelings. A dozen roses usually works for us insensitive husbands.

9 vickie pynchon 11.03.08 at 3:36 pm

I can neither justify nor criticize amount of settlement b/c I do not know the factsk

10 Jason 11.05.08 at 2:19 pm

Why has no one asked if Nelson’s Lawyers begged to settle, why they did not show up to get the money???? If someone was offering 1.3 million on a platter for me to take, and I was a gold digger, I would have been ecstatic!

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