While the appeals court didn’t disturb the allegedly disproportionate divvying up of the fees by former U.S. District Judge and current Irell & Manella LLP partner Layn Phillips, it tackled a question of first impression and said that a nonappealability clause in an arbitration pact that eliminated all federal court review of arbitration awards — including review under Section 10 of the Federal Arbitration Act — could not be enforced.
“Permitting parties to contractually eliminate all judicial review of arbitration awards would not only run counter to the text of the FAA, but would also frustrate Congress’s attempt to ensure a minimum level of due process for parties to an arbitration,” the decision said.
Class counsel in the Wal-Mart MDL agreed to hash out fee disputes in “binding, non-appealable arbitration,” and courts have interpreted such clauses in two ways, the Ninth Circuit said. Some have concluded those provisions bar only federal court review of the merits of an arbitrator’s decision, and don’t preclude the right to appeal under section 10 of the FAA, Tuesday’s ruling explained.
But another possible interpretation of the “binding, nonappealable arbitration” clause is that it divests both district courts and the Ninth Circuit of jurisdiction to review the arbitrator’s fee allocation on any grounds, the panel said.
After the $85 million settlement in the MDL won court approval in 2009 and a trial court awarded the plaintiffs about $28 million in fees, plaintiffs counsel quarreled about who should get what and the matter ended up before Phillips, the opinion said.
In January 2011, the arbitrator allocated more than $6 million to the “Burton group” — which includes Carol Burton and the Mills Law Firm’s Robert Mills — while Bonsignore & Brewer ended up with more than $11 million and another attorney who challenged the award got $730,000.
The Burton Group sought to have the award vacated after Bonsignore moved to confirm the award, and a district court sided with Bonsignore, setting the stage for the appeal. The Burton group appealed the confirmation of the award while Bonsignore countered that the Ninth Circuit lacked jurisdiction because the parties had agreed to nonappealable arbitration, Tuesday’s ruling said.
The Mills Law Firm said in a July 2012 brief that Phillips’ fee “conducted the arbitration wherein he disregarded applicable law and undisputed facts, and allowed his personal animosity to cloud his professional judgment.”
Mills’ in-house attorney Joshua Boxer argued in October that the lower court was wrong not to vacate the arbitrator’s award split after the Mills Law Firm discovered that Phillips conducted an unauthorized mediation between Wal-Mart and other parties in one of the class actions that Mills represented.
“The district court found that the parties waived the right to contest the merits of the award,” Boxer argued. “But the situation here is that the arbitrator had an undisclosed and new financial relationship that was adverse to the Mills firm.
Bonsignore said in a November 2012 brief that the appellants “launched a nasty character attack on the arbitrator and challenged the award as the product of his personal animus” after getting a smaller piece of the fees than they wanted. At October’s oral argument, he urged the panel to uphold the lower court’s decision and said Mills waived the right to have the arbitration decision reviewed.
Mills told Law360 on Tuesday that the ruling’s take on the the review of arbitration had broad significance.
“We’re disappointed with the ruling insofar as it bears upon the merits of the fee dispute, but we’re very pleased that the Ninth Circuit rejected the contention that parties to an arbitration can contractually waive judicial review. That’s an important ruling,” Mills said.
Bonsignore said he was pleased with the Ninth Circuit decision, but added that he expected to see more litigation over parties’ ability to waive judicial review from arbitration awards.
“I don’t think anyone wants to give up judicial review, but there’s a limit,” he said.
A Wal-Mart spokesman declined to comment.
Judges Dorothy Wright Nelson, Milan Smith and Sandra Segal Ikuta sat on the panel for the Ninth Circuit.
The Mills Law Firm is represented by in-house counsel Carolyn Beasley Burton, Robert W. Mills and Joshua D. Boxer.
Opposing class counsel is represented by Bonsignore & Brewer, Franklin D. Azar & Associates PC, Choate Law Firm,Zelle Hofmann Voelbel & Mason LLP, Schrempf Kelly Napp & Darr Ltd., The Furth Firm LLP and others.
The cases are Carolyn Burton, et al v. Class Counsel and Party to Arb, et al, case number 11-17718, and Carol LaPlant v. Class Counsel and Party to Arb, et al, 11-17778, in the U.S. Court of Appeals for the Ninth Circuit.
–Additional reporting by Beth Winegarner. Editing by Chris Yates.For a reprint of this article, please contact [email protected].