Page 28 - AVN November 2016

LEGALESE | | By Clyde DeWitt
Disputed Territory Arbitration is one of the hottest litigation topics going
contracts, not
”If you utilize form
only have the
good sense
to have
an attorney
draft them;
periodically
ask the attorney
to review and,
if needed,
update them.
LEGAL NEWS
Clyde DeWitt is a Las Vegas and Los Angeles
attorney, whose practice has been focused on adult
entertainment since 1980. He can be reached at
ClydeDeWitt@earthlink.net. More information can
be found at ClydeDeWitt.com. This column is not a
substitute for personal legal advice. Rather, it is to alert
readers to legal issues warranting advice from your
personal attorney.
28 | AVN.com | 11.16
Normally, if a dispute arises between parties
to a contract that cannot be resolved—and
it is worth it to do so—the disgruntled
party will file a lawsuit in court. However,
more often than not, parties will include
dispute-resolution provisions in their
contract when they draft it in the first
place.
Why do that? Many reasons.
What follows illustrates this: If you
utilize form contracts, not only have the
good sense to have an attorney draft them
for you, but also periodically ask the
attorney to review and, if needed, update
them. Read on.
For example, suppose a Nevada
company and a California company come
to an agreement for some commercial
transaction. If anyone involved has an
ounce of sense, the agreement will be
reduced to writing. Why? Obviously, the
parties don’t want to get into an expensive
squabble over the terms of the agreement.
Unfortunately, too many agreements go no
further than that.
Now, assume that a dispute arises and
a lawsuit is filed and an initial dispute
arises over which state should try the case.
Deciding where to try the case could be
expensive. And it might be a big issue
because Nevada and California
might have different rules.
Then there are other
issues: discovery,
motions, scheduling
orders, waiting for an
opportunity to try the
case (which will get
continued many
times for whatever
reasons),
judgment,
appeals ... and
on and on
and on. Thus,
over a century
ago, there
was invented
arbitration. In
arbitration, a
lawyer, usually
a retired judge
decides the
dispute.
The topic here
relates to disputes
over whether
arbitration clauses in contracts are enforceable. This invariably arises when a
big guy writes a form contract. The little guy often claims that the arbitration
provision is unconscionable.
Why? Because the plaintiff wants a jury trial and a class action because juries
run the risk of a “runaway verdict”—and class actions make a whole bunch of
money for the plaintiffs’ attorneys.
The latest wrinkle in this range war between class action attorneys and
businesses is the question of who decides the validity of the arbitration
provision—the arbitrator or the judge. The presumption is that the court makes
the decision.
How it works is that the individual plaintiff files a lawsuit—seeking class action
status—against the company that wrote the contract. The defendant company will
respond with a motion to dismiss the complaint or to stay the case and compel
arbitration. In response, the plaintiff might claim that the arbitration provision is
invalid for whatever reason, usually because it is procedurally and/or substantively
unconscionable. The law presumes that the judge will decide that issue. Recently,
however, attorneys have started including contractual provisions stating in essence
that the arbitrator will make that decision, not the judge. Why? Arbitrators lean
toward arbitration because they believe in it; because that’s what they do; and
they don’t get paid if they decide that the arbitration clause is no good.
A recent example of this is Mohamed v. Uber Technologies, Inc., ___ F.3d ___, 2016
WL 4651409 (9th Cir., September 7, 2016). Mr. Mohamed, a former Uber driver,
and one of his former colleagues had a beef with Uber. Claiming that they were
just two of an army of Uber drivers who had suffered the same wrong, they sought
class action status. (Their claim? You guessed it—that they should have been
treated as employees rather than independent contractors.)
Uber filed a motion to compel arbitration, which was based upon a contractual
arbitration provision. The court found the provision invalid; Uber appealed.
Notably, the important issue on appeal involved the
arbitration provision in the second of the two
contracts; it provided that the arbitrator, not
the judge, would decide any issue of the
validity of the arbitration provision.
Parenthetically, a lesson can be
learned from this. Uber’s lawyers
apparently were on the ball;
and they updated the existing
agreement in 2014 to add to
a provision designating the
arbitrator, not the judge,
would decide the validity
and interpretation of the
arbitration provision.
In any event, the court
agreed with Uber. The
trial judge was wrong to
decide that the arbitration
provision of the second
was invalid. Rather, the
trial judge should have sent
the case to the arbitrator
to decide that issue, as the
arbitration provision stated.
So, when is the last time
you had an attorney review
your form contracts? A stitch
in time ...