Thursday, 28 August 2003

Yet Another Way That Arbitration Can Be More Complicated Than It Looks

Arbitration is by its very nature a contractual agreement of the parties. Unfortunately at the time when it comes into play, there are, again by definition, differences between the parties. Thus there is not always cooperation and harmony even in going forward with the "agreed means" of resolving the parties' dispute. Here, an accounting partnership agreement provided that a dispute between the firm and any departing partner would be resolved by arbitration, with three arbitrators, each of the parties to pay one-half the costs.

After an initial motion to compel arbitration filed by the firm was granted, the partner refused to pay for his share and the arbitration was suspended by the AAA for lack of payment. In Re Burton, McCumber & Cortez, L.L.P (Tx. App. - Corpus Christi 8/25/03). The firm wanted to proceed, presumably as it was seeking some form of relief, but was blocked by the recalcitrant former partner. A second motion to compel him to pay the required arbitration fees was granted by the trial court. When he still failed to pay, the a motion to hold him in contempt was filed. At that hearing, the Court modified its earlier order, finding that the cost would be excessive, and required that the partner pay only half of one arbitrator's fees, with the firm to pay the other half, plus the costs of the two other arbitrators. The request for mandamus by the firm followed.

Noting Texas strong support of arbitration agreements, the Court of Appeals correctly said that the Court had no authority to change the contractual provisions of the parties, thus vacating the trial court's attempted modification. (There is no mention of the Supreme Court's Green Tree decision concerning the cost of arbitration, or any of the cases dealing with fee shifting in the context of statutory claims.) However, in a complicating addition, the Court also held that the trial court had no authority to order the partner to pay his share of the original fees, that was the province of the AAA.

So, after spending two years in the courts, the accounting firm is now back where it started - with a partner who has agreed to arbitrate, but refuses to do so, and no apparent judicial means to compel him to cough up the fees for doing so. Arbitration certainly has its place as an alternative forum, but there are clearly gaps that may no doubt appear at times as bottomless pits of costs and frustration to at least some of the parties.

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Nice comment !