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Newsletter > March 2008 > "MANDATORY, BINDING ARBITRATION WILL IT WORK IN THE GREEK SYSTEM?"
MANDATORY, BINDING ARBITRATION WILL IT WORK IN THE GREEK SYSTEM?
Jim Ewbank, Ewbank & Byrom
As many states have implemented various forms of tort reform over the last several years, fraternities and sororities have not been the beneficiaries of those changes. Cases involving injured members continue to be filed and settlements paid because of an on-going fear that a local jury, upon hearing inflammatory evidence that is rarely favorable to the organization, may award a large verdict. There is also concern about the negative publicity that comes from trials involving serious injuries at fraternities and sororities. In the last ten years, there has been a growing trend across the country, led by the United States Supreme Court, to encourage resolution of disputes by arbitration versus a jury trial. Arbitration has been a standard in the financial services industry for some time, and a large number of employers have begun to implement this system to resolve employee disputes. Recently, this law firm has recommended that the Greek system create its own form of “tort reform” by implementing mandatory, binding arbitration for disputes and injuries by its members, coupled with clear and unambiguous exclusions of coverage for individuals and chapters who violate the Risk Management Policies, and the implementation of sublimits for the Chapters and individuals who may be covered by the National insurance policy.
What is Mandatory, Binding Arbitration?
Essentially, in lieu of a jury or a judge deciding the outcome of a civil case, one or more neutral arbitrators are picked to determine the outcome of a claim or lawsuit filed arising out of an injury or other type of dispute with the Chapter or with the National fraternity. The substantive law that is applied in each case is the same – an injured plaintiff would have the same causes of action as in the civil courts, be entitled to the same types of damages, and the defendants would be able to raise the same types of defenses. However, the procedure is quite different — it is much more informal, much less expensive, and usually is resolved in a much shorter period of time. You still have discovery that is exchanged between the parties (such as interrogatories, request for production, and request for admissions), you still have depositions under oath, and you still have a trial but without the jury. Instead of the jury selection process whereby a large number of jurors are brought in, questioned about their life experiences, and each side makes strikes until there are 12 jurors, the parties are able to select the arbitrator(s) by agreement. Another significant difference between the existing jury system is there is virtually no right of appeal from the decision, except in limited circumstances usually involving fraud, conflict of interest by the arbitrator, or something unusual in the process.
One limitation exists with this system — it only applies to pledges, members and alumni, not outside third parties who may be injured as a result of the negligence of an individual member or the Chapter. For example, if a fraternity member becomes intoxicated at a party, drives his vehicle into a family on the street injuring them, the claims by the injured family would not be subject to the mandatory, binding arbitration. However, statistics indicate that somewhere around 50% of all claims come from members or pledges. If you have had a significant injury by a member that resulted in a serious lawsuit and a substantial settlement or verdict, imagine that the playing field is the private resolution of a dispute in front of a neutral arbitrator that you have had input in selecting, and imagine if you don’t think that the outcome might have been different than when that serious claim was in the civil court system.
Notice and Acceptance is the Key
Many federal courts strongly embrace the concept of arbitration as do many state courts; however, local district judges are often reluctant to impose arbitration unless you can show that notice of this dispute resolution plan was provided to the members and it was accepted by them. However, the courts in most states have made it quite easy for organizations to prove notice and acceptance – if you can prove that an individual member was provided with a clear and unambiguous statement, either in writing or by e-mail, that your organization was adopting a mandatory, binding arbitration plan for all future injuries or claims, and if that member continues his membership with the organization after such notice, the courts have held that notice and acceptance have been completed and will usually order the case to arbitration. It is my personal belief that collecting each individual’s signature to an acknowledgement form is the best form, as you can show to the court a signature of the claimant that he has read the plan, acknowledged receipt of the plan, and accepts the terms of the plan. However, this can often be difficult as a practical matter, and in today’s electronic world, electronic acknowledgement is both acceptable and the most practical. The essence is to be able to prove that the member got a copy and continued as a member to accept the benefits of membership after receiving notice that the organization plans to adopt this plan.
There are multiple approaches to establishing notice and acceptance:
1) You roll out the dispute resolution plan at the National Convention with publication to all members and alumni;
2) Include the acknowledgement and acceptance on all pledge and membership cards;
3) Make sure that as new members, pledges, and alumni register they have to check off a box electronically that they have received notice of the arbitration plan and by their continued membership agree to accept it;
4) Make sure that it is prominently displayed on the website;
5) Make sure it is included in the pledge manual and risk management policy;
6) Make sure that as your education consultants conduct meetings and risk management that the plan is discussed and signatures collected;
7) Mandate that the Chapter president or risk management officer make a presentation on the arbitration plan to pledges and members and certify that each member was presented with the plan;
8) Make sure it is included in multiple publications for a minimum of four years to catch all existing members and alumni.
Advantages and Disadvantages
The advantages of mandatory, binding arbitration are many – it is typically less expensive, less formal, less discovery occurs, and you usually obtain a quicker resolution. Many court dockets are backed up for one or two years, and often times it can be 3 or 4 years after an incident before a matter gets resolved. Arbitrations, on the other hand, are often resolved within six – twelve months of the filing of the claim. Arbitration tends to discourage small claims from even being filed; once an attorney realizes that there is a mandatory, binding arbitration clause, plus there is an exclusion for insurance coverage for the Chapter and the individuals who actually committed the wrongdoing, and the Chapter has a maximum liability sublimit of $100,000 (even less if it is an eroding policy), often times they will not even take the case. By the same token, arbitration tends to limit damages in big claims – you typically do not have the high degree of emotion and sympathy with a neutral arbitrator than you typically see with local juries who have difficulty identifying with Greek organizations. Often times, the arbitrators are local lawyers or former judges who may well have been in a Greek organization themselves. Once you remove the emotional component from a jury, then you are more able to try the cases which have big damages but very poor liability facts for the plaintiff. A very important reason to adopt arbitration is the setting – instead of the newspaper covering the trial down at the county courthouse, the arbitration tends to occur in a private setting without any media attention at all.
In essence, you have more control over the outcome when you choose arbitration – beginning with the right to select or have input into the selection of the arbitrator and all the way through the process.
There are certainly disadvantages that need to be assessed and evaluated in making the decision to adopt arbitration or not. Some states prohibit or won’t apply arbitration to personal injury claims. Keep in mind that your right of appeal could be limited or even eliminated in the event there is a verdict that YOU don’t like. Many courts have held that virtually all of the expenses of the arbitrators need to be paid by your insurance company, as courts have held that if the financial burden on the claimant is too great, that is unconscionable and the arbitration will not be enforced. There is no guarantee that arbitration will be easily enforced; it is likely that your organization will be forced to file a motion to compel arbitration in every case, as plaintiff’s attorneys do not like arbitration. Finally, there are a handful of states that set the age of majority at 19, so therefore arbitration agreements signed by minors may not be enforceable.
While there are disadvantages, it is our belief that the advantages far outweigh those. Remember, if you have arbitration and it is denied, your worst case scenario is to be stuck in the system you have now – a jury of individuals who are not necessarily your peers.