Shakeel Mustafa v. Felix Rippy

ACCEPTED
03-15-00422-CV
7320560
THIRD COURT OF APPEALS
AUSTIN, TEXAS
10/9/2015 5:18:13 PM
JEFFREY D. KYLE
CLERK
No. 03-15-00422-CV

SHAKEEL MUSTAFA, § IN THE
FILED THIRD
IN
3rd COURT OF APPEALS
Appellant § AUSTIN, TEXAS
§ 10/9/2015 5:18:13 PM
v. § COURT OF APPEALS
JEFFREY D. KYLE
§ Clerk
FELIX RIPPY, §
Appellee § AUSTIN, TEXAS

APPELLANT’S MOTION FOR EN BANC RECONSIDERATION
AND IN THE ALTERNATIVE PETITION FOR WRIT OF MANDAMUS

Shakeel Mustafa, Appellant, asks the Court to grant this motion to reconsider

the case en banc.

Introduction

1. Appellant is Shakeel Mustafa. Appellee is Felix Rippy. A panel of the

court issued the judgment and opinion in this case on September 24, 2015. A copy

of the opinion is attached to the appendix filed herewith (Appendix, p. 85). The

panel that rendered judgment in this case consisted of Chief Justice Rose, Justice

Pemberton and Justice Field. The panel that rendered judgment denied Appellant’s

last timely filed motion for rehearing on September 24, 2015.

Argument & Authorities

2. The Court has the authority to grant this motion and submit the case to the

full court, sitting en banc.1 The primary issue in the appeal was whether a party can

1
Tex. R. App. P. 49.7; see Tex. R. App. P. 41.2.

Page 1
appeal the denial of a motion to compel arbitration when there are competing

motions to compel arbitration with different procedural rules. Specifically,

Appellant requested that arbitration be compelled pursuant to the American

Arbitration Association Consumer Rules, and Appellee’s motion to compel

arbitration did not. The panel resolved the issue by holding it did not have

jurisdiction to consider the denial of his motion to compel arbitration. Appellant is

not asking this court to compel mediation (though he asked the trial court to compel

mediation); rather, the issue here is whether the denial of Appellant’s motion to

compel arbitration can be appealed.

3. The panel’s resolution of that issue is contrary to another opinion issued by

the Fifth Court of Appeals in Morford et. Al. v. Esposito Securities, LLC, No. 05-14-

01223-CV (Tex. App. – Dallas September 18, 2015). A copy of that opinion is

attached herewith. (Appendix, p. 87). To resolve the conflict between the opinion

in this case and the one in Morford, Appellant asks the Court to reconsider the case

en banc.2 The conflict between the cases is that the Fifth Court of Appeals held that

the denial of one motion of competing motions to compel arbitration does in fact

provide the appellate court with jurisdiction to consider the appeal. To the extent

necessary, Appellant requests that his appeal be alternatively treated as a petition for

writ of mandamus.

2
See Tex. R. App. P. 41.2(c), 49.7

Page 2
 4. The issue in this case presents such an extraordinary circumstance that

resolution of the issue by the Court en banc is necessary. 3 The importance of the

protections provided by the American Arbitration Association Consumer Rules is of

significant concern to Appellant and necessary for the fair and equitable resolution

of the instant dispute. The arbitration agreement specifically provides that “AAA

Rules” will be followed, but the arbitration is taking place outside of the AAA and

without the application of the AAA Rules. (Appendix p. 13, 24). Appellant requests

that this Court withdraw its opinion and allow this issue to be fully briefed because

this Court does have jurisdiction to consider the denial of his motion to compel

arbitration.

IN THE ALTERNATIVE, PETITION FOR WRIT OF MANDAMUS

Mandamus – Jurisdictional Issue.

5. Because the trial court denied Mustafa’s motion to compel arbitration

pursuant to the AAA Rules, this Court has jurisdiction.4 Where two competing

motions to compel arbitration exist, the denial of one grants appellate jurisdiction.5

3
Id.
4
Texas Civil Practice and Remedies Code, Sections 51.016 permitting appeals from a district court of any
order that would be governed by the Federal Arbitration Act, 9 U.S.C. § 16 (§ 16(a)(1)(B) permitting
immediate interlocutory appeal of any order “denying a petition under section 4 of this title to order
arbitration to proceed”) and Texas Civil Practice & Remedies Code § 171.098(a)(1) (“Any party may appeal
a judgment or decree entered under this subchapter or an order:…(1) denying an application to compel
arbitration made under Section 171.021”).
5
See McReynolds v. Elston, 222 S.W.3d 731 (Tex. App. Houston [14th Dist.] 2007) (finding jurisdiction
because “although the trial court's order allowed the AAA Arbitration to continue, it denied McReynolds's
potential contractual right to arbitration under the Settlement Agreement”)

Page 3
In the alternative, should this Court determine that it does not have jurisdiction, this

Court should instead treat this matter as a petition for a writ of mandamus and review

the issues under the mandamus standard of review. 6 This Court has jurisdiction to

issue a writ of mandamus. 7

Mandamus – Introduction

6. Relator, Shakeel Mustafa, submits this petition for writ of mandamus

complaining of the order of the Honorable Judge Gary Harger, acting arbitrator of

this matter appointed by the Honorable John McMaster, Williamson County Court

at Law Number Four, Texas. For clarity, relator is referred to as Relator/Mustafa,

Respondent 1, the Honorable Judge Gary Harger, is referred to by name,

Respondent 2, the Honorable Judge John McMaster, is referred to by name, and the

real party in interest is referred to as Felix Rippy, Rippy and Taylor, P.C.

Mandamus – Statement of the Case

7. Relator, Shakeel Mustafa, submits this petition for writ of mandamus

complaining of the order of the Honorable Judge Gary Harger, acting arbitrator of

this matter appointed by the Honorable John McMaster, Williamson County Court

at Law Number Four, Texas.

6
See CMH Homes v. Perez, 340 S.W.3d 444, 452 (Tex. 2011) (impermissible interlocutory appeal from
order appointing an arbitrator would be considered as a petition for writ of mandamus, where seller invoked
the court of appeals’ appellate jurisdiction by specifically requesting that its appeal be treated as a
mandamus petition); Lucchese, Inc. v. Rodriguez, 388 S.W.3d 354, 360-61 (Tex. App.– El Paso 2012, no
pet.).
7
Tex. Gov’t Code §22.221(a), (b), and (c); see Tex. Const. art. V, §6(a).

Page 4
 8. Rippy filed a collection lawsuit against Mustafa, a former client of Rippy.

Rippy’s original petition requested Mustafa be jailed for 180 days, fined up to $500,

and confined in the county jail until Mustafa paid the alleged debt. Each party

submitted motions to compel arbitration, with the difference being that Mustafa

requested the AAA Consumer Arbitration Rules be applied. Rippy subsequently

amended his petition to allege defamation. Mustafa filed a counterclaim and third-

party claim against the law firm Rippy & Taylor, P.C. alleging unreasonable

collection efforts and violations of the Texas Deceptive Trade Practices Act.

9. The Honorable John McMaster granted Rippy’s motion to compel

arbitration and denied Mustafa’s request. Mustafa’s subsequent motion to stay the

case pending arbitration was granted, and the Honorable Gary Harger was appointed

arbitrator with authority to decide all questions of law and fact. The Honorable Gary

Harger ruled that Mustafa could not issue additional discovery requests beyond the

initial request for production.

10. The Respondent Honorable Judge Harger’s actions, which form the basis

for this petition, include the refusal to allow discovery beyond the initial request for

production, refusing to allow amended pleadings and additional parties, refusal to

implement the AAA Consumer Arbitration Rules, and to recuse himself due to the

fact that he served as mediator in the underlying litigation where Rippy represented

Mustafa in a post-divorce action and based on his ongoing relationship with Mr.

Page 5
Rippy where he has been retained as mediator. The Respondent Honorable Judge

John McMaster’s actions, which form the basis for this petition, include denying

Relator’s motion to compel arbitration pursuant to Rules of the American Arbitration

Association.

Mandamus – Issues Presented

Issue 1: The arbitrator abused his discretion by not allowing Mustafa to

conduct additional discovery regarding his claims, refusing to allow amended

pleadings and additional parties, by not implementing the AAA Consumer

Arbitration Rules and by not recusing himself due to his involvement in the

underlying case as mediator, and by not recusing himself due to the fact that he

served as mediator in the underlying case and his ongoing business relationship with

Mr. Rippy.

Issue 2: The trial court abused his discretion by not implementing the AAA

Consumer Arbitration Rules and by appointed an arbitrator who served as mediator

in the underlying case where Relator disclosed confidential information.

Mandamus – Argument and Authorities

11. Mandamus relief is appropriate to remedy a trial court’s abuse of

discretion where a party has no adequate remedy at law. 8 A court should consider

8
See Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992)

Page 6
whether the benefits of mandamus review outweigh the detriments.9 Here, the

arbitration agreement clearly provides, “Client consents . . . to all disagreements’

[sic] being arbitrated pursuant to AAA arbitration rules.” Thus, it was an abuse of

discretion to compel arbitration without requiring the AAA as the forum, to require

the AAA arbitrator appointment rules to apply, and to appoint the Honorable Judge

Harger, who served as mediator in the underlying case where Appellant disclosed

confidential information. (Appendix, p. 13, lines 1-3, 22-23). Alternatively,

assuming this Court determines it was appropriate for the trial court to defer to the

arbitrator on the issue of what rules to follow, it was an abuse of discretion for the

arbitrator to not apply the AAA rules (Appendix, p. 24), to not allow any amendment

of pleadings or additional discovery (Appendix, p. 26), and to not recuse himself.

12. Mandamus is an extraordinary writ that should be issued only when the

trial court has clearly abused its discretion and there is no adequate remedy by

appeal. 10 In this case, Mustafa has no adequate remedy and will suffer significant

harm because the AAA Rules are not being followed. Mustafa is being denied the

right to conduct discovery related to his claims, has no ability to seek a ruling related

to the adequacy of Rippy’s response to his request for production, and no ability to

seek appointment of an arbitrator that was not directly involved in the underlying

9
In re BP Prods. N. Am., Inc., 244 S.W.3d 840, 845 (Tex. 2008) (orig. proceeding).
10
In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004); Walker v. Packer, 827 S.W.2d
833, 839-40 (Tex. 1992)

Page 7
litigation that forms the basis of this suit.

13. An appellate court has jurisdiction to issue "a writ of mandamus and all

other writs necessary to enforce the jurisdiction of the court," as well as "all writs of

mandamus, agreeable to the principles of law regulating those writs, against a . . .

judge of a district or county court in the court of appeals district. . . ." 11 Further,

this court has jurisdiction related to an attempt of apparent restraint of liberty by

virtue of an order because the live petition in this cause is requesting that Relator be

jailed for the failure to pay a debt.12

14. Appellant has no adequate remedy by appeal should this Court refuse to

hear their appeal on an interlocutory basis. In determining whether a party has shown

that he has no adequate remedy by appeal, the analysis is dependent upon the

circumstances and is guided by principles rather than simple rules. 13 A party does

not have an adequate remedy of appeal “when the appellate court would not be able

to cure the trial court’s discovery error.” 14 There is no adequate remedy at law here

because, by compelling arbitration without applying AAA Rules, the trial court has

denied Appellant the benefit of the agreement to arbitrate before the AAA, and as a

result he is not allowed to utilize the AAA rules regarding conflict of interest,

recusal, amendment of pleadings, or adding parties. Here, the denial of the ability

11
TEX. GOV'T CODE ANN. § 22.221(a), (b)(1) (Vernon 2004).
12
TEX. GOV'T CODE ANN. § 22.221(d) (Vernon 2004).
13
In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex. 2004).
14
Walker, 827 S.W.2d at 843.

Page 8
to add the actual party to the contract (the professional corporation), results in a

manifest injustice. “A party who is erroneously denied the right to arbitration has

no adequate remedy at law because the fundamental purpose of arbitration—to

provide a rapid, less expensive alternative to traditional litigation—would be

defeated.”15

15. If this Court does not reverse the trial court’s decision to compel

arbitration without applying the AAA Rules or the arbitrator’s decision regarding

same, Appellant will suffer irreparable harm by subject to an arbitration where there

is no central mechanism to file pleadings. In the instant case, Appellant is required

to email documents but there is no central clerk that ensures some mechanism for

receipt and organization of filings. Texas law “does not require [the Court] to turn

a blind eye to blatant injustice. . . . Appeal . . . is no remedy at all for the irreversible

waste of judicial and public resources that would be required . . . if mandamus does

not issue.” 16 Further, Appellant is being the denied the right to conduct discovery,

add the actual party to the arbitration agreement (the professional corporation), and

otherwise defend himself properly against claims that opposition claims exceed the

15
See Prudential, 148 S.W.3d at 138; see also In re Global Const. Co., L.L.C., 166 S.W.3d 795, 799 (Tex.
App.–Houston [14th Dist.] 2005, no pet.); See Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272-73 (Tex.
1992) (orig. proceeding) (“Absent mandamus relief, [Relator] would be deprived of the benefits of the
arbitration clause it contracted for, and the purpose of providing a rapid, inexpensive alternative to
traditional litigation would be defeated.”); In re Golden Peanut Co., 298 S.W.3d 629 (Tex. 2009) (orig.
proceeding) (citing In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125, 128 (Tex. 1999), “[a] party denied
the right to arbitrate pursuant to an agreement subject to the FAA does not have an adequate remedy by
appeal and is entitled to mandamus relief to correct a clear abuse of discretion”).
16
In re Masonite Corp., 997 S.W.2d 194, 198 (Tex. 1999) (orig. proceeding).

Page 9
jurisdictional limits of the court. (Appendix, page 33).

Conclusion
16. Appellant respectfully requests that this Court recognize it has jurisdiction

to consider this dispute and if necessary treat this appeal as a petition for writ of

mandamus. There is a dispute between this opinion and an opinion issued six days

earlier regarding the same issue of competing motions to compel arbitration.

Prayer

17. For these reasons, Appellant asks the Court to grant this motion to

reconsider the case en banc, and in the alternative request this petition for writ of

mandamus be granted to require the application of the AAA Rules (including

disqualification of an arbitrator), allow discovery to be conducted, and allow parties

to the underlying contract at issue to be added as parties to the arbitration.

Respectfully submitted,

/s/ Chris Osborn .
Christopher Osborn
State Bar No. 24037221

Osborn Law Firm, P.C.
1019 Cecelia St.
Taylor, TX 76574
512-275-6593
512-309-5317
chris@osbornpc.com

Attorney for Appellant

Page 10
 CERTIFICATE OF COMPLIANCE

In accordance with the Texas Rules of Appellate Procedure 9.4, the
undersigned attorney of record certifies that this brief contains 14-point typeface for
the body of the document, 12-point typeface for footnotes in the brief, and contains
2,405 words as indicated by the word count software, excluding those words
identified as exempt from the word count under the rule and was prepared on
Microsoft Word.

/s/ Chris Osborn .
Christopher Osborn

CERTIFICATE OF SERVICE

I certify that a copy of Appellant’s Brief was served on Appellee, Felix Rippy, via
electronic mail before 5:00 p.m. this 9th day of October, 2015.

/s/ Chris Osborn .
Christopher Osborn

Page 11
 CERTIFICATE OF CONFERENCE

I certify that I contacted Appellee, Felix Rippy, via electronic mail on October 2,
2015, and he is opposed to this motion.

/s/ Chris Osborn .
Christopher Osborn

Page 12
 Cause No. 15-0708-CC4

FELIX RIPPY, § IN THE COUNTY COURT
Plaintiff §
§
v. § AT LAW NUMBER 4
§
SHAKEEL MUSTAFA, §
Defendant § WILLIAMSON COUNTY, TEXAS

DEFENDANT’S OBJECTION TO PLAINTIFF’S ASSSIGNMENT, AND
DEFENDANT’S MOTION TO COMPEL MEDIATION THEN ARBITRATION PURSUANT TO AAA
CONSUMER ARBITRATION RULES AND IN THE ALTERNATIVE MOTION TO DISMISS

1. Shakeel Mustafa, Defendant, asks the Court to refer the dispute between Rippy &

Taylor, P.C. and Shakeel Mustafa, Individually, to alternative dispute resolution (ADR) under

the authority of Texas Civil Practice & Remedies Code and pursuant to the Federal

Arbitration Act. Defendant alternatively requests that Plaintiff’s petition be dismissed for

failure to cure defects noted in Defendant’s Special Exceptions and due to the defective

purported assignment.

INTRODUCTION

2. Plaintiff, Felix Rippy, Individually, filed suit against Shakeel Mustafa. The attorney-

client agreement attached to Plaintiff’s Original Petition is between Rippy and Taylor, P.C.

and Mr. Mustafa. After Defendant filed special exceptions objecting to the case filed on behalf

of Felix Rippy, Individually, and after this Court’s order allowing Plaintiff to re-plead on June

12, 2015, the style of this case remains filed on behalf of Felix Rippy, Individually. Plaintiff

failed to cure the defects, instead alleging that all claims have been assigned to him,

individually.

Defendant’s Motion to Compel Mediation and Arbitration Pursuant to AAA Consumer Arbitration Rules
Page 1
APPENDIX PAGE 001
 OBJECTION TO PURPORTED ASSIGNMENT

3. Defendant objects to Plaintiff’s purported assignment of the underlying contract

from the professional corporation to himself, individually. The underlying contract, which

is attached hereto and incorporated herein as Exhibit “1” provides in paragraph five that “[a]

referral to an attorney outside the firm may require a separate contract with that attorney

and will not be done without Client’s consent.” (emphasis added). Thus, the purported

assignment here is improper because the agreement specifies that if it is to be sent “outside

the firm [Rippy & Taylor, P.C.],” it requires “the Client’s consent.”

4. Assignments should be permitted or prohibited based on the likely effect on society,

and in particular, on the legal system. Employing a public policy analysis, the majority of

courts in this country have concluded that at least some claims arising out of the attorney-

client relationship are not assignable. Vinson & Elkins v. Moran, 946 SW 2d 381 (Tex.App.

Houston [14th Dist.] 1997) (analyzing malpractice claims).

PLAINTIFF’S REQUEST FOR CONTEMPT FINDINGS SHOULD BE DISMISSED

5. Plaintiff mistakenly claims that the final decree of divorce between Mr. Mustafa and

his ex-wife constitutes a secured judgment in the amount of $17,500 against Mr. Mustafa,

individually. However, due process requires this issue to be adjudicated before it should be

treated as a violation of any court order. The phrase relied on by Plaintiff is found in the

underlying divorce decree requiring each litigant pay their own attorney’s fees, but this does

not equal language that supports a finding of contempt. The Texas Supreme Court analyzed

this issue in Ex parte Chambers, 898 S.W.2d 257, 259 (Tex.1995): “A court order is

insufficient to support a judgment of contempt only if its interpretation requires inferences

or conclusions about which reasonable persons might differ.” MacCallum, 807 S.W.2d at 730.

Defendant’s Motion to Compel Mediation and Arbitration Pursuant to AAA Consumer Arbitration Rules
Page 2
APPENDIX PAGE 002
The existence of reasonable alternative constructions of a court order will prevent

enforcement of the order. See, e.g., Ex parte Crawford, 684 S.W.2d 124 (Tex.App.Houston

[14th Dist.] 1984, orig. proceeding) (holding an obligor in contempt who knew with certainty

he was to pay one of two amounts of child support but ignored the order altogether). Here,

there was no order to pay a specific amount. In fact, Defendant will testify that no invoice

was ever received by him and that this suit is in retaliation for filing a grievance with the

State Bar of Texas.

PLAINTIFF’S CLAIMS SHOULD BE DISMISSED FOR FAILURE TO CURE DEFECT OF PARTIES

6. Plaintiff has not cured the defects noted in Plaintiff’s special exceptions and there

remains a defect in the parties. Plaintiff’s claim should be dismissed in its entirety without

prejudice.

MOTION TO COMPEL MEDIATION THEN ARBITRATION WITH AAA CONSUMER
ARBITRATION RULES

7. In the event the Court does not dismiss this suit, Defendant requests that the Court

order that Plaintiff follow the terms of the agreement requiring mediation. Defendant

requests that the Court order mediation pursuant to the agreement that provides “THE

PARTIES AGREE TO MEDIATE ALL SUCH DISPUTES PRIOR TO ARBITRATION.” (emphasis

in original). Defendant requests the Court order mediation pursuant to Texas Civil

Practice & Remedies Code section 154.023.

8. If mediation does not resolve the dispute, Plaintiff asks this Court to order binding

arbitration between Rippy and Taylor, P.C. and Defendant, following the AAA Consumer

Arbitration Rules, pursuant to the Federal Arbitration Act (9 U.S.C. sec 1 et seq.) and/or

pursuant to Texas Civil Practice & Remedies Code section 154.027.

Defendant’s Motion to Compel Mediation and Arbitration Pursuant to AAA Consumer Arbitration Rules
Page 3
APPENDIX PAGE 003
9. This case is appropriate for referral to ADR because there is a binding arbitration

agreement between Defendant and Rippy and Taylor, P.C.

ADDITIONAL SPECIAL EXCEPTIONS

10. Defendant specially excepts to Plaintiff’s claim that “Felix Rippy … has individual

claims against Shakeel Mustafa, as well” in that there is not specificity as to the basis of these

purported claims that Plaintiff contends exist in addition to the contractual claims of Rippy

and Taylor, P.C. If there are indeed other facts or causes of action that will be asserted, the

question of whether those claims are arbitrable will require a separate inquiry because there

is no arbitration agreement between Felix Rippy, Individually, and Defendant.

CONCLUSION

For these reasons, Defendant asks the Court to dismiss this suit or render judgment

that plaintiff take nothing, assess costs and fees against plaintiff, and award all other relief to

which defendant is entitled. Defendant asks the Court to strike the defective portions of

Plaintiff’s pleading. Alternatively, Defendant asks this Court to compel mediation followed

by binding arbitration, if necessary, between Rippy and Taylor, P.C. and Defendant, following

the AAA Consumer Arbitration Rules.

RESPECTFULLY SUBMITTED,

OSBORN LAW FIRM, P.C.

By: /s Chris Osborn .
Christopher D. Osborn
State Bar No. 24037221
1019 Cecelia Street
Taylor, Texas 76574
512-275-6593
512-309-5317 fax
chris@osbornpc.com

ATTORNEY FOR PLAINTIFF

Defendant’s Motion to Compel Mediation and Arbitration Pursuant to AAA Consumer Arbitration Rules
Page 4
APPENDIX PAGE 004
 CERTIFICATE OF SERVICE

I certify that a true and correct copy of the above and foregoing document has been served
on each attorney of record or party in accordance with the Texas Rule of Civil Procedure 21a
on this 19th day of June 2015.

/s/Chris Osborn .
Christopher D. Osborn

Felix Rippy ❒ hand-delivery
3000 Joe DiMaggio, Ste. 3
Round Rock, TX 78665 x❒ telecopy
512-310-9500
512-310-2580 fax ❒ first class mail

❒ certified mail, return receipt requested

Defendant’s Motion to Compel Mediation and Arbitration Pursuant to AAA Consumer Arbitration Rules
Page 5
APPENDIX PAGE 005
 ATTORNEY/CLIENT ENGAGEMENT AGREEMENT
(Hourly Basis)

2. Client, in consideration of services to be re nd e red by Attorn_>;Y to Client, retains Attorney to
represent him/her as attorney in connection with �v� s bP,,f-c (-e.. r M ( , J4v-v1'c , .., I/·()�� ( - R: /
1'1..-1 •

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It is understood and a gre ed by the parties that Attorney's re prese n tation ends upon the ent y a final order �4'-1 �
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disposing of the Client's case and does 11ot i n clud e the filing of any post -t ri al motions 01· appe
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3. If, in the future, Client desi1·es Attorney to represent Clienr in any other matter, that will be the
subject of additional discussions nnd an nclditionnl engagement ngreement. Attorney's fee will include only
services in connection with the matter listed in Paragraph 2 above.

Client and Attorney agr·ee:

4. A ttorn ey will devote his professio118I abilities to the matter, stri v e to keep Client informed of
significant developments in t his case and be reasonably available to answer inquiries. Client agrees to fully
coope rate with Attorney, including but not limited to k eepi n g Attorney advised of all developments relate d
to this m a tter, informing Attorney prnrnptly of any c ha n g e in Client's a dd res s or telephone number, and
promptly responding to Artorney·s inquir ies . Where applicable, ne ith er Attorney nor Client will settl e the
case without the othe r's written a p p roval .

5. Client empowers Attorney to take all ste ps in said matter d eemed by A ttorney to be advisable. Client
understands and agrees t ha t Attorney wi 11, to the extent Attorney believes it to be reasonable, c oo pe rate with
any opposing attorney concerning set t i n gs for trial or hearing, sched uling d epositions or meet ings , and
w het h er to request or a gree to continuances or d elay s . The undersigned attorney may deem it advisable to
refer Client's case to an other attorney with in the firm of Rippy & Taylor, PC, or to an a ttorn ey outside the
firm. A referral to an attorney outside t he firm may require a separate contract with that attorney and will
not be done without Client's co11se11t.

6. C lient agrees t o compensate Attorney for his services at th te of$ SOO per hour for the
time which is devoted to Client's case wit h a m i n i mum fee of$ 3sc:io ci.e"A which sha 11 be considered
earned at the t i me Attorney commences work 011 Cl ie nt ' s case. here applicable, this minimum fee is
inten ded to c o m pen s a t e Attorney for the preparation and fi ling of initial pl ead in gs , for all o ca tin g the time
and resources of Attorney and the staff of the law firm to Client's case, for the n ature and complexity of
Client ' s case and the experience of the Attorney hand Ii rig the matter and to compensate Attorney for the
potentiality that, by accepting this employment, Attorney may also be precluded from accepting other
employment. From t i me to time it may be n e c essary for other memb ers of the law firm to assist in the
Client ' s matter, and Client agrees to c ompens at e Attorney for these services at the fol l o wi ng rates:

Page I of 3

APPENDIX PAGE 006
 Partner attorney: $300/hr

Legal assistant $ 75/hr

Client agrees to pay to Attorney all costs and disbursements incurred in said matter. For th e
following expenses, and no others, Attorney will charge a per case flat fee of $25.00: (I) long distance
telephone ch arges; (2) in-office photocopy ex p e nses; (3) fir s t class postage (not certified or priority maiI);
and (4) facsimile c harg es All other expenses will be bi ll ed to Clie nt in the actual amount inc urre d
. .

7. Cl ien t will pay A tto rney the sum
Agre ement .
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APPENDIX PAGE 026
 AFFIDAVIT OF SHAKEEL MUSTAFA
CASE # l 5-0708-CC4

(1) My name is Shakeel Mustafa and I'm defendant in this Case. I am over the age of
18, have never been convicted of any crime nor diagnosed with any mental
disease or psychological disorder, and am otherwise competent to make this
affidavit.
(2) I believe Judge Gary Harger has not been selected according the AAA Arbitration
Rules as per the language of my Retainer Agreement with Felix Rippy
(3) I further understand that Mr. Chris Osborne has not agreed to change the terms
and interpretation of my Retainer Agreement with Felix Rippy.
(4) Mr. Felix Rippy also represented me in a Mediation of my family law case last
year with Judge Gary Harger who acted as a Mediator in my case.
(5) I spoke to Judge Gary Harger alone during the mediation session and shared a lot
of my personal and private information with him.

(6) I also believe that my ex-wife, Pakiza Asim, shared information with Judge Gary
Harger during the Mediation which were adversarial to me.

(7) I further understand that Mr. Felix Rippy routinely brings his family law cases to
Judge Gary Harger for mediation which financially benefits Judge Harger
(8) I believe this financial benefit from Mr. Felix Rippy may impact the impartiality
of Judge Gary Harger

(9) Affiant makes all of the above-and-foregoing statements under penalty of perjury
based on his personal information obtained after reasonable investigation, and his
resulting reasonable inferences, conclusions, and beliefs.

Signed and executed in Round Rock, Texas on this 9th day of September, 2015.

�h�
SHAKEEL MUSTAFA
1832 Bayland Street,
Round Rock, TX 78664

Affidavit ofShakeel Mustafa - Case # l 5-0708-CC4 1
APPENDIX PAGE 027
 JURAT

Shak:eel Mustafa personally appeared before me on this 9th day of September,
2015, and, having duly taken his oath under penalty of perjury, did acknowledge and
verify the above-and-foregoing Affidavit in Cause No. 15-0708-CC4

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APPENDIX PAGE 028
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09/01/2015 15:35 5127151532 A+ FCU ROUND ROCK PAGE 01/02

AFFIDAVIT OF SHAKEEL MUSTAFA
CASE # 15-0708·CC4

(1) "My name is Shakeel Mustafa and I'm defendant in this Case. I am over the age
of 18, have never been convicted of any crone nor diagnosed with any mental
disease or psychological disorder , and am otherwise competent to make this
affidavit.
(2) Mr. Rippy has asserted claims beyon d a breach of contract claim, and I need
additional time to engage in discovery to investigate 1ruth as a defense and what
Mr. Rippy's damages include. I al�o have asserted violations of the Deceptive
Trade Practices Act, and I need to engage in discovery related to those claims.
(3) There is currently pending prosecution of Mr. Rippy related to my grievances
against Mr. Rippy, which was initially filed on April 25, 2015, with the State Bar
of Texas. Mr. Rippy was given the opportunity to reply to my grievances . After
review, and initial investigation the State Bar of Texas upgraded my grievance to
a full complaint. My Complaint was further investigated by the State Bar of Texas
through the assigned Administrative Attorney.
(4) On about August 21, 2015, I was informed by the State Bar of Texas that Ms.
Rebecca (Beth) Stevens (Assistant Disciplinary Couns el) will be handling the
prosecution of Mr. Rippy for the violation of multiple Rules of Professional
Conduct. I've been asked to testify and also provide a voluminous amount of
documentation for the case. The Office of Chief Disciplinary Counsel - State Bar
of Texas has directed me to fully. cooperate and provide them with all of the
relevant information.
(5) l\1t. Rippy filed this lawsuit one day after his response to my .initial bar complaint,
and I believe this lawsuit is retaliation for the complaint. I also believe that l\.fr.
Rippy' s discovery requests that include information irrelevant to both the breach
of contract claim and defamation claim will require substantial additional tirne
than initially anticipated. Further, I am requesting that this arbitration be
continued until after the State Bar has conducted the hearing between the se same
parties.
(6) I am not see.king this continuance for delay only, but so that justice can be done.
Affian.t makes all of the above-and-foregoing statements under penalty of perjury
based on his personal information obtained after reasonable in-vestigation, and his
resulting reasonable inferences, conclusions, and beliefs.�'
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Signed and executed in Round Rock, Texas on this � day of =� 2015.

�� SHAKEEL MUSTAFA
1832 Bayland Street,
Round Rock, TX 78664

JOHN P. CORONA
Notary Pubfic
STATE OF TEXAS
Affidavit ofShakeel Mustafa- Case# 15-0708-CC4 My Coll1!l. Exp: Dec. 19. 2015

APPENDIX PAGE 029
09/01/2015 15:35 5127161632 A+ FCU ROUND ROCK PAGE 02/02

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APPENDIX PAGE 030
 AFFIDAVIT OF SHAKEEL MUSTAFA
CASE # 03-15-00422-CV

BEFORE ME the undersigned notary public appeared Shakeel Mustafa, who after being
sworn in made the following statement under oath and penalty of perjury:

(1) My name is Shakeel Mustafa and I am the defendant in this Case. I am over the
age of 18, have never been convicted of any crime nor diagnosed with any mental
disease or psychological disorder, and am otherwise competent to make this
affidavit. I make the statements made herein based on my personal knowledge.
(2) I am currently involved in an arbitration before Judge Gary Harger, who was
appointed by Judge McMaster of Williamson County Court at Law Number Four.
(3) On May 15, 2015, my former attorney Felix Rippy filed a lawsuit against me for
the attorney fee. At the time of filing of the lawsuit, he provided a figure of
$17 ,500. The arbitration agreement requires that the American Arbitration
Association ("AAA") Rules shall be followed, but Judge Harger has indicated that
we are not allowed to follow the AAA Rules.
(4) On September 04, 2015, my Attorney Chris Osborn sent me attachments via email
and one of the attachment was a "Billing Statement" that he received from Felix
Rippy
(5) This was the very fust time that I ever saw this "Billing Statement" and the items
included and the charges mentioned in this "Billing Statement"
(6) The date printed at the top of the "Billing Statement" was "August 26, 2015"
(7) The very first time I ever came to know the following on September 04, 2015:
(a) The "sub-total- all fee owed so far" was $41,210. This is the "Billing
Statement" coming from my former attorney, Felix Rippy, who filed the
ONLY document "Substitution of the Attorney Form" in my Case with the
Court prior to my final hearing held on Oct. 14, 2014
(b) I also came to know that the "legal additional fee for grievance defense-
compounding" was $8,000
(8) On September 10, 2015, I sent the attached Affidavit to Judge Gary Harger
through my attorney Chris Osborn
(9) Among other facts, I also stated the following in my attached Affidavit, "I further
understand that Mr. Felix Rippy routinely brings his family law cases to
Judge Gary Harger for mediation which financially benefits Judge Harger" and "I
believe this financial benefit from Mr. Felix Rippy may impact the impartiality of
Judge Gary Harger"
(10) I received a document titled as "ARBITRATION RULES through my Attorney
Chris Osborn that he received from Judge Gary Harger.
(11) I believe these "ARBITRATION RULES are different than AAA Arbitration
Rules. My Agreement with Rippy & Taylor P.C. stated the following:
" ...and to all disagreement being arbitrated pursuant AAA arbitration rules"
(12) Section 1 (e) of the "ARBITRATION RULES states the following:
"The arbitrator shall disclose to the parties any circumstance likely to affect
impartiality, including any bias or financial or personal interest in the result of the

Affidavit ofShakeel Mustafa - Case# 03-15-00422-CV 1
APPENDIX PAGE 031
 arbitration and any past or present business or professional relationship with the
parties or their counsel
(13) I believe Judge Gary Harger has the obligation to disclose the information
specifically mentioned in the above paragraph. So far, neither I nor my attorney
has received any disclosure information related to the above paragraph from
Judge Gary Harger
(14) Affiant makes all of the above-and-foregoing statements under penalty of perjury
based on his personal information obtained after reasonable investigation, and his
resulting reasonable inferences, conclusions, and beliefs..

Signed and executed in Williamson County, Texas on this 7th day of October,
2015.

SHAKEEL MUSTAFA
1832 Bayland Street,
Round Rock, TX 78664

JURAT
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Sha.keel Mustafa personally appeared before me on this 5t'.fl day of October, 2015,
and, having duly taken his oath under penalty of perjury, did acknowledge and verify the
above-and-foregoing Affidavit in Case# 03-15-00422-CV

a.4J.v 'V-�'2---
Notary Public, Williamson County
State of Texas id�� CHRISTOPHER D. OSBORN
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Affidavit ofShakeel Mustafa - Case# 03-15-00422-CV 2
APPENDIX PAGE 032
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APPENDIX PAGE 033
Consumer Due Process PROTOCOL

Statement of Principles of the National Consumer Disputes Advisory Committee

Statement of Principles
Introduction: Genesis of the Advisory Committee
Scope of the Consumer Due Process
Glossary of Terms
Major Standards and Sources
Principle 1. Fundamentally-Fair Process
Principle 2. Access to Information Regarding ADR Program
Principle 3. Independent and Impartial Neutral; Independent Administration
Principle 4. Quality and Competence of Neutrals
Principle 5. Small Claims
Principle 6. Reasonable Cost
Principle 7. Reasonably Convenient Location
Principle 8. Reasonable Time Limits
Principle 9. Right to Representation
Principle 10. Mediation
Principle 11. Agreements to Arbitrate
Principle 12. Arbitration Hearings
Principle 13. Access to Information
Principle 14. Arbitral Remedies
Principle 15. Arbitration Awards
LIST OF SIGNATORIES

STATEMENT OF PRINCIPLES

PRINCIPLE 1. FUNDAMENTALLY-FAIR PROCESS

All parties are entitled to a fundamentally-fair ADR process. As embodiments of fundamental
fairness, these Principles should be observed in structuring ADR Programs.

PRINCIPLE 2. ACCESS TO INFORMATION REGARDING ADR PROGRAM

Providers of goods or services should undertake reasonable measures to provide Consumers
with full and accurate information regarding Consumer ADR Programs. At the time the
Consumer contracts for goods or services, such measures should include (1) clear and adequate
notice regarding the ADR provisions, including a statement indicating whether participation in
the ADR Program is mandatory or optional, and (2) reasonable means by which Consumers may
obtain additional information regarding the ADR Program. After a dispute arises, Consumers
should have access to all information necessary for effective participation in ADR.

APPENDIX PAGE 034
PRINCIPLE 3. INDEPENDENT AND IMPARTIAL NEUTRAL; INDEPENDENT
ADMINISTRATION

1. Independent and Impartial Neutral. All parties are entitled to a Neutral who is independent and impartial.

2. Independent Administration. If participation in mediation or arbitration is mandatory, the procedure should be administered
by an Independent ADR Institution. Administrative services should include the maintenance of a panel of prospective
Neutrals, facilitation of Neutral selection, collection and distribution of Neutral's fees and expenses, oversight and
implementation of ADR rules and procedures, and monitoring of Neutral qualifications, performance, and adherence to
pertinent rules, procedures and ethical standards.

3. Standards for Neutrals. The Independent ADR Institution should make reasonable efforts to ensure that Neutrals
understand and conform to pertinent ADR rules, procedures and ethical standards.

4. Selection of Neutrals. The Consumer and Provider should have an equal voice in the selection of Neutrals in connection
with a specific dispute.

5. Disclosure and Disqualification. Beginning at the time of appointment, Neutrals should be required to disclose to the
Independent ADR Institution any circumstance likely to affect impartiality, including any bias or financial or personal
interest which might affect the result of the ADR proceeding, or any past or present relationship or experience with the
parties or their representatives, including past ADR experiences. The Independent ADR Institution should communicate
any such information to the parties and other Neutrals, if any. Upon objection of a party to continued service of the
Neutral, the Independent ADR Institution should determine whether the Neutral should be disqualified and should inform
the parties of its decision. The disclosure obligation of the Neutral and procedure for disqualification should continue
throughout the period of appointment.

PRINCIPLE 4. QUALITY AND COMPETENCE OF NEUTRALS

All parties are entitled to competent, qualified Neutrals. Independent ADR Institutions are
responsible for establishing and maintaining standards for Neutrals in ADR Programs they
administer.

PRINCIPLE 5. SMALL CLAIMS

Consumer ADR Agreements should make it clear that all parties retain the right to seek relief in
a small claims court for disputes or claims within the scope of its jurisdiction.

PRINCIPLE 6. REASONABLE COST
1. Reasonable Cost. Providers of goods and services should develop ADR programs which entail reasonable cost to
Consumers based on the circumstances of the dispute, including, among other things, the size and nature of the claim,
the nature of goods or services provided, and the ability of the Consumer to pay. In some cases, this may require the
Provider to subsidize the process.

2. Handling of Payment. In the interest of ensuring fair and independent Neutrals, the making of fee arrangements and the
payment of fees should be administered on a rational, equitable and consistent basis by the Independent ADR Institution.

PRINCIPLE 7. REASONABLY CONVENIENT LOCATION

In the case of face-to-face proceedings, the proceedings should be conducted at a location which
is reasonably convenient to both parties with due consideration of their ability to travel and
other pertinent circumstances. If the parties are unable to agree on a location, the determination
should be made by the Independent ADR Institution or by the Neutral.

APPENDIX PAGE 035
PRINCIPLE 8. REASONABLE TIME LIMITS

ADR proceedings should occur within a reasonable time, without undue delay. The rules
governing ADR should establish specific reasonable time periods for each step in the ADR
process and, where necessary, set forth default procedures in the event a party fails to
participate in the process after reasonable notice.

PRINCIPLE 9. RIGHT TO REPRESENTATION

All parties participating in processes in ADR Programs have the right, at their own expense, to
be represented by a spokesperson of their own choosing. The ADR rules and procedures should
so specify.

PRINCIPLE 10. MEDIATION

The use of mediation is strongly encouraged as an informal means of assisting parties in
resolving their own disputes.

PRINCIPLE 11. AGREEMENTS TO ARBITRATE

Consumers should be given:

a. clear and adequate notice of the arbitration provision and its consequences, including a statement of its
mandatory or optional character;
b. reasonable access to information regarding the arbitration process, including basic distinctions between
arbitration and court proceedings, related costs, and advice as to where they may obtain more complete
information regarding arbitration procedures and arbitrator rosters;
c. notice of the option to make use of applicable small claims court procedures as an alternative to binding
arbitration in appropriate cases; and,
d. a clear statement of the means by which the Consumer may exercise the option (if any) to submit disputes to
arbitration or to court process.

PRINCIPLE 12. ARBITRATION HEARINGS

1. Fundamentally-Fair Hearing. All parties are entitled to a fundamentally-fair arbitration hearing. This requires adequate
notice of hearings and an opportunity to be heard and to present relevant evidence to impartial decision-makers. In some
cases, such as some small claims, the requirement of fundamental fairness may be met by hearings conducted by
electronic or telephonic means or by a submission of documents. However, the Neutral should have discretionary
authority to require a face-to-face hearing upon the request of a party.

2. Confidentiality in Arbitration. Consistent with general expectations of privacy in arbitration hearings, the arbitrator should
make reasonable efforts to maintain the privacy of the hearing to the extent permitted by applicable law. The arbitrator
should also carefully consider claims of privilege and confidentiality when addressing evidentiary issues.

PRINCIPLE 13. ACCESS TO INFORMATION

No party should ever be denied the right to a fundamentally-fair process due to an inability to
obtain information material to a dispute. Consumer ADR agreements which provide for binding
arbitration should establish procedures for arbitrator-supervised exchange of information prior
to arbitration, bearing in mind the expedited nature of arbitration.

APPENDIX PAGE 036
PRINCIPLE 14. ARBITRAL REMEDIES

The arbitrator should be empowered to grant whatever relief would be available in court under
law or in equity.

PRINCIPLE 15. ARBITRATION AWARDS

1. Final and Binding Award; Limited Scope of Review. If provided in the agreement to arbitrate, the arbitrator's award should
be final and binding, but subject to review in accordance with applicable statutes governing arbitration awards.

2. Standards to Guide Arbitrator Decision-Making. In making the award, the arbitrator should apply any identified, pertinent
contract terms, statutes and legal precedents.

3. Explanation of Award. At the timely request of either party, the arbitrator should provide a brief written explanation of the
basis for the award. To facilitate such requests, the arbitrator should discuss the matter with the parties prior to the
arbitration hearing.

INTRODUCTION: GENESIS OF THE ADVISORY COMMITTEE

Recent years have seen a pronounced trend toward incorporation of out-of-court conflict
resolution processes in standardized agreements presented to consumers of goods and services.
Some of these processes (such as mediation and non-binding evaluation) involve third party
intervention in settlement negotiations; others involve adjudication (binding arbitration). Such
processes have the potential to be of significant value in making dispute resolution quicker, less
costly, and more satisfying. 1

Yet because consumer contracts often do not involve arm's length negotiation of terms, and
frequently consist of boilerplate language presented on a take-it-or-leave it basis by suppliers of
goods or services, there are legitimate concerns regarding the fairness of consumer conflict
resolution mechanisms required by suppliers. This is particularly true in the realm of binding
arbitration, where the courts are displaced by private adjudication systems. In such cases,
consumers are often unaware of their procedural rights and obligations until the realities of out-
of-court arbitration are revealed to them after disputes have arisen. 2 While the results may be
entirely satisfactory, they may also fall short of consumers' reasonable expectations of fairness 3
and have a significant impact on consumers' substantive rights and remedies. 4

The use of mediation and other forms of alternative dispute resolution (ADR) by various state
and federal courts has also raised concerns regarding quality, effectiveness and fairness. The
response has been a number of national, state and local initiatives to establish standards for the
guidance and information of courts. Until now, however, there has been no comparable national
effort in the private consumer sphere.

In the spring of 1997, the American Arbitration Association (AAA) announced the establishment
of a National Consumer Disputes Advisory Committee. The stated mission of the Advisory
Committee is:

To bring together a broad, diverse, representative national advisory committee to
advise the American Arbitration Association in the development of standards and
procedures for the equitable resolution of consumer disputes.

APPENDIX PAGE 037
In light of its stated mission, the Advisory Committee's recommendations are likely to have a
direct impact on the development of rules, procedures and policies for the resolution of consumer
disputes under the auspices of the AAA.

The Advisory Committee's recommendations may also have a significant impact in the broader
realm of consumer ADR. A Statement of Principles which is perceived as a broadly-based
consensus regarding minimum requirements for mediation and arbitration programs for
consumers of goods and services may influence the evolution of consumer rules generally and
the development of state and federal laws governing consumer arbitration agreements. The
standards may affect the drafting of statutes and influence judicial opinions addressing the
enforceability of arbitration agreements pursuant to existing state or federal law. 5

_______________________________

1. See, e.g., CPR Institute for Dispute Resolution, ADR Cost Savings & Benefit Studies
(Catherine Cronin-Harris, ed. 1994) (summarizing some of the research findings on the relative
advantages ADR may offer). See also, e.g., Madden v. Kaiser Foundation Hosp., 17 Cal. 3d 699,
711, 552 P.2d 1178, 1186 (1976) ("The speed and economy of arbitration, in contrast to the
expense and delay of a jury trial, could prove helpful to all parties....")

2. The arbitration agreement may be included in the "fine print" in a brochure of terms and
conditions inside a box of goods. See, e.g. , Hill v. Gateway 2000, Inc. , 105 F.3d 1147 (7th Cir.
1997) (Customers agreed to computer company's contract terms, including arbitration agreement,
by failing to return merchandise within 30 days). See Age of Compelled Arbitration, 1997, Wis.
L. Rev33, 40-53 (Offering a "cautionary tale" regarding employment arbitration agreement.)

3. See Mark E. Budnitz, Arbitration of Disputes Between Consumers and Financial Institutions:
A Serious Threat to Consumer Protection, 10 Ohio St. J. On Disp. Res. 267 (1995) (discussing
procedural limitations of arbitration in treating consumer disputes with banks and lenders);
Schwartz, supra note 2 (discussing issues relating to adhesion contracts involving employees and
consumers); Jean R. Sternlight, Rethinking the Constitutionality of the Supreme Court's
Preference for Binding Arbitration: A Fresh Assessment of Jury Trial, Separation of Powers,
and Due Process Concerns , 72 Tulane L. Rev. 1 (1997) (discussing due process concerns with
binding arbitration under employment and consumer contracts). See, e.g., Engalla V.
Permanente Med. Grp. , 938 P.2d 903 (Cal. 1997) (medical group may not compel arbitration
where it administers own arbitration program, fraudulently misrepresents speed of arbitrator
selection process, and the forces delays); Broemmer V. Abortion Serv. of Phoenix , 840 P.2d
1013 (Az. 1992) (refusing to enforce agreement in "adhesion contract" where drafter inserted
potentially self-serving term requiring sole arbitrator of medical malpractice claims to be
licensed medical doctor).

4. See Schwartz, supra note 2, at 60-61 (discussing perceptions regarding relative damages
awards in court and in arbitration), 64-66 (summarizing some statistics on arbitration awards).
See also William W. Park, When and Why Arbitration Matters, in The Commercial Way to
Justice 73, 75 (G.M. Beresfort Hartwell ed., 1997) (" Who interprets an...agreement will
frequently be more significant than what the applicable law says about the agreement....").

APPENDIX PAGE 038
5. See, e.g., Cole v. Burns International Security Services, 105 F.3d 1465 (D.C.Cir. 1997) (Citing
Due Process Protocol for Employment Disputes). The consensus-based approach of the broadly
constituted group reflects the "public interest" model espoused by Professor Speidel. See Richard
E. Speidel, Contract Theory and Securities Arbitration: Whither Consent? , 62 Brook. L. Rev.
1335 (1996).

SCOPE OF THE CONSUMER DUE PROCESS PROTOCOL

The Consumer Due Process Protocol (Protocol) was developed to address the wide range of
consumer transactions those involving the purchase or lease of goods or services for personal,
family or household use. These include, among other things, transactions involving: banking,
credit cards, home loans and other financial services; health care services; brokerage services;
home construction and improvements; insurance; communications; and the purchase and lease of
motor vehicles and other personal property.

Across this broad spectrum of consumer transactions, the Protocol applies to all possible
conflicts from small claims to complex disputes. In light of these realities, the Advisory
Committee sought to develop principles which would establish clear benchmarks for conflict
resolution processes involving consumers, while recognizing that a process appropriate in one
context may be inappropriate in another. Therefore, the Protocol embodies flexible standards
which permit consideration of specific circumstances.

In some cases, the AAA is developing or has developed special dispute resolution policies and
procedures governing particular transactional systems. A recent example is its current initiative
with respect to ADR in contracts for health care services. Where the general principles set forth
in this Protocol conflict with more specific standards developed under the auspices of the AAA
or some other independent organization with relatively broad participation by affected parties,
the latter should govern.

There are other transactions that share many of the features of consumer transactions, such as
those involving small businesses and individual employment contracts. While the Protocol was
not developed for specific application to such other transactions, there may be circumstances in
which the Protocol might be applied by analogy to ADR in those venues. The Principles
articulated here are likely to have an impact on minimum standards of due process for other
ADR systems involving persons of disparate bargaining power.

Each section of this document is devoted to treatment of a discrete topic concerning consumer
ADR. It begins with a basic Principle that embodies the fundamental reasonable expectation of
consumers as defined by the Advisory Committee. Each Principle is accompanied by Reporter's
Comments that explain the rationale of the Advisory Committee in the context of other emerging
standards. In addition, some Principles are supplemented by Practical Suggestions for putting the
Principles into practice.

The specific mention of mediation and binding arbitration reflects the current emphasis on these
processes in consumer conflict resolution. The Advisory Committee recognizes that a number of

APPENDIX PAGE 039
other approaches are being employed to resolve commercial and consumer disputes, and
encourages their use in accordance with the spirit of the Protocol.

The signatories to this Protocol were designated by their respective organizations, but the
Protocol reflects their personal views and should not be construed as representing the policy of
the designating organizations. Although the following Principles reflect a remarkable degree of
consensus, achieved during the course of several meetings of the entire Advisory Committee,
subcommittee deliberations, exchanges of numerous memoranda and of five drafts of the
Protocol, Advisory Committee members at times accepted compromise in the interest of arriving
at a common ground. As was the case with the task force which developed the Employment Due
Process Protocol, opinions regarding the appropriateness of binding pre-dispute arbitration
agreements in consumer contracts were never fully reconciled. Like that group, however, the
Advisory Committee was able to address standards for ADR processes within the given context.

GLOSSARY OF TERMS

Consumer
Consumer refers to an individual who purchases or leases goods or services, or contracts to
purchase or lease goods or services, intended primarily for personal, family or household use.

Provider
Provider refers to a seller or lessor of goods or services to Consumers for personal, family or
household use.

ADR Process
An ADR (Alternative Dispute Resolution) Process is a method for out-of-court resolution of
conflict through the intervention of third parties. Mediation and arbitration are two widely used
ADR processes.

Mediation
Mediation refers to a range of processes in which an impartial person helps parties to a dispute to
communicate and to make voluntary, informed choices in an effort to resolve their dispute. A
mediator, unlike an arbitrator, does not issue a decision regarding the merits of the dispute, but
instead facilitates a dialogue between the parties with the view of helping them arrive at a
mutually agreeable settlement.

Arbitration
Arbitration is a process in which parties submit disputes to a neutral third person or persons for a
decision on the merits. Each party has an opportunity to present evidence to the arbitrator(s) in
writing or through witnesses. Arbitration proceedings tend to be more informal than court
proceedings and adherence to judicial rules of evidence is not usually required. Arbitrators
decide cases by issuing written decisions or "awards." An award may or may not be binding on
the parties, depending on the agreement to arbitrate. A "binding" arbitration award may be
enforced as a court judgment under the terms of federal or state statutes, but judicial review of
arbitration awards is limited.

APPENDIX PAGE 040
Neutral
A Neutral is a mediator, arbitrator, or other independent, impartial third party selected to
intervene in a Consumer-Provider dispute.

ADR Agreement
An ADR Agreement is an agreement between a Provider and a Consumer to submit disputes to
mediation, arbitration, or other ADR Processes. As used in this Statement, the term includes
provisions (sometimes incorporated by reference) in standard contracts furnished by Providers
which signify the assent of the Consumer and Provider to such processes (although the assent
may only be the "generalized assent" typically given by Consumers to standard terms).

ADR Program
An ADR Program is any program or service established by or utilized by a Provider of goods
and services for out-of-court resolution of Consumer disputes. The term includes ADR rules and
procedures and implementation of administrative structures.

Independent ADR Institution
An Independent ADR Institution is an organization that provides independent and impartial
administration of ADR Programs for Consumers and Providers, including, but not limited to,
development and administration of ADR policies and procedures and the training and
appointment of Neutrals.

MAJOR STANDARDS AND SOURCES

The Reporter's Comments accompanying these Principles cite a number of existing standards
and sources relied upon by the Advisory Committee. The more frequently cited standards and
sources are set forth below by their full title as well as the abbreviated title that appears in the
Comments.

American Arbitration Association, Commercial Arbitration Rules, July 1, 1996 (AAA
Commercial Rules)

American Arbitration Association, Construction Industry Dispute Resolution Procedures, Oct.
15, 1997 (AAA Construction Procedures)

American Arbitration Association, Wireless Industry Arbitration Rules, July 15, 1997 (AAA
Wireless Rules)

American Arbitration Association & American Bar Association, Code of Ethics for Arbitrators
in Commercial Disputes (1977) (Code of Ethics for Arbitrators)

Center for Dispute Settlement, Institute of Judicial Admin., Standards for Court-Connected
Mediation Programs (Standards for Court-Connected Programs)

Council of Better Business Bureaus, Inc., Arbitration (Binding) (BBB Arbitration Rules)

APPENDIX PAGE 041
CPR-Georgetown Commission on Ethics and Standards in ADR Working Group on Provider
Organizations, Principles for ADR Provider Organizations (Draft of April 4, 1998) (Principles
for ADR Provider Organizations)

Federal Arbitration Act, 9 U.S.C. '' 1-16 (as amended and in effect July 1, 1992) (Federal
Arbitration Act)

Blue-Ribbon Advisory Panel on Kaiser Permanente Arbitration, The Kaiser Permanente
Arbitration System: A Review and Recommendations for Improvement 1 (1998) (Kaiser
Permanente Review and Recommendations)

Joint Committee (American Arbitration Association, American Bar Association and Society of
Professionals in Dispute Resolution) on Standards of Conduct, Standards of Conduct for
Mediators (1994) (Joint Standards for Mediators)

Society of Professionals in Dispute Resolution (SPIDR) Commission on Qualifications,
Ensuring Competence and Quality in Dispute Resolution Practice (Draft Report 1994)(SPIDR
Report on Qualifications)

Society of Professionals in Dispute Resolution (SPIDR) Law and Public Policy Committee,
Mandated Participation and Settlement Coercion: Dispute Resolution as It Relates to the Courts
(1991) (SPIDR Report on Court-Mandated ADR)

Society of Professionals in Dispute Resolution (SPIDR) Commission on Qualifications,
Principles Concerning Qualifications (1989) (SPIDR Principles)

Task Force on Alternative Dispute Resolution in Employment, A Due Process Protocol for
Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship
(1995) (Employment Due Process Protocol)

Uniform Arbitration Act , 7 U.A.A. 1 (1997) (Uniform Arbitration Act)

PRINCIPLE 1. FUNDAMENTALLY-FAIR PROCESS

All parties are entitled to a fundamentally-fair ADR process. As embodiments of fundamental
fairness, these Principles should be observed in structuring ADR Programs.

Reporter's Comments

Users of ADR are entitled to a process that is fundamentally fair. Emerging standards governing
consensual and court-connected ADR programs reflect pervasive concerns with fair process. See,
e.g., III Ian R. Macneil, Richard E. Speidel, & Thomas J. Stipanowich, Federal Arbitration Law:
Agreements, Awards & Remedies Under the Federal Arbitration Act '32.2.1 (1994) [hereinafter
Federal Arbitration Law ] (noting "universal agreement" that arbitrators must provide parties
with fundamentally-fair hearing). See also Kaiser Permanente Review and Recommendations 1

APPENDIX PAGE 042
("As the sponsor of a mandatory system of arbitration, Kaiser Permanente must assure a fair
system to their members, physicians and staff.")

Where conflict resolution processes are defined by a written contract, that writing is often
viewed by courts as the primary indicator of the "procedural fairness" for which the parties
bargained. As the Advisory Committee recognized, however, ADR agreements in most
Consumer contracts are "take-it-or-leave-it" contracts which are not products of negotiation by
Consumers. See David S. Schwartz, Enforcing Small Print to Protect Big Business: Employee
and Consumer Rights Claims in an Age of Compelled Arbitration , 1997 Wis. L. Rev. 33, 55-60
(discussing adhesion dimension of pre-dispute arbitration agreements in standardized contracts);
Kaiser Permanente Review and Recommendations 28 (noting that many members of a major
HMO have no realistic alternative for medical care). It is possible, therefore, that contracts to
which they have generally assented contain ADR Agreements which fall so far short of
Consumers' reasonable expectations that they would not have entered into the agreement had
they been aware of the provisions. Thus, although these Principles attempt to enhance the
likelihood that Consumers will have specific knowledge of ADR provisions at the time of
contracting, the Advisory Committee also believed it necessary to describe a baseline of
reasonable expectations for ADR in Consumer transactions. These Principles identify specific
minimum due process standards which embody the concept of fundamental fairness, including:
informed consent; impartial and unbiased Neutrals; independent administration of ADR;
qualified Neutrals; access to small claims court; reasonable costs (including, where appropriate,
subsidized Provider-mandated procedures); convenient hearing locations; reasonable time limits;
adequate representation; fair hearing procedures; access to sufficient information;
confidentiality; availability of court remedies; application of legal principle and precedent by
arbitrators; and the option to receive a statement of reasons for arbitration awards.

Where provisions in a standardized pre-dispute arbitration agreement fail to meet Consumers'
reasonable expectations, there is authority for the principle that courts may properly refuse to
enforce the arbitration agreement in whole or in part. See Restatement (Second) of Contracts '
211 (1981); Broemmer v. Abortion Services of Phoenix, Ltd ., 173 Ariz. 148, 840 P.2d 1013
(1992)(standardized arbitration agreement was unenforceable where its terms fell beyond
patient's reasonable expectations); Graham v. Scissor-Tail, Inc., 623 P.2d 165 (Cal.
1981)(arbitration clauses in adhesion contracts are unenforceable if they are contrary to the
reasonable expectations of parties or unconscionable). Cf. Cole v. Burns International Security
Services , 105 F.3d 1465 (D.C. Cir. 1997)(setting forth minimum due process standards for
judicial enforcement of arbitration agreement in the context of a statutory employment
discrimination claim where the employee was required to enter into the agreement as a condition
of employment). Procedural fairness in Consumer arbitration agreements may also be policed
under other principles. See, e.g., Stirlen v. Supercuts , 51 Cal. App. 4 th Supp. 1519, 60 Cal.
Rptr.2d 138 (1997)(finding remedial limits in "adhesive" employment agreement
unconscionable); Engalla v. Permanente Med. Grp., 938 P.2d 903 (Cal. 1997)(arbitration
agreement was unenforceable if there was substantial delay in arbitrator selection contrary to
consumer's reasonable, fraudulently induced, contractual expectations).

Because the Principles in this Protocol represent a fundamental standard of fairness, waiver of
any of these Principles in a pre-dispute agreement will naturally be subject to scrutiny as to

APPENDIX PAGE 043
conformity with the reasonable expectations of the parties and other judicial standards governing
the enforceability of such contracts. Assuming they have sufficient specific knowledge and
understanding of the rights they are waiving, however, Consumers may waive compliance with
these Principles after a dispute has arisen.

PRINCIPLE 2. ACCESS TO INFORMATION REGARDING ADR PROGRAM

Providers of goods or services should undertake reasonable measures to provide Consumers
with full and accurate information regarding Consumer ADR Programs. At the time the
Consumer contracts for goods or services, such measures should include (1) clear and adequate
notice regarding the ADR provisions, including a statement indicating whether participation in
the ADR Program is mandatory or optional, and (2) reasonable means by which Consumers may
obtain additional information regarding the ADR Program. After a dispute arises, Consumers
should have access to all information necessary for effective participation in ADR.

Reporter's Comments

See SPIDR Report on Qualifications at 9 ("Consumers are entitled to know what tasks the
neutral...may perform and what tasks they are expected to perform in the course of a particular
dispute resolution service.") Cf. SPIDR Principles at 6-7 ("It is the responsibility of...private
programs offering dispute resolution services to define clearly the services they provide...[and
provide information about the program and Neutrals to the parties.]"); Kaiser Permanente
Review and Recommendations 28 (provider of medical services has duty to provide users with
"enough information and facts to allow them to understand the actual operation of the arbitration
system"); Principles for ADR Provider Organizations 2 . At a minimum, Consumers should be
provided with (or have prompt access to) written information to explain the process. This should
include general information describing each ADR process used and its distinctive features,
including:

*the nature and purpose of the process, including the scope of ADR provisions;

*an indication of whether or not the Consumer has a choice regarding use of the
process;

*the role of parties and attorneys, if any;

*procedures for selection of Neutrals;

*rules of conduct for Neutrals, and complaint procedures;

*fees and expenses;

*information regarding ADR Program operation, including locations, times of
operation, and case processing procedures;

APPENDIX PAGE 044
 *the availability of special services for non-English speakers, and persons with
disabilities; and,

*the availability of alternatives to ADR, including small claims court.

See, e.g., BBB Arbitration Rules (defining arbitration and the roles of various participants;
providing "checklist" for Consumers preparing for arbitration; setting forth procedural rules). Cf .
Standards for Court-Connected Programs ' 3.2.b. (listing information which courts sponsoring
mediation should provide to program users). See also SPIDR Principles at 6-7 (listing
information which private programs should offer to parties regarding the program and
participating Neutrals). Consumers should also be able to obtain a copy of pertinent rules and
procedures. In the case of binding arbitration provisions, there should also be a straightforward
explanation of the differences between arbitration and court process. See Principle 11
"Agreements to Arbitrate." Although the Provider of goods or services is charged with the
responsibility for making certain that Consumers have access to appropriate information
regarding ADR, the Independent ADR Institution has an important role in this area. The
Independent ADR Institution must be prepared to communicate to the parties all information
necessary for effective use of the ADR process(es), particularly after a dispute arises.

All materials should be prepared in plain straightforward language. As a rule, such information
should be in the same language as the principal contract for goods or services. See, e.g., N.Y.
Pers. Prop. Law ' 427 (McKinney 1997). See also Standards for Court-Connected Programs '
3.2.b., Commentary, at 3-4 (If a significant percentage of the population served is monolingual in
a particular language, the material should be available in that language.)

Practical Suggestions

An example of a creative approach to providing information about Consumer ADR is provided
by a major university medical center's Health Care Dispute Resolution Program. The medical
center provides prospective patients with a written explanation of mediation and arbitration
procedures for resolution of health care-related disputes one month before they visit the center to
complete the remaining paperwork. As the written materials explain, the program is voluntary;
patients are not required to opt for the procedures as a condition to receiving treatment. Patients
may contact the center for additional information regarding the processes.

For purposes of allowing Consumers access to information about dispute resolution programs,
the AAA makes available an 800 customer service telephone number. In addition, the AAA, like
some other Independent ADR Institutions, also has a World Wide Web site; it posts its rules and
an explanation of its mediation and arbitration procedures on the Web site.

A panel proposing reforms to a major HMO-sponsored arbitration system recommended the
creation of an "ombudsperson program to assist members in navigating the system of dispute
resolution." Kaiser Permanente Review and Recommendations 2.43.

PRINCIPLE 3. INDEPENDENT AND IMPARTIAL NEUTRAL; INDEPENDENT
ADMINISTRATION

APPENDIX PAGE 045
1. Independent and Impartial Neutral. All parties are entitled to a Neutral who is independent
and impartial.

2. Independent Administration. If participation in mediation or arbitration is mandatory, the
procedure should be administered by an Independent ADR Institution. Administrative services
should include the maintenance of a panel of prospective Neutrals, facilitation of Neutral
selection, collection and distribution of Neutral's fees and expenses, oversight and
implementation of ADR rules and procedures, and monitoring of Neutral qualifications,
performance, and adherence to pertinent rules, procedures and ethical standards.

3. Standards for Neutrals. The Independent ADR Institution should make reasonable efforts to
ensure that Neutrals understand and conform to pertinent ADR rules, procedures and ethical
standards.

4. Selection of Neutrals. The Consumer and Provider should have an equal voice in the selection
of Neutrals in connection with a specific dispute.

5. Disclosure and Disqualification. Beginning at the time of appointment, Neutrals should be
required to disclose to the Independent ADR Institution any circumstance likely to affect
impartiality, including any bias or financial or personal interest which might affect the result of
the ADR proceeding, or any past or present relationship or experience with the parties or their
representatives, including past ADR experiences. The Independent ADR Institution should
communicate any such information to the parties and other Neutrals, if any. Upon objection of a
party to continued service of the Neutral, the Independent ADR Institution should determine
whether the Neutral should be disqualified and should inform the parties of its decision. The
disclosure obligation of the Neutral and procedure for disqualification should continue
throughout the period of appointment.

Reporter's Comments

The concept of a fair, independent and impartial Neutral (or Neutral Panel) is enshrined in
leading standards governing arbitration and mediation. See Federal Arbitration Act ' 10(a)(2);
Uniform Arbitration Act ' 12(a)(2); AAA Commercial Rules 12, 13, 14, 19; BBB Arbitration
Rules 6, 8. The Joint Standards for Mediators describe mediator impartiality as "central" to the
mediation process and require mediators to conduct mediation in an impartial manner. Joint
Standards for Mediators, Art. II; Standards for Court-Connected Programs ' 8.1.a. Similar
policies animate standards requiring mediators to disclose conflicts of interest and to conduct the
mediation in a fair manner. Joint Standards for Mediators, Arts. III, VI; SPIDR Principles,
Principles 4.b., c., f.; 6.d., e., i.; Standards for Court-Connected Programs ' 8.1.b.

When Neutrals are appointed by a court or other organization, the appointing entity has an
important obligation to ensure their impartiality. This obligation entails a reasonable level of
oversight of Neutral performance. Comments to the Joint Standards for Mediators indicate that
"[w]hen mediators are appointed by a court or institution, the appointing agency shall make
reasonable efforts to ensure that mediators serve impartially." Joint Standards for Mediators,
Art. II. The Standards for Court-Connected Programs therefore require courts to "adopt a code

APPENDIX PAGE 046
of ethical standards for mediators [covering, among other things, impartiality and conflict of
interest], together with procedures to handle violations of the code." Standards for Court-
Connected Programs ' 8.1. For these and other reasons, the integrity and impartiality of the
administrative organization is also important; the growing use of arbitration and mediation in the
Consumer context has also raised issues regarding the administration of such processes. See, e.g.,
Engalla v. Permanente Med. Grp., 928 P.2d 903 (Cal. 1997). See generally Edward Dauer,
Engalla's Legacy to Arbitration , ADR Currents, Summer 1997, at 1; Principles for ADR
Provider Organizations (setting forth general principles of responsible practice for ADR
Provider Organizations, "entities which hold themselves out as offering, brokering or
administering dispute resolution services").

In addition to appointing Neutrals, administering institutions often perform many functions
which have a direct impact on the conduct of the dispute resolution process, including functions
sometimes performed by Neutrals. The consensus of the Advisory Committee was that the reality
and perception of impartiality and fairness was as essential in the case of Independent ADR
Institutions as it was in the case of individual Neutrals. Thus, the Advisory Committee concluded
that when an ADR Agreement mandates that parties resort to mediation or arbitration, the
administering Independent ADR Institution should be independent of either party and impartial .
See, e.g., Kaiser Permanente Review and Recommendations 31 (recommending, first and
foremost, the "creation of an independent, accountable administrator" for the Kaiser Permanente
arbitration system to counter "perception of bias" raised by "self-administration"). See also
Principles for ADR Provider Organizations (draft standards for organizations providing ADR
services). For this and other reasons, this Principle may be the single most significant
contribution of the Protocol. In the long term, moreover, the independence of administering
institutions may be the greatest challenge of Consumer ADR.

Broad disclosure of actual or potential conflicts of interest on the part of prospective Neutrals is
critical to the real and perceived fairness of ADR. Although consenting parties have considerable
freedom to choose Neutrals, including those with experience in a particular industry or
profession, the key to informed consent is broad disclosure by prospective Neutrals. Therefore, a
long line of authority under federal and state arbitration statutes establishes the principle that an
arbitrator's failure to disclose certain relationships or other facts which raise issues of partiality
may result in reversal of an arbitration award. See generally III Federal Arbitration Law Ch. 28
(discussing legal and ethical rules governing arbitrator impartiality). The principle of disclosure
is embodied in leading arbitration rules and ethical standards. See AAA Commercial Rule 19,
NASD Code ' 10312; BBB Arbitration Rules 6, 8.

The Joint Standards for Mediators mandate disclosure of "all actual and potential conflicts of
interest reasonably known to the mediator" including any "dealing or relationship that might
create an impression of possible bias." Joint Standards for Mediators, Art. III. Thereafter, the
mediator must await the parties' agreement to proceed with mediation. The same concerns
require mediators to identify and avoid conflicts during (and even after) mediation. Id. Cf.
Employment Due Process Protocol ' C.4. (mediators and arbitrators have a duty to disclose any
relationship which might reasonably constitute or be perceived as a conflict of interest); SPIDR
Principles , Principles 4.b., c., f.; 6.d.,e., i.; Standards for Court-Connected Programs ' 8.1.b.

APPENDIX PAGE 047
Although they did not establish it as a requirement under these Principles, most members of the
Advisory Committee endorsed the concept of a "list selection" process similar to that employed
by the AAA. See AAA Commercial Rule 14. Under this process, the Independent ADR Institution
provides each of the parties with lists of prospective Neutrals and invites the parties to identify
and rank acceptable individuals. Mutually acceptable Neutrals are thereby identified. The AAA
approach served as the model for other ADR standards. See, e.g., Employment Due Process
Protocol ' C.3.; Securities Industry Conference on Arbitration, List Selection Rule (Final Draft,
Sept. 18, 1997)(proposed by SICA as modification to Section 8 of the Uniform Code of
Arbitration ); Proposed Rule Change by National Association of Securities Dealers, File No. SR-
NASD097 (proposed by NASD as modification to Rules 10310 and 10311 of the NASD Code of
Arbitration Procedure). The concern was expressed that the list selection approach may create a
financial tie between Neutrals in the pool and Providers, who will be "repeat players" in the ADR
Program. Such considerations may mandate, among other things, a larger panel of Neutrals,
rotating assignments, or disclosure of past awards rendered by arbitrators.

In the interest of informed selection, the Advisory Committee recommends that parties be
provided with or have access to some information regarding recent ADR proceedings conducted
by prospective Neutrals. Cf. Employment Due Process Protocol ' B.3 (recommending that parties
be provided with names, addresses, and phone numbers of party representatives in a prospective
arbitrator's six most recent cases to aid in selection).

The dictates of fairness also extend to the conduct of ADR sessions. Thus, for example,
arbitrators generally are forbidden from communicating with parties outside of hearings. See III
Federal Arbitration Law ' 32.4. Similarly, standards for mediator conduct demand impartiality.
See, e.g., Standards for Court-Connected Programs ' 8.1.

Although the rules and procedures of an ADR Program and oversight by the Independent ADR
Institution are important in assuring the impartiality of Neutrals, it is also essential that Neutrals
be bound to perform in accordance with recognized ethical standards. In the case of arbitrators,
the leading ethical standard is the Code of Ethics for Arbitrators in Commercial Disputes
(current version). Similarly, ethical standards governing mediator eligibility also require
impartiality. See, e.g., Standards for Court-Connected Programs ' 8.1. It is the responsibility of
the Independent ADR Institution to develop or adopt ethical standards for Neutrals and to ensure
that Neutrals understand and conform to applicable standards.

Some arbitration procedures provide for a "tripartite" panel in which each party appoints its own
"party-arbitrator," and the two party-arbitrators select a third arbitrator to complete the panel. See
generally III Federal Arbitration Law ' 28.4; see also Alan Scott Rau, Integrity in Private
Judging, 38 S. Tex. L. Rev. 485, 505-08 (1997)(noting problems with party-arbitrator concept).
For a number of reasons, the Advisory Committee believed such practices should be avoided in
the Consumer sphere, and that all arbitrators should be neutral. Cf. Kaiser Permanente Review
and Recommendations 42 (expressing serious concerns regarding tripartite panel approach).

Practical Suggestions

APPENDIX PAGE 048
Independent ADR Institutions should develop procedures which are appropriate to each of the
ADR Programs they administer. A helpful model for program administrators is the User
Advisory Committee now being utilized by the AAA to establish procedures and policies for
ADR in the areas of employment, construction, health care, and other transactional settings. Cf.
Kaiser Permanente Review and Recommendations 32 (recommending "on-going, volunteer
Advisory Committee" comprised of representatives of various interest groups, including "an
appropriate consumer advocacy organization" to consult in development of arbitration program).
Such entities should provide a forum in which representatives of Consumers and Providers
cooperate in the development and implementation of policies and procedures governing an ADR
program, including selection of Neutrals.

For selection of Neutrals, the Independent ADR Institution might utilize a list procedure similar
to that used by the AAA. The list of prospective Neutrals should include pertinent biographical
information, including the names of parties and representatives involved in recent arbitration
proceedings handled by the prospective Neutral. Cf. Employment Due Process Protocol ' B.3
(recommending that parties be provided with names, addresses, and phone numbers of party
representatives in a prospective arbitrator's six most recent cases to aid in selection). Each party
should be afforded discretion to reject any candidate with or without cause. Failing agreement on
a Neutral or panel of Neutrals in this fashion, the Neutral should be appointed by the
Independent ADR Institution, subject to objection for good cause.

PRINCIPLE 4. QUALITY AND COMPETENCE OF NEUTRALS

All parties are entitled to competent, qualified Neutrals. Independent ADR Institutions are
responsible for establishing and maintaining standards for Neutrals in ADR Programs they
administer.

Reporter's Comments

Organizations providing ADR services for Consumer transactions should have a continuing
obligation to monitor the quality of the services they provide. This obligation requires that they
establish and maintain standards for Neutrals within the program which is appropriate to the
issues or disputes being addressed. The SPIDR Commission on Qualifications calls upon private
as well as public programs offering ADR services to set and monitor program performance. See
SPIDR Principles, Principle 6, at 3-4. Likewise, the Standards for Court-Connected Programs
call upon courts to "ensure that the mediation programs to which they refer cases are monitored
adequately...and evaluated [periodically]." Standards for Court-Connected Programs ' 6.0.

The most critical element in ADR quality control is the establishment and maintenance of
standards of competence for Neutrals within the program. "Competence" refers to "the
acquisition of skills, knowledge and...other attributes" deemed necessary to assist others in
resolving disputes in a particular setting. See SPIDR Report on Qualifications at 6. In 1989, the
SPIDR Commission on Qualifications published a list of general skills and areas of knowledge
that should be considered by groups establishing competency standards. See SPIDR Principles,
Principle 11, at 4-7.

APPENDIX PAGE 049
While ensuring the competence of Neutrals is always important, it is particularly "critical in
contexts where party choice over the process, program or neutral is limited" a reality of many
Consumer ADR programs. See SPIDR Report on Qualifications at 5; SPIDR Principles,
Principle 3 at 2 (extent to which Neutral qualifications are mandated should vary by degree of
choice parties have over dispute resolution process, ADR Program, and Neutral). The SPIDR
Commission on Qualifications requires private programs to, among other things, establish clear
criteria for the selection and evaluation of Neutrals and conduct periodic performance
evaluations. SPIDR Principles at 3. See also SPIDR Report on Qualifications at 6 (Neutrals,
professional associations, programs and Consumers should all have responsibility for addressing
and assessing Neutral performance); American Bar Ass'n Young Lawyers Div. & Special
Comm. On Alternative Means of Dispute Resolution, Resolving Disputes: An Alternative
Approach, A Handbook for Establishment of Dispute Settlement Centers 32 (1983) (noting
importance of post-mediation evaluation by administering agency).

The Advisory Committee concluded that it would be inappropriate (and, probably, impossible) to
set forth a set of universally applicable qualifications for Neutrals in Consumer disputes. The
Advisory Committee's conclusions parallel those of other groups establishing broad standards for
the conduct of ADR. See, e.g., SPIDR Report on Qualifications; SPIDR Principles at 1, 2. As the
SPIDR Commission on Qualifications determined, Neutral qualifications are best established by
joint efforts of concerned "stakeholders" in specific contexts. See, e.g., Kaiser Permanente
Review and Recommendations 35-36 (recommending involvement of advisory committee in
development of arbitrator qualifications).

It is important for Consumers to have a voice in establishing and maintaining standards of
competence and quality in ADR programs. The SPIDR Commission on Qualifications recently
observed that "consumers...share a responsibility with programs, [Neutrals]...and associations to
join in evaluating and reporting on the performance of [Neutrals]...and programs and
contributing to the development of policies and standards on qualifications." SPIDR Report on
Qualifications, ' G.2. at 9. See also SPIDR Principles, Principle 2 at 2 (private entities making
judgments about neutral qualifications should be guided by groups that include representatives of
consumers of services). Although Neutral expertise is traditionally a hallmark of arbitration,
technical or professional experience often carries with it the perception if not the reality of bias.
From the Consumer's perspective, therefore, an arbitrator who shares the professional or
commercial background of a Provider may not be the ideal judge. See, e.g. , Broemmer v.
Abortion Serv. of Phoenix , 840 P.2d 1013 (Ariz. 1992)(adhesion arbitration agreement provided
by abortion clinic which, among other things, required arbitrator to be a licensed
obstetrician/gynecologist, was unenforceable as beyond reasonable expectations of patient).

An Independent ADR Institution's responsibility for the qualifications of Neutrals in a particular
Consumer ADR program dictates the development of an appropriate training program. Ideally,
the training should include a mentoring program with experienced Neutrals as well as coverage
of applicable principles of Consumer law. See Mark E. Budnitz, Arbitration of Disputes Between
Consumers and Financial Institutions: A Serious Threat to Consumer Protection , 10 Ohio St. J.
on Disp. Res. 267, 315 (arbitrators need special legal expertise to address statutory issues
respecting consumer claims against financial institutions). Successful completion of such

APPENDIX PAGE 050
training should be reflected in the information on prospective Neutrals furnished to the parties
prior to selection. Cf. Employment Due Process Protocol ' C.2.

The Advisory Committee generally supports the concept of broad choice in selection of Neutrals,
and recognizes the right of Consumers and Providers to jointly select any Neutral in whom the
parties have requisite trust, even one who does not possess all of the qualifications recommended
by an ADR Program. Cf. Employment Due Process Protocol ' C.1.; Standards for Court-
Connected Programs ' 13.4 ("Parties should have the widest possible latitude in selecting
mediators, consistent with public policy."). This assumes, of course, that both parties have a true
choice in the matter, that they are duly informed about the background and qualifications of the
Neutrals proposed, and that all such Neutrals have made full disclosure of possible conflicts of
interest in accordance with Principle 3.

Practical Suggestions

Elements of effective quality control include the establishment of standards for Neutrals, the
development of a training program, and a program of ongoing performance evaluation and
feedback. Because the requirements of parties will vary with the circumstances, it will be
necessary to establish standards for Neutrals in an ADR Program with due regard for the specific
needs of users of the program. As noted in connection with Principle 3, a helpful model for
program administrators is the User Advisory Committee now being utilized by the AAA to
establish procedures and policies for ADR in the areas of employment, construction, health care,
and other transactional settings. Such entities could bring Consumer and Provider representatives
together to assist in the development and implementation of programs to train, qualify and
monitor the performance of Neutrals.

PRINCIPLE 5. SMALL CLAIMS

Consumer ADR Agreements should make it clear that all parties retain the right to seek relief in
a small claims court for disputes or claims within the scope of its jurisdiction.

Reporter's Comments

Disputes arising out of Consumer transactions often involve relatively small amounts of money.
Such disputes may be well-suited to resolution by informal ADR processes and judicial small
claims procedures.

Within the judicial system, the least expensive and most efficient alternative for resolution of
claims for minor amounts of money often lies in small claims courts. These courts typically
provide a convenient, less formal and relatively expeditious judicial forum for handling such
disputes, and afford the benefit, where necessary, of the coercive powers of the judicial system.
The Advisory Committee concluded that access to small claims tribunals is an important right of
Consumers which should not be waived by a pre-dispute ADR Agreement.

APPENDIX PAGE 051
Practical Suggestions

Because, for cases involving small amounts of money, parties retain the option of an oral hearing
in small claims court, it may be reasonable for the ADR Agreement to provide for arbitration of
small claims without a face-to-face hearing. Such alternatives may include "desk arbitration,"
which involves the making of an arbitration award based on written submissions; proceedings
conducted by telephone or electronic data transmission; and other options. See Principle 12.

Mediation conducted by telephone conference call has also proven effective in resolving
Consumer disputes. At least one major auto manufacturer has successfully used this technique to
resolve warranty claims.

PRINCIPLE 6. REASONABLE COST

1. Reasonable Cost. Providers of goods and services should develop ADR programs which entail
reasonable cost to Consumers based on the circumstances of the dispute, including, among other
things, the size and nature of the claim, the nature of goods or services provided, and the ability
of the Consumer to pay. In some cases, this may require the Provider to subsidize the process.

2. Handling of Payment. In the interest of ensuring fair and independent Neutrals, the making of
fee arrangements and the payment of fees should be administered on a rational, equitable and
consistent basis by the Independent ADR Institution.

Reporter's Comments

A fundamental principle of our civil justice system is that a person should never be denied access
to a court due to an inability to pay court costs. The reality is that the public justice system is
heavily subsidized, and that users pay only a small fraction of the actual cost of trial and related
procedures. Moreover, indigent litigants may be afforded relief from even these small fees. This
principle has been extended in many cases to court-connected ADR programs, in which courts
defray all or part of the expenses of mediation or court-connected arbitration. See Standards for
Court-Connected Programs, '' 5.1.a, 13.0 ("[c]ourts should impose mandatory attendance only
when the cost of mediation is publicly funded"; "[c]ourts should make mediation available to
parties regardless of the parties' ability to pay"). According to data from the National Center for
State Courts' ADR database, approximately 60% of programs did not depend upon the parties to
pay mediator fees for contract and tort cases; no programs charged user fees for mediation of
small claims. See Standards for Court-Connected Programs ' 13.2., Commentary, at 13-4.

Similar policies have prompted various private ADR tribunals to institute mechanisms for
waiving filing fees and other administrative expenses in appropriate cases. See, e.g., NASD Code
' 10332 (permitting Director of Arbitration to waive fees or deposits for parties in securities
arbitration); Nazon v. Shearson Lehman Bros., Inc., 832 F. Supp. 1540, 1543 (S.D. Fla.
1993)(employee, although required to bear expenses of pursuing civil rights claim in arbitration,
might seek waiver of fees under NASD rules). One federal court of appeals recently concluded
that to be enforceable with respect to actions under statutes governing employment
discrimination, an arbitration agreement must not "require employees to pay either unreasonable

APPENDIX PAGE 052
costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum." Cole
v. Burns Int'l Security Serv., 105 F.3d 1465, 1482-84 (D.C. Cir. 1997).

Due to the wide range of transactions and the equally broad spectrum of conflict in the Consumer
arena, it is inappropriate to mandate bright-line rules regarding ADR costs. In determining what
is reasonable, consideration should be given to the nature of the conflict (including the size of
monetary claims, if any), and the nature of goods or services provided. In some cases, it may be
possible to fulfill the principle of reasonable cost by the use of the Internet, the telephone, other
electronic media, or through written submissions. See, e.g., Michael F. Altschul & Elizabeth S.
Stong, AAA Develops New Arbitration Rules to Resolve Wireless Disputes , ADR Currents, Fall
1997, at 6. Abbreviated procedures may be particularly appropriate in the context of small
monetary claims, where there is always the alternative of a face-to-face hearing in small claims
court. See Principle 5.

In some cases, the need to ensure reasonable costs for the Consumer will require the Provider of
goods or services to subsidize the costs of ADR which is mandated by the agreement. Indeed,
many companies today deem it appropriate to pay most or all of the costs of ADR procedures for
claims and disputes involving individual employees. See Mei L. Bickner, et al, Developments in
Employment Arbitration, 52 Disp. Res. J. 8 (1997). The consensus of the Committee was that if
participation in mediation is mandated by the ADR agreement, the Provider should pay the costs
of the procedure, including mediator's fees and expenses. The Committee considered, and
ultimately rejected, the alternative of establishing specific requirements for Provider
subsidization of the cost of arbitration procedures, other than to conclude that the Provider of
goods and services should ensure the consumer a basic minimum arbitration procedure
appropriate to the circumstances.

In some cases, an arbitrator may find it appropriate to defray the cost of Consumer participation
in arbitration by an award of costs. Some lemon laws provide for such relief. See, e.g., Chrysler
Corp. v. Maiocco , 209 Conn. 579, 552 A.2d 1207 (1989)(applying Connecticut Lemon Law);
Walker v. General Motors Corp ., 160 Misc.2d 903, 611 N.Y.S.2d 741 (1994)(applying
provision of New York Lemon Law permitting "prevailing consumer" to receive award of
attorney's fees); General Motors Corp. v. Fischer , 140 Misc.2d 243, 530 N.Y.S.2d 484
(1988)(same). In some cases, it may be appropriate for an arbitrator in a Consumer case to render
an award of attorney's fees pursuant to statute or in other cases where a court might do so.
Without such an award, however, the Committee does not support the proposition that Providers
are required to subsidize Consumers' attorney's fees for ADR.

At the same time, there are legitimate concerns that having the Provider pay all or a substantial
portion of neutral's fees and expenses may undermine the latter's impartiality. For this reason, as
observed in the Employment Due Process Protocol, "[i]mpartiality is best assured by the parties
sharing the fees and expenses of the mediator and arbitrator." Employment Due Process Protocol
' 6. See also Stephen J. Ware, Arbitration and Unconscionability After Doctor's Associates, Inc.
v. Casarotto, 31 Wake Forest L. Rev. 1001, 1023 (1996). But see Alan Scott Rau, Integrity in
Private Judging, 38 S. Tex. L. Rev. 485, 528 (1997). Therefore, the Advisory Committee
concludes that Consumers should have the option to share up to half of the Neutral's fees and
expenses. In addition, unless the parties agree otherwise after a dispute arises, the handling of fee

APPENDIX PAGE 053
arrangements and the payment of fees should be conducted by the Independent ADR Institution.
The latter, "by negotiating the parties' share of costs and collecting such fees, might be able to
reduce the bias potential of disparate contributions by forwarding payment to the mediator and/or
arbitrator without disclosing the parties' share therein ." Employment Due Process Protocol ' 6.

Some ADR Programs serving Consumers are staffed wholly or partly by unpaid volunteers. See,
e.g., BBB Arbitration Rules at 2. The use of such programs, including community dispute
resolution centers, may be a satisfactory means of addressing cost concerns associated with
Consumer ADR, particularly in cases involving low stakes. However, concerns have been
expressed by some authorities regarding overdependence on volunteer Neutrals. See Standards
for Court-Connected Programs ' 13.1, Commentary, at 13-2 (warning of dangers of exclusive
reliance on volunteers in ADR programs). Care must be taken by those responsible for
overseeing such programs to make certain that lower cost does not come at the expense of
adequately qualified Neutrals.

Practical Suggestions

In the event that an ADR procedure is mandated by the Provider of goods and services and the
Consumer demonstrates an inability to pay all or part of the costs of the procedure, the Provider
should front such costs subject to allocation in the arbitration award or mediation settlement.

In some cases, it may be possible to fulfill the principle of reasonable cost by the use of the
Internet, the telephone, other electronic media, or through written submissions. See, e.g., Michael
F. Altschul & Elizabeth S. Stong, AAA Develops New Arbitration Rules to Resolve Wireless
Disputes , ADR Currents, Fall 1997, at 6.

PRINCIPLE 7. REASONABLY CONVENIENT LOCATION

In the case of face-to-face proceedings, the proceedings should be conducted at a location which
is reasonably convenient to both parties with due consideration of their ability to travel and
other pertinent circumstances. If the parties are unable to agree on a location, the determination
should be made by the Independent ADR Institution or by the Neutral.

Reporter's Comments

The Advisory Committee concludes that ADR proceedings should take place at a location that is
reasonably convenient to all parties.

Flexibility in choosing a hearing location is a theoretical advantage of consensual conflict
resolution, permitting minimal cost and inconvenience to all parties. On the other hand, location
terms may put one party at a great disadvantage, significantly increasing the cost and logistical
complexity of dispute resolution. This is particularly true with regard to binding arbitration,
which may involve the participation of multiple witnesses as well as the parties and their
representatives. See III Federal Arbitration Law ' 32.8.3.

APPENDIX PAGE 054
Typically, contractual agreements which provide that arbitration hearings will be conducted in a
particular place are honored by the courts. See, e.g., Management Recruiters Int'l, Inc. v. Bloor ,
129 F.3d 851 (6 th Cir. 1997)(under Federal Arbitration Act , forum expectations of parties in
arbitration agreement are enforceable, and may not be upset by state law); Bear Stearns & Co. v.
Bennett , 938 F.2d 31, 32 (2 nd Cir. 1991)(noting "prima facie validity" of forum-selection
clauses, including those in arbitration agreements); Snyder v. Smith , 736 F.2d 409, 419 (7th
Cir.), cert. denied, 469 U.S. 1037, 105 S. Ct. 513, 83 L. Ed.2d 403 (1984)(courts must give effect
to freely-negotiated arbitration clause in commercial agreement). See II Federal Arbitration Law
' 24.2.3.4 (discussing Federal Arbitration Act ). Cf. Carnival Cruise Lines, Inc. v. Shute , 449
U.S.585,111 S.Ct. 1522, 113 L. Ed. 2d 622 (1991)(judicial forum selection clause in terms on
cruise ship passenger ticket enforceable); M/S Bremen v. Zapata Off-Shore Co. , 407 U.S. 1, 92
S. Ct. 1907. 32 L.Ed.2d (1972)(judicial forum selection clause is prima facie valid and should be
enforced unless enforcement is shown by the resisting party to be unreasonable under the
circumstances).

The same is true of cases where the parties agree to a process for selecting location, such as that
provided by the AAA Rules. See, e.g., AAA Commercial Rule 11. There is authority for pre-award
challenges to location selection mechanisms. Aerojet-General Corp. v. AAA , 478 F.2d 248 (9th
Cir. 1973)(pre-award judicial review appropriate where choice of arbitration locale not made in
good faith and one or more parties are faced with severe irreparable injury). Again, however,
such action is likely to be deemed appropriate only in extreme cases. See Seguro de Servicio de
Salud v. McAuto Systems , 878 F.2d 5, 9 n.6 (1st Cir. 1989); S.J. Groves & Sons Co. v. AAA , 452
F. Supp. 121, 124 (D. Minn. 1978).

Some courts, however, have identified limits on locational designations in judicial forum
selection provisions. See Mark E. Budnitz, Arbitration of Disputes Between Consumers and
Financial Institutions: A Serious Threat to Consumer Protection , 10 Ohio St. J. on Disp. Res.
267, 292; David S. Schwartz, Enforcing Small Print to Protect Big Business: Employee and
Consumer Rights Claims in an Age of Compelled Arbitration , 1997 Wis. L. Rev. 36, 121 n.366.
Forum selection clauses may be overcome if it can be demonstrated that their incorporation in
the contract was the result of fraud, undue influence, or an extreme disparity in bargaining
power, or if the selected forum is so inconvenient that it would effectively deprive a party of a
day in court. See, e.g., Kubis & Persyk Assoc., Inc. v. Sun Microsystems, Inc ., 146 N.J. 176, 188-
97, 680 A.2d 618, 624-29 (1996)(reviewing cases and recognizing limits on enforceability of
forum selection clauses); Moses v. Business Card Expr., Inc ., 929 F.2d 1131, 1136-39 (6 th Cir.),
cert. denied, 502 U.S. 821, 112 S. Ct. 81, 116 L.Ed.2d 54 (1991)(in considering change of venue
motion, forum selection clause must be considered along with convenience of parties and
witnesses and overall fairness); Hoffman v. Minuteman Press Int'l, Inc., 747 F. Supp. 552 (W.D.
Mo. 1990)(denying venue change in accordance with forum selection agreement on basis of
extreme hardship and alleged fraud in the inducement); Cutter v. Scott & Fetzer Co ., 510 F.
Supp. 905, 908 (E.D. Wis. 1981)(refusing to enforce forum selection clause on basis of state Fair
Dealership Law, and observing that clause was not the subject of negotiation). See also
Restatement (Second) of Conflict of Laws ' 80 (1969)(agreement regarding place of action will be
given effect unless it is unfair or unreasonable); Benjamin Levin & Richard Morrison, Kubis and
the Changing Landscape of Forum Selection Clauses, 16 Franchise. L.J. 97 (1997)(discussing
trend to limit enforceability of forum selection clauses in franchise agreements by statute and

APPENDIX PAGE 055
case law); Donald B. Brenner, There is a Developing Trend Among Courts of Making Choice of
Forum Clauses in Franchise Agreements Presumptively Invalid , 102 Com. L.J. 94
(1997)(same).

In the course of finding a judicial forum selection provision in a form franchise agreement
presumptively invalid, the New Jersey Supreme Court recognized that the following factors may
be relevant to enforceability: (1) whether the provision is the product of arm's length negotiations
or is effectively imposed by a party with disproportionate bargaining power; and (2) whether the
provision provides an "indirect benefit to...[the stronger party by making] litigation more costly
and cumbersome for economically weaker...[parties] that often lack the sophistication and
resources to litigate effectively a long distance from home." Kubis , 146 N.J. at 193-94, 680 A.2d
at 626-27. See also Model Choice of Forum Act ' 3(4) Comment (1968)("A significant factor to
be considered in determining whether there was an abuse of economic power or other
unconscionable means' [sufficient to deny enforcement to a forum selection clause] is whether
the choice of forum agreement was contained in an adhesion, or take-it-or-leave-it' contract.").

Such considerations may also affect the enforceability of an agreement to arbitrate. See Patterson
v. ITT Consumer Financial Corp., 14 Cal. App. 4 th , 1659, 18 Cal. Rptr.2d 563
(1993)(arbitration provisions in loan agreements requiring California consumers to arbitrate in
Minnesota were unconscionable).

Similar concerns have led some states to enact laws placing geographical limitations on the situs
of arbitration. See, e.g. , Hambell v. Alphagraphics Franchising Inc., 779 F. Supp. 910 (E.D.
Mich. 1991)(provision in franchise agreement for arbitration to take place outside state is void
and unenforceable under Mich. Stat. Ann. ' 19.854(27)(f)(1984)); Donmoor, Inc. v. Sturtevant ,
449 So.2d 869 (Fla. Ct. App. 1984)(clause in contract providing for arbitration in another state is
unenforceable). Of course, such laws may be preempted by federal substantive law within the
scope of the Federal Arbitration Act . See Levin & Morrison, supra , at 115-16.

In light of concerns such as the foregoing which are also relevant in the consumer arena, the
Advisory Committee concluded that contractual ADR provisions should include a commitment
to conduct ADR at a "reasonably convenient location." Some members of the Advisory
Committee favored setting an arbitrary mileage limit (i.e. "no more than 50 miles from the place
where the transaction occurred") while others advocated the nearest large city. Others pointed
out that parties sometimes relocate. There was general agreement, however, that an agreed-upon
process for independent determination of the locale if the parties fail to agree would be fair and
equitable to both parties. See, e.g., AAA Rule 11; Uniform Code of Arbitration ' 9; NASD Code of
Arbitration Procedure ' 10315. A similar function may be performed by the arbitrator or other
duly appointed Neutral. (The AAA Rules already accord arbitrators the authority to set specific
sites for arbitration hearings. See AAA Rule 21.)

In many cases, it may be possible to minimize the need for long distance travel and attendant
expenses through the use of telephonic communications and submission of documents. An
example of the application of such devices is the Expedited Procedures of the AAA Rules , which
are generally applied to claims of $50,000 or less. See AAA Rules 9, 53-57. See also Uniform
Code of Arbitration ' 2. Telephonic mediation has long been a feature of some lemon law

APPENDIX PAGE 056
programs, and is currently being used in Consumer ADR by the National Futures Association
(NFA). The National Association of Securities Dealers (NASD) is currently conducting a pilot
program utilizing telephonic mediation.

Recent projects sponsored by the Better Business Bureau, the American Arbitration Association,
and other organizations suggest the possibilities of online conflict resolution for online
transactions as well as other kinds of disputes. See generally George H. Friedman, Alternative
Dispute Resolution and Emerging Online Technologies: Challenges and Opportunities, 19
Hastings Comm. & Ent. L.J. 695 (1997).

If, as proposed, Consumers have the alternative of pursuing relief in a small claims court of
competent jurisdiction, many concerns associated with long distance travel will be obviated with
regard to small claims.

Practical Suggestions

Unless a convenient location can be specifically identified in the ADR agreement, the location
should be left to the agreement of the parties after a dispute has arisen. The rules governing ADR
under the agreement should establish a process for determination of the location by an
independent party (such as a Neutral or the Independent ADR Institution) if the parties cannot
agree on a location.

In some cases, it may be reasonable to conduct proceedings by telephone or electronic data
transmission, with or without submission of documents. See, e.g., Principle 12. Such options may
be particularly desirable in the case of arbitration of small claims, since the parties have the
choice of going to small claims court. See Principle 5.

PRINCIPLE 8. REASONABLE TIME LIMITS

ADR proceedings should occur within a reasonable time, without undue delay. The rules
governing ADR should establish specific reasonable time periods for each step in the ADR
process and, where necessary, set forth default procedures in the event a party fails to
participate in the process after reasonable notice.

Reporter's Comments

A primary impetus for conflict resolution outside the court system is the potential for relatively
speedy and efficient resolution of disputes. From the Consumer's perspective, moreover, the
expectation of a reasonably prompt conclusion is likely to be, along with cost savings, the
leading perceived advantage of consensual mediation or arbitration. See Madden v. Kaiser
Foundation Hospitals, 17 Cal.3d 699, 711, 131 Cal. Rptr. 882, 552 P.2d 1178 (1976)(speed and
economy of arbitration, in contrast to the expense and delay of jury trial, could prove helpful to
all parties).

The principle of relatively prompt, efficient conflict resolution underlies standards governing the
conduct of Neutrals. Mediators are admonished that "[a] quality process requires a commitment

APPENDIX PAGE 057
by the mediator to diligence...." Joint Standards for Mediators, Art. VI. The Joint Standards for
Mediators also comment that "[m]ediators should only accept cases when they can satisfy the
reasonable expectations of the parties concerning the timing of the process." Id.

A basic requirement is that the rules governing ADR establish and further the basic principle of
conflict resolution within a reasonable time. This means not only that the rules should set forth
specific time periods for various steps in the ADR process, but that default rules come into play
if a party fails to participate in the manner required by the rules after due notice. This principle is
embodied in leading ADR standards, including the AAA Commercial Rules. See, e.g., Rules 6, 8,
11, 13, 14, 15, 21, 35, 36, 41. See also BBB Arbitration Rule 27 ("BBB shall make every effort to
obtain a final resolution of your complaint within 60 days, unless state or federal law provides
otherwise. This time period may be extended at the request of the customer.").

Of course, it is not enough that the agreement places strict time limitations on procedural steps if
these limitations are not effectively enforced a likely occurrence when an ADR Program is not
independent of the Provider. Extreme disparity between stipulated time limits and actual practice
under arbitration rules may render an arbitration agreement unenforceable, as discussed at length
in a recent California Supreme Court decision. See generally Engalla v. Permanente Med. Grp.,
Inc., 938 P.2d 903 (Cal. 1997). The court pointedly observed,

[M]any large institutional users of arbitration, including most health maintenance organizations
(HMO's), avoid the potential problems of delay in the selection of arbitrators by contracting with
neutral third party organizations, such as the American Arbitration Association (AAA). These
organizations will then assume responsibility for administering the claim from the time the
arbitration demand is filed, and will ensure the arbitrator or arbitrators are chosen in a timely
manner.

Id. at 975-76. In response to this decision, Kaiser appointed an advisory panel to propose reforms
to its arbitration program. See Kaiser Permanente Review and Recommendations 33-34
(recommending establishment of and adherence to stated arbitration process deadlines).

Similarly, courts interpreting state lemon laws have acknowledged the right of Consumers to
forgo arbitration and sue in court when the statutory period for the lemon law remedy elapsed
without a remedy through no fault of their own. See, e.g., Harrison v. Nissan Motor Corp., 111
F.3d 343 (3 rd Cir. 1997)(court suit permissible where BBB failed to conduct arbitration within
stipulated period); Ford Motor Co. v. Ward , 577 So.2d 641 (1991)(Consumer not required to
exhaust arbitration procedures before bringing suit where dealer made it impossible for
Consumer to arbitrate).

Practical Suggestions

When a Consumer dispute involves a small amount of money and relatively straightforward
issues, it is reasonable to assume that an out-of-court resolution of such issues should be
relatively quick. In such cases, it may be appropriate to develop expedited procedures and to set
outside time limits on ADR Processes. Thus, for example, "Fast Track" arbitration procedures
for construction disputes provide that "[t]he arbitration shall be completed by settlement or

APPENDIX PAGE 058
award within sixty (60) days of confirmation of the arbitrator's appointment, unless all parties
agree otherwise or the arbitrator extends this time in extraordinary cases . . . ." AAA Construction
Procedures, ' F-12. The rules also require the award to be rendered within seven days from the
closing of the hearing. See id., ' F-11.

Similarly, the AAA Wireless Rules set forth Fast Track procedures for matters involving less than
$2,000 in claims or counterclaims. The Fast Track contemplates a "desk" arbitration procedure
involving a hearing on documents; a limit of one seven-day extension on the time to respond to a
claim or counterclaim; notice by telephone, electronic mail and other forms of electronic
communication and by overnight mail, shortened time limits to select an arbitrator; no discovery
except in extraordinary cases; a shortened time limit for rendition of award; and a time standard
which sets a goal of 45 days from appointment of the arbitrator to award.

PRINCIPLE 9. RIGHT TO REPRESENTATION

All parties participating in processes in ADR Programs have the right, at their own expense, to
be represented by a spokesperson of their own choosing. The ADR rules and procedures should
so specify.

Reporter's Comments

The right to be counseled by an attorney or other representative is an important one that is
frequently reflected in standard rules governing ADR proceedings. See, e.g. , AAA Commercial
Rule 22; NASD Code ' 10316; BBB Arbitration Rule 9.

The Advisory Committee adapted pertinent provisions of the Employment Due Process Protocol
. See Employment Due Process Protocol ' B.1.

In the interest of full disclosure of potential conflicts of interest on the part of Neutrals, the
Advisory Committee recommends that the names and affiliations of lawyers and other
representatives of each party be communicated to prospective Neutrals and to all parties prior to
selection of Neutrals.

As previously noted, the Advisory Committee recognizes that the cost of legal services should be
borne by the parties who are receiving the services, and Providers should not be expected to
subsidize the cost of legal representation for Consumers. There may, however, be situations
where an arbitrator awards attorney's fees in circumstances where they would be available in
court. See Commentary to Principle 6.

The Advisory Committee recognizes that the involvement of non-attorney representatives in
some forms of binding arbitration has raised issues respecting the unauthorized practice of law.
The Committee takes no position regarding these issues.

Practical Suggestions

APPENDIX PAGE 059
Although the cost of legal services should be borne by the parties who are receiving the services,
Independent ADR Institutions should provide Consumers with information regarding referral
services and other institutions which might offer assistance in locating and securing competent
spokespersons, such as bar associations, legal service associations, and Consumer organizations.

PRINCIPLE 10. MEDIATION

The use of mediation is strongly encouraged as an informal means of assisting parties in
resolving their own disputes.

Reporter's Comments

The increasing popularity of mediation has been a primary impetus for the revolution in conflict
resolution approaches. Mediation describes a range of processes in which an impartial person
helps disputing parties to communicate and to make voluntary, informed choices in an effort to
resolve their dispute. The rapid growth of mediation may be attributed to its informality,
flexibility, and emphasis on the particular needs of disputing parties. For this reason, mediation
is uniquely adaptable to a wide spectrum of controversies.

The widespread use of mediation in court-connected programs inspired the development of a set
of national standards for such endeavors. See generally Standards for Court-Connected
Programs.

Parallel developments are occurring in the private sphere. Recently, the leading standard
construction industry contract was modified to require mediation as an element in project
conflict resolution, necessitating modification of related AAA rules. See AAA Construction
Procedures.

Advisory Committee members agreed that mediation should be encouraged as a valuable
intervention strategy, but differed as to the propriety and reasonableness of Provider-drafted
ADR Agreements in Consumer contracts which require Consumers to participate in mediation.
Those unopposed to such provisions, a majority of Advisory Committee members, noted that
mediation offers significant potential advantages and relatively few risks to participants.
Particularly where the Provider subsidizes mediation, they reasoned, the prospective benefits to
Consumers far outweigh the costs. Those expressing concerns regarding "mandatory" mediation
adhere to the view that the choice to participate in settlement discussions should be made
voluntarily, and only after conflict arises. Other concerns relate to the cost of mediation, the
quality of mediators, the likelihood that not all disputes will be appropriate for mediation, and
the lack of understanding of mediation processes (including an understanding of the role of the
neutral intervener) on the part of many Consumers. Cf. Standards for Court-Connected
Programs ' 5.0 (courts should impose mandatory attendance in court-connected mediation only
when the cost of mediation is publicly funded, the mediation program is of high quality, and
other requirements are met); SPIDR Report on Court-Mandated ADR at 2-3.

Encouragement of the use of mediation involves, among other things, educating Consumers and
their attorneys about the process. See Principle 2 "Access to Information Regarding ADR

APPENDIX PAGE 060
Program." See also SPIDR Principles at 6 ("It is the responsibility of...private programs offering
dispute resolution services to define clearly the services they provide...[and provide information
about the program and neutrals to the parties.]"). At a minimum, Consumers should be provided
with (or have immediate access to) written information to explain mediation. As a rule, such
information should be in the same language as the principal contract for goods or services. Cf.
Standards for Court-Connected Programs ' 3.2.b., Commentary, at 3-4 (If a significant
percentage of the population served is non-English-speaking, the material should be available in
other languages as well.) See Principle 2.

Education of users should also include some treatment of the distinctive styles and strategies
employed by mediators. Today, mediators handling commercial disputes sometimes employ a
facilitative, non-directive approach to problem-solving; in other situations, a more directive
approach may be employed. See generally Leonard L. Riskin, Understanding Mediators'
Orientations, Strategies, and Techniques: A Grid for the Perplexed, 1 Harv. Negotiation L. Rev.
7 (1996)(providing a graphic tool for analyzing mediator approaches). Participants need to
decide in advance of selection the approach they want a mediator to adopt. The Independent
ADR Institution should advise the parties regarding the possibility of interviewing prospective
mediators regarding qualifications and style, and help to arrange such interviews.

Practical Suggestions

As referenced in Principle 5, mediation conducted by telephone conference call has proven to be
an effective, economical method of resolving Consumer disputes where in-person mediation may
not be feasible.

SPECIAL PROVISIONS RELATING TO BINDING ARBITRATION

PRINCIPLE 11. AGREEMENTS TO ARBITRATE

Consumers should be given:

a. clear and adequate notice of the arbitration provision and its consequences, including a statement of its
mandatory or optional character;
b. reasonable access to information regarding the arbitration process, including basic distinctions between
arbitration and court proceedings, related costs, and advice as to where they may obtain more complete
information regarding arbitration procedures and arbitrator rosters;
c. notice of the option to make use of applicable small claims court procedures as an alternative to binding
arbitration in appropriate cases; and,
d. a clear statement of the means by which the Consumer may exercise the option (if any) to submit disputes to
arbitration or to court process.

Reporter's Comments

In convening the Advisory Committee which developed this Protocol, the AAA requested that
the Committee focus its attention upon due process standards for the conduct of Consumer ADR
processes and not directly address the process of forming an agreement to mediate or to arbitrate.
Committee deliberations revealed a range of opinions regarding the use of pre-dispute binding
arbitration agreements in Consumer contracts. Without taking a position on the appropriateness
of such agreements, the Committee developed Principle 11 with the intended purpose of

APPENDIX PAGE 061
providing guidance to the AAA and similar Independent ADR Institutions in the development of
specific arbitration programs within the context of existing law enforcing pre-dispute arbitration
agreements. Within this context, Principle 11 emphasizes the importance of knowing, informed
assent to arbitration agreements.

Practical Suggestions

Consumers should have clear and adequate notice of the arbitration provision and basic
information regarding the process at the time of assent. The appropriate method of giving notice
and providing essential information will vary with the circumstances. For example, electronic
transactions involving software licensure agreements require different notice procedures than
face-to-face negotiations or paper transactions. In all cases, however, there should be some form
of conspicuous notice of the agreement to arbitrate and its basic consequences (including
comparison to court process, cost information, etc.). In addition, the Consumer should be given
the opportunity to acquire additional information regarding the arbitration process. The latter
might be obtainable through a mail or Web site address, an 800 number or other means for
Consumers to obtain additional information regarding arbitration rules and procedures (such as a
brochure available on request).

The following is an example of a possible notice. Ideally, the "notice box" would be sufficiently
prominent in the contract document or electronic record so that a Consumer would readily notice
it.

NOTICE OF ARBITRATION AGREEMENT:
This agreement provides that all disputes between you and [PROVIDER] will be resolved by
BINDING ARBITRATION .

You thus GIVE UP YOUR RIGHT TO GO TO COURT to assert or defend your rights under
this contract (EXCEPT for matters that may be taken to SMALL CLAIMS COURT).

*Your rights will be determined by a NEUTRAL ARBITRATOR and NOT a judge or jury.

* You are entitled to a FAIR HEARING , BUT the arbitration procedures are SIMPLER AND
MORE LIMITED THAN RULES APPLICABLE IN COURT.

*Arbitrator decisions are as enforceable as any court order and are subject to VERY LIMITED
REVIEW BY A COURT.

FOR MORE DETAILS ,

*Review Section 6.2 above, OR

* Check our Arbitration Web Site @ ACMEADR.COM, OR

* Call 1-800-000-0000

APPENDIX PAGE 062
Among other things, Consumers should have access to information regarding the initiation of the
arbitration process. This may be accomplished, for example, by providing customers with a
brochure outlining relevant arbitration procedures. If the Consumer has the option of choosing
between arbitration or court process, either at the time of contracting or after disputes have
arisen, the timing and means of electing the option should also be clearly stated in the notice.

PRINCIPLE 12. ARBITRATION HEARINGS

1. Fundamentally-Fair Hearing. All parties are entitled to a fundamentally-fair arbitration
hearing. This requires adequate notice of hearings and an opportunity to be heard and to present
relevant evidence to impartial decision- makers. In some cases, such as some small claims, the
requirement of fundamental fairness may be met by hearings conducted by electronic or
telephonic means or by a submission of documents. However, the Neutral should have
discretionary authority to require a face-to-face hearing upon the request of a party.

2. Confidentiality in Arbitration. Consistent with general expectations of privacy in arbitration
hearings, the arbitrator should make reasonable efforts to maintain the privacy of the hearing to
the extent permitted by applicable law. The arbitrator should also carefully consider claims of
privilege and confidentiality when addressing evidentiary issues.

Reporter's Comments

There is universal agreement that parties to arbitration are entitled to a "fundamentally-fair
hearing." See III Federal Arbitration Law ' 32.3.1.1. The language of subsection 1 closely
follows the definition of a "fundamentally-fair hearing" set forth in Bowles Financial Grp., Inc.
v. Stifel, Nicolaus & Co ., 22 F.3d 1010, 1013 (10 th Cir. 1994)(applying the Federal Arbitration
Act ). Beyond these basic requirements, of course, "[a]rbitration need not follow all the niceties
of...courts." Grovner v. Georgia-Pacific Corp., 625 F.2d 1289, 1290 (5 th Cir. 1980). Moreover,
the arbitrators have great leeway in conducting hearings, within the bounds of the parties'
agreement. See Federal Arbitration Law, supra, '' 32.1., 32.3.1.1.

Although authority is split on whether or not parties are guaranteed a face-to-face hearing before
the arbitrators, see id. , the Advisory Committee concluded that while in some circumstances
fundamental fairness may require a face-to-face hearing, in other cases the requirement may be
satisfied by telephonic or electronic communications or submissions of documents. See, e.g. ,
Construction Arbitration Procedures ' F-9. See, e.g., Michael F. Altschul & Elizabeth S. Stong,
AAA Develops New Arbitration Rules to Resolve Wireless Disputes , ADR Currents, Fall 1997, at
6. In small claims cases, the requirement of these Principles that parties retain the option of going
to small claims court may make it reasonable for the ADR agreement to provide alternatives to a
face-to-face hearing.

Although confidentiality of hearings may be considered an advantage of arbitration, there is no
absolute guarantee of confidentiality. See id. , ' 32.6.1. Unlike court proceedings, however, the
general public has no right to attend arbitration proceedings; if the parties agree, moreover,
attendance at hearings may be severely restricted. See, e.g., AAA Commercial Rule 25 (directing
arbitrators to "maintain the privacy of the hearings unless the law provides to the contrary").

APPENDIX PAGE 063
Likewise, arbitrators should be mindful of evidentiary privileges and confidentiality rights
available to its parties under applicable law and have discretion to issue protective orders
respecting such rights.

The Advisory Committee recognized the dilemma posed by the tension between the desire for
confidentiality in arbitration and the need to provide Consumers access to information regarding
arbitrators and sponsoring Independent ADR Institutions, including case statistics, data on recent
arbitrations and other pertinent information. See, e.g., Alan Scott Rau, Integrity in Private
Judging , 38 S. Tex. L. Rev. 485, 524-26 (1997)(discussing concerns with "asymmetry of
information" regarding arbitrators when one party is an institutional "repeat player," and
suggesting need for increased disclosure of information regarding past decisions by an
arbitrator); Mark E. Budnitz, Arbitration of Disputes Between Consumers and Financial
Institutions: A Serious Threat to Consumer Protection , 10 Ohio St. J. on Disp. Res. 267, 293
(discussing disparity between "repeat players" and consumers with regard to knowledge of
prospective arbitrators). Although the Advisory Committee did not address this issue, it
recommends that the matter be the focus of serious study by the Committee or a similar advisory
group, supported by appropriate independent research efforts.

Practical Suggestions

Because these Principles provide that parties should retain the option of an oral hearing in small
claims court (Principle 5), it may be reasonable for the ADR agreement to provide other means
for small claims arbitration. Such alternatives may include a "desk arbitration" involving a
decision on written submissions, participation in proceedings by telephone or electronic data
transmission, and other options.

As is generally the case in commercial arbitration, arbitrators may undertake reasonable means to
protect the privacy of the hearing.

PRINCIPLE 13. ACCESS TO INFORMATION

No party should ever be denied the right to a fundamentally-fair process due to an inability to
obtain information material to a dispute. Consumer ADR agreements which provide for binding
arbitration should establish procedures for arbitrator-supervised exchange of information prior
to arbitration, bearing in mind the expedited nature of arbitration.

Reporter's Comments

It is understood that ADR sometimes represents a tradeoff between the concept of full discovery
associated with court procedures and the efficiencies associated with minimal pretrial process. A
hallmark of binding arbitration is the avoidance of the cost and delay associated with extensive
pre-hearing discovery. See III Federal Arbitration Law ' 34.1. In recent years, however, the
notion that arbitration means little or no discovery has moderated due to the widening range of
cases submitted to arbitration and the increasing recognition that at least some pre-hearing
exchange of information may be necessary and appropriate to meet the due process rights of
participants and may in some cases reduce the overall length of the process. See id. , Ch. 34. See

APPENDIX PAGE 064
also Mark E. Budnitz, Arbitration of Disputes Between Consumers and Financial Institutions: A
Serious Threat to Consumer Protection, 10 Ohio St. J. on Disp. Res. 267, 283-84, 311, 314
(arguing that limits on discovery in arbitration hamper consumer claimants).

Addressing statutory disputes arising out of employment relationships, the Employment Due
Process Protocol states that "[a]dequate but limited pre-trial discovery is to be encouraged and
employees [and their representatives] should have access to all information reasonably relevant
to mediation and/or arbitration of their claims." Employment Due Process Protocol ' B.3. The
Committee supports the concept of limiting the exchange of information as much as possible
while ensuring that Consumers and Providers each have access to information that is legally
obtainable and relevant to their case. In most cases, this means that pre-hearing information
exchange will consist of an exchange of documents as directed by the arbitrator, identification of
witnesses and a summary of their expected testimony. Arbitrators should have the authority to
require additional discovery when necessary, such as requiring the deposition of witnesses
unable to appear at the hearing in order to preserve their testimony.

Although information exchange issues which cannot be handled by the agreement of the parties
should generally be left to the discretion of the arbitrator, it may be appropriate for advisory
groups (including adequate consumer representation) to develop guidelines for information
exchange in specific kinds of cases. See, e.g., National Association of Securities Dealers,
National Arbitration and Mediation Committee, Report of the Drafting Subcommittee on The
Discovery Guide , Dec. 3, 1997 Draft.

Some Advisory Committee members also expressed concern about the forced production of
privileged documents, and argued that arbitrators should be required to observe established
privileges such as the attorney-client privilege and work-product privilege. See James H. Carter,
The Attorney-Client Privilege and Arbitration, ADR Currents, Winter 1996-97, 1. As stated in
Principle 12, arbitrators should "carefully consider claims of privilege and confidentiality when
addressing evidentiary issues." Such protections may be addressed in the arbitration agreement
(including incorporated arbitration procedures), and should be thoroughly treated, along with
information exchange issues, in arbitrator training programs.

Practical Suggestions

In many cases, issues relating to information exchange may be addressed by the arbitrator(s) at a
preliminary conference. See, e.g., AAA Wireless Rules '' R-9, R-10. Some rules require that all
exhibits be exchanged a certain number of days prior to hearings. See id., R-10.

PRINCIPLE 14. ARBITRAL REMEDIES

The arbitrator should be empowered to grant whatever relief would be available in court under
law or in equity.

Reporter's Comments

APPENDIX PAGE 065
As a general rule, arbitrators have broad authority to fashion relief appropriate to the
circumstances. See III Federal Arbitration Law ' 36.1.1. Their discretion is limited only by the
agreement of the parties and the scope of the submission to arbitration. See id., ' 36.1.2.

There are, however, a number of issues respecting the ability of arbitrators to award certain
remedies which would be available in court. For example, although the trend under federal and
state law is to acknowledge the authority of arbitrators to award punitive damages, a few state
courts still take the opposing view. See generally Federal Arbitration Law , supra , ' 36.3;
Thomas J. Stipanowich, Punitive Damages and the Consumerization of Arbitration, 92 Nw. U.
L. Rev. 1 (1998). And although courts may award attorney's fees where permitted by statute or
by agreement of the parties, or where a party acts vexatiously or in bad faith, there is conflicting
authority regarding the ability of arbitrators to take similar action. See generally Federal
Arbitration Law , supra , ' 36.8.

This provision incorporates language similar to that contained in the Employment Due Process
Protocol, ' C.5. The intent is to make clear that arbitrators deriving their authority from
Consumer contracts should enjoy the same authority courts have to fashion relief, including
awarding attorney's fees and punitive damages in appropriate cases.

Contractual limitations of damages may limit the authority of arbitrators in the same fashion that
they limit judicial remedies. It is possible that an award of damages in excess of a contractual
limit would be vacated under pertinent statutory standards or common law principles. See, e.g.,
FAA ' 10(a)(4). But see Stipanowich, Punitive Damages, supra, at 33-36 (discussing public
policy limitations on pre-dispute caps on punitive damages).

PRINCIPLE 15. ARBITRATION AWARDS

1. Final and Binding Award; Limited Scope of Review. If provided in the agreement to arbitrate, the arbitrator's award should
be final and binding, but subject to review in accordance with applicable statutes governing arbitration awards.
2. Standards to Guide Arbitrator Decision-Making. In making the award, the arbitrator should apply any identified, pertinent
contract terms, statutes and legal precedents.
3. Explanation of Award. At the timely request of either party, the arbitrator should provide a brief written explanation of the
basis for the award. To facilitate such requests, the arbitrator should discuss the matter with the parties prior to the
arbitration hearing.

Reporter's Comments

Review of arbitration awards is very limited under modern arbitration statutes. Courts are very
reluctant to vacate awards, or to second-guess the decisions of arbitrators on matters of
procedure or substance. See generally IV Federal Arbitration Law, ch. 40. "Arbitrators can
misconstrue contracts, make erroneous decisions of fact, and misapply law, all without having
their awards vacated." See id., ' 40.6.1. While some members of the Advisory Committee
expressed concerns regarding the current state of the law, it was generally agreed that finality
was a primary objective of arbitration and that it would be inappropriate to recommend more
rigorous judicial review for Consumer arbitration awards than for other arbitration awards. At the
same time, however, the Advisory Committee concluded that the rules should specifically direct
arbitrators to follow pertinent contract terms and legal principles. This requirement may have
implications for qualifications and training of Neutrals pursuant to Principle 4.

APPENDIX PAGE 066
Leading modern arbitration statutes do not require arbitrators to provide a written explanation or
give reasons for their awards. See generally III Federal Arbitration Law ' 37.4.1. Similarly, some
leading commercial arbitration rules do not require findings of fact or conclusions of law. See,
e.g., AAA Commercial Rules. Those supporting "bare" awards argue that a written rationale will
make it more likely that courts will inquire into the merits of the award, contrary to policies of
finality underlying modern statutes. They also observe that not being required to write an opinion
simplifies the arbitral task and permits multi-member arbitration panels, like juries, to agree on a
decision without concurring on a rationale. See id.

On the other hand, some other commercial arbitration rules call for a statement of the underlying
rationale. See, e.g., CPR Rules for Non-administered Arbitration of Business Disputes, Rule 13.2.
Those supporting awards with written rationales argue that a written rationale encourages more
disciplined decision-making and enhances party satisfaction with the result. See Alan Scott Rau,
Integrity in Private Judging, 38 S. Tex. L. Rev. 485, 529-39 (1997)(offering arguments in favor
of "reasoned" awards). After considering the pros and cons of "reasoned " awards, the Advisory
Committee concluded that arbitrators of Consumer disputes should provide at least a brief
written explanation if requested to do so by any party.

As noted in the Comments accompanying Principle 12, the Advisory Committee recognized the
dilemma posed by the tension between the desire for confidentiality in arbitration (including
information regarding arbitration awards) and the need to provide Consumers access to
information regarding arbitrators and sponsoring Independent ADR Institutions, including case
statistics, data on recent arbitrations and other pertinent information. Although the Advisory
Committee did not address this issue, it recommends that the matter be the focus of serious study
by the Advisory Committee or a similar advisory group, supported by appropriate independent
research efforts.

Practical Suggestions

To facilitate requests for reasoned awards, the arbitrator should raise the issue with the parties
prior to the arbitration hearing. The matter should be addressed at the preliminary conference if
one is conducted.

A DUE PROCESS PROTOCOL FOR MEDIATION AND ARBITRATION OF CONSUMER
DISPUTES

Dated: April 17, 1998

Some of the signatories to this Protocol were designated by their respective organizations, but
the Protocol reflects their personal views and should not be construed as representing the policy
of the designating organizations.

The Honorable Winslow Christian Ken McEldowney
Co-chair Executive Director
Justice (Retired) Consumer Action
California Court of Appeal

APPENDIX PAGE 067
William N. Miller Michelle Meier
Co-chair Former Counsel for Government Affairs
Director of the ADR Unit Consumers Union
Office of Consumer Affairs
Virginia Division of Consumer Protection Anita B. Metzen
Designated by National Association of Executive Director
Consumer Agency Administrators American Council on Consumer Interests
David B. Adcock James A. Newell
Office of the University Counsel Associate General Counsel
Duke University Freddie Mac
Steven G. Gallagher Shirley F. Sarna
Senior Vice President Assistant Attorney General-In-Charge
American Arbitration Association Consumer Frauds and Protection Bureau
Office of the Attorney General
Michael F. Hoellering State of New York
General Counsel Designated by National Association
American Arbitration Association of Attorneys General

J. Clark Kelso Daniel C. Smith
Director Vice President and Deputy General Counsel
Institute for Legislative Practice Fannie Mae
University of the Pacific
McGeorge School of Law
Elaine Kolish Terry L. Trantina
Associate Director Member
Division of Enforcement Ravin, Sarasohn, Cook, Baumgarten, Fisch &
Bureau of Consumer Protection Rosen, P.C.
Federal Trade Commission Formerly General Attorney
AT&T Corp.
Robert Marotta Deborah M. Zuckerman
Wolcott, Rivers, Wheary, Basnight & Kelly, Staff Attorney
P.C. Litigation Unit
Formerly Office of the General Counsel American Association of Retired Persons
General Motors Corporation
Robert E. Meade Thomas Stipanowich
Senior Vice President Academic Reporter
American Arbitration Association W.L. Matthews Professor of Law
University of Kentucky College of Law

APPENDIX PAGE 068
• AAA MISSION & PRINCIPLES
• PRIVACY POLICY
• TERMS OF USE
• TECHNICAL RECOMMENDATIONS
• ©2007 AMERICAN ARBITRATION ASSOCIATION. ALL RIGHTS RESERVED

APPENDIX PAGE 069
Consumer-Related Disputes
Supplementary Procedures

Available online at adr.org/consumer
Rules Effective September 15, 2005
Fees Effective March 1, 2013
APPENDIX PAGE 070
 Table of Contents

Consumer-Related Disputes Supplementary Procedures. . . . . . . . . . . . . . . . . . . . . . . 4
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
About the AAA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The AAA’s Consumer Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Availability of Mediation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Administrative Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Arbitrator’s Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Claimant.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Respondent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ADR Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Desk Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Telephone Hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
In Person Hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Mediation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Neutral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Case Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ADR Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ADR Program.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Independent ADR Institution.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Supplementary Procedures for the Resolution of Consumer-Related Disputes. . . 8
C-1. Agreement of Parties and Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C-2. Initiation Under an Arbitration Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C-3. Initiation Under a Submission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
C-4. Appointment of Arbitrator.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
C-5. Proceedings on Documents (“Desk Arbitration”). . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
C-6. Expedited Hearing Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
C-7. The Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
C-8. Administrative Fees and Arbitrator Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2
APPENDIX PAGE 071
Rules Effective September 15, 2005. Fees Effective March 1, 2013. American Arbitration Association
Costs of Arbitration (including AAA Administrative Fees)*. . . . . . . . . . . . . . . . . . . . . 12
(i) Filing Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(ii) Neutral Arbitrator’s Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(iii) Refund Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(iv) Hearing Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(v) Hearing Room Rental.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(vi) Abeyance Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(vii) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

APPENDIX PAGE 072
CONSUMER-RELATED DISPUTES SUPPLEMENTARY PROCEDURES 3
 Consumer-Related
Disputes Supplementary Procedures

Introduction

Millions of consumer purchases take place each year. Occasionally, these
transactions lead to disagreements between consumers and businesses.
These disputes can be resolved by arbitration. Arbitration is usually faster and
cheaper than going to court. The AAA® applies the Supplementary Procedures
for Consumer-Related Disputes to arbitration clauses in agreements between
individual consumers and businesses where the business has a standardized,
systematic application of arbitration clauses with customers and where the terms
and conditions of the purchase of standardized, consumable goods or services
are non-negotiable or primarily non-negotiable in most or all of its terms,
conditions, features, or choices. The product or service must be for personal or
household use. The AAA will have the discretion to apply or not to apply the
Supplementary Procedures and the parties will be able to bring any disputes
concerning the application or non-application to the attention of the arbitrator.
Consumers are not prohibited from seeking relief in a small claims court for
disputes or claims within the scope of its jurisdiction, even in consumer
arbitration cases filed by the business.

About the AAA

The American Arbitration Association® (AAA) is a not-for-profit, private
organization. We offer a broad range of conflict management services to
businesses, organizations and individuals. We also provide education, training
and publications focused on ways of settling disputes out of court.

The AAA’s Consumer Rules

TThe AAA has developed the Supplementary Procedures for Consumer-Related
Disputes for consumers and businesses that want to have their disagreements
resolved by arbitrators. People throughout the world can make use of our services.

4
APPENDIX PAGE 073
Rules Effective September 15, 2005. Fees Effective March 1, 2013. American Arbitration Association
Availability of Mediation

Mediation is also available to help parties resolve their disputes. Mediations are
handled under AAA’s Commercial Mediation Procedures.

Administrative Fees

The Association charges a fee for its services under these rules. The costs to
the consumer and business depend on the type of hearing and number of
arbitrators used. A fee schedule is included at the end of this Supplement.

Arbitrator’s Fees

Arbitrators get paid for the time they spend resolving disputes. The arbitrator’s
fee depends on the type of proceeding that is used and the time it takes. The
business makes deposits as outlined in the fee schedule at the end of this
Supplement. Unused deposits are refunded at the end of the case.

APPENDIX PAGE 074
CONSUMER-RELATED DISPUTES SUPPLEMENTARY PROCEDURES 5
 Glossary of Terms

Claimant

A Claimant is the party who files the claim or starts the arbitration. Either the
consumer or the business may be the Claimant.

Respondent

A Respondent is the party against whom the claim is filed. If a Respondent states
a claim in arbitration, it is called a counterclaim. Either the consumer or the
business may be the Respondent.

ADR Process

An ADR (Alternative Dispute Resolution) Process is a method of resolving a
dispute out of court. Mediation and Arbitration are the most widely used
ADR processes.

Arbitration

In arbitration, the parties submit disputes to an impartial person (the arbitrator)
for a decision. Each party can present evidence to the arbitrator. Arbitrators do
not have to follow the Rules of Evidence used in court. Arbitrators decide cases
with written decisions or “awards.” An award is usually binding on the parties.
A court may enforce an arbitration award, but the court’s review of arbitration
awards is limited.

Desk Arbitration

In a Desk Arbitration, the parties submit their arguments and evidence to the
arbitrator in writing. The arbitrator then makes an award based only on the
documents. No hearing is held.

Telephone Hearing

In a Telephone Hearing, the parties have the opportunity to tell the arbitrator
about their case during a conference call. Often this is done after the parties
have sent in documents for the arbitrator to review. A Telephone Hearing can
be easier than an In Person Hearing.

6
APPENDIX PAGE 075
Rules Effective September 15, 2005. Fees Effective March 1, 2013. American Arbitration Association
In Person Hearing

During an In Person Hearing, the parties and the arbitrator meet in a
conference room or office and the parties present their evidence in a process
that is similar to going to court. However, an In Person Hearing is not as formal
as going to court.

Mediation

In Mediation, an impartial person (the mediator) helps the parties try to settle
their dispute by reaching an agreement together. A mediator’s role is to help
the parties come to an agreement. A mediator does not arbitrate or decide
the outcome.

Neutral

A Neutral is a word that is used to describe someone who is a mediator,
arbitrator, or other independent, impartial person selected to serve as the
independent third party in an ADR process.

Case Manager

The Case Manager is the AAA’s employee assigned to handle the administrative
aspects of the case. He or she does not decide the case. He or she only manages
the case’s administrative steps, such as exchanging documents, matching
schedules, and setting up hearings. The Case Manager is the parties’ contact
point for almost all aspects of the case outside of any hearings.

ADR Agreement

An ADR Agreement is an agreement between a business and a consumer to
submit disputes to mediation, arbitration, or other ADR processes.

ADR Program

An ADR Program is any program or service set up or used by a business to
resolve disputes out of court.

Independent ADR Institution

An Independent ADR Institution is an organization that provides independent
and impartial administration of ADR programs for consumers and businesses.
The American Arbitration Association is an Independent ADR Institution.

APPENDIX PAGE 076
CONSUMER-RELATED DISPUTES SUPPLEMENTARY PROCEDURES 7
 Supplementary Procedures for the Resolution of Consumer-Related
Disputes

C-1. Agreement of Parties and Applicability

(a) The Commercial Dispute Resolution Procedures and these Supplementary
Procedures for Consumer-Related Disputes shall apply whenever the American
Arbitration Association (AAA) or its rules are used in an agreement between a
consumer and a business where the business has a standardized, systematic
application of arbitration clauses with customers and where the terms and
conditions of the purchase of standardized, consumable goods or services
are non-negotiable or primarily non-negotiable in most or all of its terms,
conditions, features, or choices. The product or service must be for personal or
household use. The AAA will have the discretion to apply or not to apply the
Supplementary Procedures and the parties will be able to bring any disputes
concerning the application or non-application to the attention of the arbitrator.
The AAA’s most current rules will be used when the arbitration is started. If there
is a difference between the Commercial Dispute Resolution Procedures and the
Supplementary Procedures, the Supplementary Procedures will be used. The
Commercial Dispute Resolution Procedures may be found on our Web site.
They may also be obtained from the Case Manager.
(b) The Expedited Procedures will be used unless there are three arbitrators. In such
cases, the Commercial Dispute Resolution Procedures shall apply.
(c) The AAA may substitute another set of rules, such as the Real Estate or the
Wireless Industry Arbitration Rules, for the Commercial Dispute Resolution
Procedures in some cases.
(d) Parties can still take their claims to a small claims court.

C-2. Initiation Under an Arbitration Agreement

(a) The filing party (the “claimant”) must notify the other party (the “respondent”), in
writing, that it wishes to arbitrate a dispute. This notification is referred to as the
“demand” for arbitration. The demand should:
‘ briefly explain the dispute,
‘ list the names and addresses of the consumer and the business,
‘ specify the amount of money involved,
‘ state what the claimant wants.
The claimant must also send two copies of the demand to the AAA at the time it
sends the demand to the respondent. When sending a demand to the AAA, the
claimant must attach a copy of the arbitration agreement from the consumer
contract with the business. The claimant must also send the appropriate
administrative fees and deposits. A fee schedule can be found in Section C-8 at
the end of this Supplement.

8
APPENDIX PAGE 077
Rules Effective September 15, 2005. Fees Effective March 1, 2013. American Arbitration Association
 (b) The AAA shall confirm receipt of the demand to the parties.
(c) The respondent may answer the demand and may also file a counterclaim. The
answer must be sent to the AAA within ten calendar days after the AAA
acknowledges receipt of claimant’s demand. The answer must:
‘ be in writing,
‘ be sent, in duplicate, to the AAA,
‘ be sent to the claimant at the same time.
‘ If the respondent has a counterclaim, it must state the nature of the
counterclaim, the amount involved, and the remedy sought.
(d) If no answer is filed within the stated time, the AAA will assume that the
respondent denies the claim.
(e) The respondent must also send the appropriate administrative fees and deposits.
A fee schedule can be found in Section C-8 at the end of this Supplement.
Payment is due ten calendar days after the AAA acknowledges receipt of
claimant’s demand.

C-3. Initiation Under a Submission

Where no agreement to arbitrate exists in the contract between the consumer
and the business, the parties may agree to arbitrate a dispute. To begin
arbitration, the parties must send the AAA a submission agreement. The
submission agreement must:

‘ be in writing,
‘ be signed by both parties,
‘ briefly explain the dispute,
‘ list the names and addresses of the consumer and the business,
‘ specify the amount of money involved,
‘ state the solution sought.

The parties should send two copies of the submission to the AAA. They must
also send the administrative fees and deposits. A fee schedule can be found in
Section C-8 at the end of this Supplement.

C-4. Appointment of Arbitrator

Immediately after the filing of the submission or the answer, or after the deadline
for filing the answer, the AAA will appoint an arbitrator. The parties will have
seven calendar days from the time the AAA notifies them, to submit any factual
objections to that arbitrator’s service.

APPENDIX PAGE 078
CONSUMER-RELATED DISPUTES SUPPLEMENTARY PROCEDURES 9
 C-5. Proceedings on Documents (“Desk Arbitration”)

Where no claims or counterclaims exceed $10,000, the dispute shall be resolved
by the submission of documents. Any party, however, may ask for a hearing. The
arbitrator may also decide that a hearing is necessary.

The arbitrator will establish a fair process for submitting the documents.
Documents must be sent to the AAA. These will be forwarded to the arbitrator.

C-6. Expedited Hearing Procedures

A party may request that the arbitrator hold a hearing. This hearing may be
by telephone or in person. The hearing may occur even if the other party does
not attend. A request for a hearing should be made in writing within ten calendar
days after the AAA acknowledges receipt of a claimant’s demand for arbitration.
Requests received after that date will be allowed at the discretion of the
arbitrator.

In a case where any party’s claim exceeds $10,000, the arbitrator will conduct a
hearing unless the parties agree not to have one.

Any hearings will be conducted in accordance with the Expedited Procedures of
the Commercial Dispute Resolution Procedures. These procedures may be found
on our Web site. They may also be obtained from the Case Manager.

C-7. The Award

(a) Unless the parties agree otherwise, the arbitrator must make his or her award
within fourteen calendar days from the date of the closing of the hearing. For
Desk Arbitrations, the arbitrator has fourteen calendar days from when the AAA
sends the final documents to the arbitrator.
(b) Awards shall be in writing and shall be executed as required by law.
(c) In the award, the arbitrator should apply any identified pertinent contract terms,
statutes, and legal precedents. The arbitrator may grant any remedy, relief or
outcome that the parties could have received in court. The award shall be final
and binding. The award is subject to review in accordance with applicable
statutes governing arbitration awards.

10
APPENDIX PAGE 079
Rules Effective September 15, 2005. Fees Effective March 1, 2013. American Arbitration Association
C-8. Administrative Fees and Arbitrator Fees

Administrative fees and arbitrator compensation deposits are due from the
claimant at the time a case is filed. They are due from the respondent at the time
the answer is due. The amounts paid by the consumer and the business are set
forth below.

APPENDIX PAGE 080
CONSUMER-RELATED DISPUTES SUPPLEMENTARY PROCEDURES 11
 Costs of Arbitration (including AAA Administrative Fees)*

Arbitrator compensation is not included as part of the administrative fees
charged by the AAA. Arbitrator compensation is based on a rate established
by the AAA set forth below. Once the Preliminary Hearing (see R-21 of the
Commercial Arbitration Rules) is held by the arbitrator, the arbitrator is entitled
to one half the arbitration compensation rate for a full hearing day/or a
documents-only hearing. The business shall pay the arbitrator’s compensation
unless the consumer, post dispute, voluntarily elects to pay a portion of the
arbitrator’s compensation. Arbitrator compensation, expenses as defined in
sections (v) and (vii) below, and administrative fees (which include Filing and
Hearing Fees) are not subject to reallocation by the arbitrator(s) except pursuant
to applicable law or upon the arbitrator’s determination that a claim or
counterclaim was filed for purposes of harassment or is patently frivolous.

* Pursuant to Section 1284.3 of the California Code of Civil Procedure, consumers
with a gross monthly income of less than 300% of the federal poverty guidelines
are entitled to a waiver of arbitration fees and costs, exclusive of arbitrator fees.
This law applies to all consumer agreements subject to the California Arbitration
Act, and to all consumer arbitrations conducted in California. If you believe that
you meet these requirements, you must submit to the AAA a declaration under
oath regarding your monthly income and the number of persons in your
household. Please contact the AAA at 1-800-778-7879, if you have any questions
regarding the waiver of administrative fees. (Effective January 1, 2003)

(i) Filing Fees

In cases before a single arbitrator, a nonrefundable filing fee capped in the
amount of $200 is payable in full by the consumer when a claim is filed, unless the
parties’ agreement provides that the consumer pay less. A partially refundable
fee in the amount of $1,500 is payable in full by the business, unless the parties’
agreement provides that the business pay more. This fee is due from the
business once the consumer has met the filing requirements.

In cases before three or more arbitrators, a nonrefundable filing fee capped in
the amount of $200 is payable in full by the consumer when a claim is filed,
unless the parties’ agreement provides that the consumer pay less. A partially
refundable fee in the amount of $2,000 is payable in full by the business, unless
the parties’ agreement provides that the business pay more. This fee is due from
the business once the consumer has met the filing requirements.

There shall be no filing fee charged for a counterclaim.

12
APPENDIX PAGE 081
Rules Effective September 15, 2005. Fees Effective March 1, 2013. American Arbitration Association
(ii) Neutral Arbitrator’s Compensation

Arbitrators serving on a case with an in-person or telephonic hearing will receive
compensation at a rate of $1500 per day.

Arbitrators serving on a case with a desk arbitration/documents-only hearing will
receive compensation at a rate of $750 per case.

(iii) Refund Schedule

Once the claimant has met the filing requirements, refunds to the business will
be calculated as follows:
• if the case is settled or withdrawn within 30 calendar days, 50% of the filing fee
will be refunded to the business.

However, no refund will be made once an arbitrator has been appointed and no
refunds will be made on awarded cases. The date the claimant’s filing requirements
are met is the date used to calculate any refund of filing fees. If the matter is
settled or withdrawn prior to receipt of filing fees from the business, the AAA will
bill the business in accordance with this refund schedule.

(iv) Hearing Fees

For telephonic hearings or in-person hearings held, an additional administrative
fee of $500 is payable by the business.

There is no AAA hearing fee for the initial Administrative Conference (see R-10 of
the Commercial Arbitration Rules).

(v) Hearing Room Rental

The hearing fees described above do not cover the rental of hearing rooms.
The AAA maintains rental hearing rooms in most offices for the convenience of
the parties. Check with the administrator for availability and rates. Hearing room
rental fees will be borne by the business.

(vi) Abeyance Fee

Parties on cases held as inactive for one year will be assessed an annual
abeyance fee of $300. If a party refuses to pay the assessed fee, the opposing
party or parties may pay the entire fee on behalf of all parties, otherwise the

APPENDIX PAGE 082
CONSUMER-RELATED DISPUTES SUPPLEMENTARY PROCEDURES 13
 matter will be administratively closed. All filing requirements, including payment
of filing fees, must be met before a matter may be placed in abeyance.

(vii) Expenses

All expenses of the arbitrator, including required travel and other expenses, and
any AAA expenses, as well as the costs relating to proof and witnesses produced
at the direction of the arbitrator, shall be borne by the business.

IN-PERSON
IN-PERSON
OR TELEPHONIC
DESK OR TELEPHONIC
PARTIES HEARING –
ARBITRATION HEARING –
THREE OR MORE
SINGLE ARBITRATOR
ARBITRATORS

Consumer Filing Fee - $200 Filing Fee - $200 Filing Fee - $200

Filing Fee - $2000
Filing Fee - $1500 Filing Fee - $1500
Hearing Fee - $500
Arbitrator Compensation - Hearing Fee - $500
Business
$750 per case Arbitrator Compensation -
Arbitrator Compensation -
$1500 per hearing day
$1500 per hearing day
per arbitrator

14
APPENDIX PAGE 083
Rules Effective September 15, 2005. Fees Effective March 1, 2013. American Arbitration Association
© 2014 American Arbitration Association®, Inc. All rights reserved. These rules are the copyrighted property of the
American Arbitration Association (AAA) and are intended to be used in conjunction with the AAA’s administrative services.
Any unauthorized use or modification of these rules may violate copyright laws and other applicable laws.
Please contact 800.778.7879 or websitemail@adr.org for additional information.

APPENDIX PAGE 084
 TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

ON MOTION FOR REHEARING

NO. 03-15-00422-CV

Shakeel Mustafa, Appellant

v.

Felix Rippy, Appellee

FROM THE COUNTY COURT AT LAW NO. 4 OF WILLIAMSON COUNTY
NO. 15-0708-CC4, HONORABLE JOHN MCMASTER, JUDGE PRESIDING

MEMORANDUM OPINION

We withdraw our opinion and judgment dated August 21, 2015, and substitute

the following opinion and judgment in their place. Appellant’s motion for rehearing is dismissed

as moot.

Shakeel Mustafa filed a notice of appeal attempting to challenge the trial court’s order

granting Felix Rippy’s motion to compel arbitration.

We do not have jurisdiction to review a trial court’s interlocutory order granting

arbitration. See Tex. Civ. Prac. & Rem. Code § 171.098(a)(1),(2) (authorizing interlocutory appeal

of trial court order denying application to compel arbitration or granting application to stay

arbitration) (emphases added); Mohamed v. AutoNation USA Corp., 89 S.W.3d 830, 833-34

APPENDIX PAGE 085
(Tex. App.—Houston [1st Dist.] 2002, no pet.) (dismissing interlocutory appeal because “no

interlocutory appeal lies from an order granting a motion to compel arbitration under TAA”).

On August 4, 2015, this Court requested that Mustafa file a written response

demonstrating our jurisdiction over this appeal. No response was filed, and we dismissed the appeal

for want of jurisdiction.

Mustafa filed a motion for rehearing contending that we have jurisdiction to

review the trial court’s interlocutory order denying his motion to compel mediation then arbitration.

However, even if the trial court implicitly denied Mustafa’s motion to compel mediation

before arbitration, we lack jurisdiction to review an interlocutory order denying referral of a

matter to mediation. See In re D.C., No. 07-11-00046-CV, 2011 Tex. App. LEXIS 1461, at *3

(Tex. App.—Amarillo Feb. 28, 2011, no pet.) (mem. op.) (“We have no appellate jurisdiction to

review an interlocutory order granting or denying referral of a matter to mediation.”); see also

Tex. Civ. Prac. & Rem. Code § 51.014(a) (providing for interlocutory appeals generally).

We dismiss this appeal for want of jurisdiction. See Tex. R. App. P. 43.2(f).

Jeff Rose, Chief Justice

Before Chief Justice Rose, Justices Pemberton and Field

Dismissed for Want of Jurisdiction on Motion for Rehearing

Filed: September 24, 2015

2

APPENDIX PAGE 086
Reversed and Rendered and Writ Conditionally Granted; Opinion Filed
September 18, 2015.

In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-14-01223-CV

MICHAEL MORFORD, INDIVIDUALLY, D/B/A NEMAHA WATER
SERVICES, GEFFREY ARNOLD MCFALLS, INDIVIDUALLY D/B/A
NEMAHA WATER SERVICES, NEMAHA WATER SERVICES, LP,
NEMAHA WATER SERVICES GP, LLC, NEMAHA WATER SERVICES
OK-1702, LLC, AND NEMAHA SERVICES HOLDING COMPANY, LLC,
Appellants
V.
ESPOSITO SECURITIES, LLC, Appellee

On Appeal from the 44th Judicial District Court
Dallas County, Texas
Trial Court Cause No. DC-14-05795

MEMORANDUM OPINION
Before Justices Fillmore, Stoddart, and Whitehill
Opinion by Justice Stoddart

This is an appeal from an order denying Nemaha’s1 motion to compel arbitration before

the Financial Industry National Regulatory Authority (FINRA) and granting Esposito Securities,

LLC’s motion to compel arbitration before the American Arbitration Association (AAA). In a

single issue, Nemaha argues the trial court erred by concluding Nemaha was not a customer

1
Appellants are Michael Morford, Individually, D/B/A Nemaha Water Services, Geffrey Arnold Mcfalls,
Individually D/B/A Nemaha Water Services, Nemaha Water Services, LP, Nemaha Water Services GP, LLC,
Nemaha Water Services Ok-1702, LLC, and Nemaha Services Holding Company, LLC. We refer to appellants
collectively as Nemaha.

APPENDIX PAGE 087
under FINRA rules and by denying Nemaha’s motion to compel arbitration before FINRA.

We conclude we have appellate jurisdiction over that portion of the order denying

Nemaha’s motion to compel arbitration, but not over that portion granting Esposito’s motion to

compel arbitration. Nemaha requests that we treat this appeal as a petition for writ of mandamus

if necessary. We grant Nemaha’s request and treat the appeal as a petition for writ of mandamus

regarding the order granting Esposito’s motion to compel arbitration.2

We conclude Nemaha is a customer of Esposito, a FINRA member, and entitled to

request FINRA arbitration under the rules adopted by FINRA and approved by the Securities and

Exchange Commission (SEC) under its Congressionally delegated rulemaking authority.

Accordingly, the trial court erred by denying Nemaha’s motion to compel arbitration before

FINRA and abused its discretion by granting Esposito’s motion. We reverse the trial court’s

order denying Nemaha’s motion, render judgment granting Nemaha’s motion to compel

arbitration, and order all disputes between the parties proceed to arbitration before FINRA

pursuant to FINRA rules. We conditionally grant the petition for writ of mandamus as to the

portion of the order granting Esposito’s motion to compel arbitration and direct the trial court to

vacate that portion of the order.

BACKGROUND

Esposito, a Dallas based firm, is a licensed securities broker and member of FINRA. As a

member of FINRA, Esposito agreed to arbitrate disputes with it customers under FINRA rules. 3

2
Pursuant to rule 7.2(b), we abated this proceeding to allow the successor judge of the trial court to
reconsider the order. The judge of the trial court affirmed the order and we reinstated this proceeding.
3
See UBS Fin. Services, Inc. v. W. Va. Univ. Hosps., Inc., 660 F.3d 643, 649 (2d Cir. 2011) (by joining
FINRA, members agree to comply with FINRA rules including FINRA Code of Arbitration); FINRA Code Rule
12200, 2015 WL 464978 (“Parties must arbitrate a dispute under the [FINRA] Code if: Arbitration under the
[FINRA] Code is either: (1) Required by a written agreement, or (2) Requested by the customer;” the dispute is
between a customer and a member; and the dispute arises in connection with the business activities of the member).

–2–
APPENDIX PAGE 088
Customers of FINRA members are third party beneficiaries of the agreement to arbitrate4 and

may enforce that agreement pursuant to rules promulgated by FINRA. This case arises out of a

letter agreement (Agreement) between Esposito and Nemaha,5 based in Oklahoma, whereby

Esposito agreed generally to assist Nemaha in finding investors or a merger partner in return for

a fee of five percent of the total consideration received by Nemaha in a qualifying transaction.

The Agreement contains an arbitration provision requiring resolution of all disputes arising out

of or relating to the Agreement by binding arbitration according to the rules of the AAA.

Esposito alleged in its statement of claim before the AAA and its petition in this case that

it performed a number of services for Nemaha that were accepted by Nemaha and that Nemaha,

in breach of the terms of the Agreement, negotiated and closed two transactions without

coordinating or communicating with Esposito. When Esposito learned of these transactions, it

demanded a fee of five percent of the total consideration received by Nemaha, approximately

$410,000. Nemaha refused the demand.

Esposito filed a claim for arbitration with the AAA, but Nemaha refused to participate in

the AAA arbitration. Esposito then filed this lawsuit seeking to recover damages for breach of

contract or in the alternative, quantum meruit, and filed a motion to compel arbitration before the

AAA. In response, Nemaha filed a counterclaim for a declaratory judgment that the transactions

did not fall within the description of transactions requiring the payment of a fee under the terms

4
See id. (“A customer under the exchange’s rules is entitled to invoke the arbitration provision ‘as an
intended third-party beneficiary’ in a dispute with a member.”) (quoting Kidder, Peabody & Co., Inc. v. Zinsmeyer
Trusts P’ship, 41 F.3d 861, 863–64 (2d Cir. 1994) (customers are intended beneficiaries of member’s agreement to
arbitrate pursuant to NASD, predecessor to FINRA, rules)).
5
The record is unclear whether Nemaha is a separate legal entity or merely an assumed name of the
individuals and partnerships named as parties in Esposito’s original petition. The Agreement was signed on behalf of
Nemaha Water Services by Michael Morford as partner and president. Esposito alleged in its petition and AAA
supplemental statement of claim that it entered into the agreement with all of the appellants doing business as
Nemaha Water Services. Esposito sought to compel all of the appellants to arbitration as parties bound by the
Agreement. Accordingly, we will consider the appellants collectively as a single business and parties to the
Agreement as Esposito has done.

–3–
APPENDIX PAGE 089
of the Agreement. Nemaha also filed a motion to compel arbitration before FINRA and initiated

an arbitration proceeding in that forum.

After three hearings on the matter, the trial court signed an order determining that

Nemaha was not a customer of Esposito because appellants “have apparently taken the position

in their Statement of Claim to FINRA that [Esposito] is not entitled to a transaction fee because

the [appellants] have yet to purchase a good or service.” The order granted Esposito’s motion to

compel arbitration and required the parties to arbitrate all claims before the AAA, and impliedly

denied Nemaha’s cross-motion to compel arbitration before FINRA.

JURISDICTION

Two jurisdictional issues are presented in this appeal. First is the late filing of the notice

of appeal under TEX. R. APP. P. 26(b). Second is our jurisdiction to consider an appeal from an

order granting a motion to compel arbitration in one forum and denying a motion to compel

arbitration in another forum.

A. Late Notice of Appeal

The notice of appeal in an accelerated appeal must be filed within 20 days after the

judgment or order is signed.6 The order denying Nemaha’s motion to compel FINRA arbitration

and granting Esposito’s motion to compel AAA arbitration was signed on August 28, 2014. The

notice of appeal was due twenty days later on September 17, 2014. Nemaha filed its notice of

appeal on September 23, 2014. Although Nemaha filed a motion to reconsider the August 28,

2014 order, that motion did not extend the time for Nemaha to perfect its accelerated appeal.7

Nemaha filed a motion to extend the time to file its notice of appeal on September 24,

6
TEX. R. APP. P. 26.1(b).
7
TEX. R. APP. P. 28.1(b) (“Filing a motion for new trial, any other post-trial motion, or a request for
findings of fact will not extend the time to perfect an accelerated appeal.”).

–4–
APPENDIX PAGE 090
2014,8 and explained:

Here, the notice of appeal was not filed immediately because it was hoped a
motion for reconsideration would resolve the issue without the necessity of
appeal. When reconsideration was denied, the deadline to file a Notice of Appeal
was inadvertently missed due to a miscommunication between counsel and a
miscalculation of the date on which the notice of appeal was due. The delay was
not deliberate or intentional, but was the result of inadvertence, mistake or
mischance.

Waiting on the outcome of a post-trial motion before perfecting an appeal is not a

reasonable explanation of the need for an extension.9 However, Nemaha’s motion for extension,

while conclusory and lacking specific facts, explains that the failure to file the notice of appeal

was inadvertent due to a miscommunication between counsel and a miscalculation of the date the

notice of appeal was due. This explanation is some indication the delay was not deliberate or

intentional.10 The record indicates Nemaha intended to appeal the trial court’s ruling and the

explanation in the motion for extension does not show a conscious or strategic decision to wait to

file the notice of appeal.11 Accordingly, we grant Nemaha’s motion for extension of time to file

the notice of appeal.

B. Jurisdiction of Interlocutory Appeal

Because the contract between the parties evidences a transaction involving commerce, the

Federal Arbitration Act (FAA) applies in this case.12 While the FAA applies to substantive

8
See TEX. R. APP. P. 26.3 (motion for extension must be filed within 15 days after deadline for filing notice
of appeal).
9
See Jahner v. Jahner, No. 05-15-00225-CV, 2015 WL 1910014, at *1 (Tex. App.—Dallas Apr. 28, 2015,
no. pet. h.) (mem. op.) (decision to await outcome of hearing on motion to modify did not constitute reasonable
explanation of a need for extension of time to file notice of appeal).
10
See Garcia v. Kastner Farms, Inc., 774 S.W.3d 668, 669 (Tex. 1989) (“any conduct short of deliberate or
intentional noncompliance qualifies as inadvertence, mistake, or mischance”).
11
See Jahner, 2015 WL 1910014, at *1.
12
9 U.S.C. § 2 (2012); see In re D. Wilson Constr. Co., 196 S.W.3d 774, 779 (Tex. 2006) (noting FAA
preempts only contrary state law).

–5–
APPENDIX PAGE 091
issues, we apply Texas law to procedural matters.13

Pursuant to section 51.016 of the civil practice and remedies code, a party may appeal a

judgment or interlocutory order in a matter subject to the FAA under the same circumstances as

an appeal would be permitted under 9 U.S.C. § 16.14 FAA section 16 permits appeals from orders

denying a petition for an order directing arbitration to proceed.15 But section 16 prohibits an

appeal from an interlocutory order directing arbitration to proceed.16 Generally, section 16 does

not permit interlocutory appeals from orders favoring arbitration.17

The order here disposed of cross-motions to compel arbitration by granting Esposito’s

motion and impliedly denying Nemaha’s cross-motion. Under section 16 and section 51.016, we

have appellate jurisdiction over the denial of Nemaha’s motion to compel arbitration before

FINRA. However, the order also granted Esposito’s motion to compel arbitration before the

AAA.

In Austin Commercial, we faced a somewhat similar situation except we were not dealing

with competing motions to compel arbitration.18 Austin Commercial, the general contractor on a

construction project, contracted with Carter & Burgess for architectural services. 19 After a

dispute arose with Carter & Burgess, Austin Commercial moved to compel arbitration before the

Civilian Board of Contract Appeals (CBCA) under its prime contract with the project owner. The

subcontract between Austin Commercial and Carter & Burgess required arbitration pursuant to
13
Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992) (orig. proceeding); In re Chestnut Energy
Partners, Inc., 300 S.W.3d 386, 394–95 (Tex. App.—Dallas 2009, pet. denied).
14
See TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West 2015); CMH Homes v. Perez, 340 S.W.3d 444,
449 (Tex. 2011); Austin Commercial Contractors, L.P. v. Carter & Burgess, Inc., 347 S.W.3d 897, 900 (Tex.
App.—Dallas 2011, pet. denied).
15
9 U.S.C. § 16(a)(1)(B); id. § 4.
16
Id. § 16(b)(2).
17
Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 86 (2000); Austin Commercial, 347 S.W.3d at 900.
18
See Austin Commercial, 347 S.W.3d at 899.
19
Id.

–6–
APPENDIX PAGE 092
the dispute resolution procedures in the prime contract, but in the absence of such procedures, all

disputes would be resolved by AAA arbitration.20

Carter & Burgess did not seek arbitration; it opposed arbitration before either forum,

arguing the CBCA did not have jurisdiction and Austin Commercial waived arbitration by

engaging in litigation before requesting arbitration.21 The trial court granted the motion to compel

in part and denied it in part. The court compelled arbitration, but before the AAA rather than the

CBCA.22 We concluded we did not have appellate jurisdiction over this order under FAA

section 16 and section 51.016 of the civil practice and remedies code.23 However, we also

concluded that Austin Commercial was entitled to mandamus relief from the order compelling

arbitration before the AAA.24 We determined Austin Commercial lacked an adequate remedy by

appeal and the trial court clearly abused its discretion by compelling arbitration before AAA

when the subcontract required arbitration according to the dispute resolution procedures in the

prime contract.25

Nemaha requests that we consider its appellate brief a petition for writ of mandamus if

necessary to review the trial court’s order. We may consider an appeal as a petition for writ of

mandamus if requested.26 The requirements for mandamus relief are a clear abuse of discretion

and the lack of an adequate remedy by appeal.27 There is no adequate remedy by appeal when a

20
Id.
21
Id.
22
Id.
23
Id. at 900.
24
Id. at 901–02.
25
Id.
26
See CMH Homes, 340 S.W.3d at 452–54.
27
See Austin Commercial, 347 S.W.3d at 901 (citing In re Gulf Exploration, LLC, 289 S.W.3d 836, 842
(Tex. 2009)).

–7–
APPENDIX PAGE 093
party is erroneously denied its contracted-for arbitration rights under the FAA.28

Following Austin Commercial, we conclude we do not have appellate jurisdiction over

that portion of the order granting Esposito’s motion to compel arbitration.29 Accordingly, we

dismiss that portion of this appeal, but grant Nemaha’s request that we treat its appeal as a

mandamus petition as to the order granting the motion to compel. If Nemaha is a customer, it has

a contractual right as a third party beneficiary to request arbitration under FINRA rules under

Esposito’s member agreement with FINRA. If that right is erroneously denied by ordering

Nemaha to arbitrate before the AAA, Nemaha will lack an adequate remedy by appeal. 30 Thus,

we conclude we have mandamus jurisdiction to consider whether the trial court abused its

discretion by granting Esposito’s motion to compel arbitration before the AAA.31

STANDARD OF REVIEW

A party seeking to compel arbitration has the initial burden of establishing the parties

agreed to arbitration and that the claims fall within the agreement’s scope.32 We review an order

denying a motion to compel arbitration under an abuse of discretion standard. 33 We defer to the

trial court’s factual determinations by applying a no-evidence standard of review, but we review

the trial court’s legal determinations de novo.34 Whether an arbitration agreement is enforceable

is subject to de novo review.35

28
Id. (citing In re D. Wilson Constr. Co., 196 S.W.3d at 780–81).
29
See Austin Commercial, 347 S.W.3d at 900.
30
Id. at 901.
31
Id.
32
J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003).
33
In re Labatt Food Serv., L.P., 279 S.W.3d 640, 642–43 (Tex. 2009) (orig. proceeding); Sidley Austin
Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 863 (Tex. App.—Dallas 2010, no pet.).
34
Labatt, 279 S.W.3d at 643; Sidley, 327 S.W.3d at 863.
35
Labatt, 279 S.W.3d at 643.

–8–
APPENDIX PAGE 094
 ANALYSIS

A. FINRA Rules

For many years, FINRA36 and its predecessor adopted comprehensive rules regarding

arbitration between FINRA members and their customers or employees.37 As discussed above,

FINRA members agree to arbitrate with their customers pursuant to the FINRA code and

customers are third-party beneficiaries of the arbitration provision in the membership

agreement.38 It is undisputed that Esposito is a member of FINRA.

FINRA Rule 12200 provides:

Parties must arbitrate a dispute under the [FINRA] Code if:

• Arbitration under the [FINRA] Code is either:

(1) Required by a written agreement, or

(2) Requested by the customer;

• The dispute is between a customer and a member or associated person of
a member; and

• The dispute arises in connection with the business activities of the
member . . . .

36
FINRA is a self-regulatory organization (SRO) under Section 15A of the Securities Exchange Act of
1934. 15 U.S.C. § 78o-3; W. Va. Univ. Hosps., 660 F.3d at 648. It was created in 2007 through a consolidation of the
National Association of Securities Dealers, Inc. (NASD) and the regulatory arm of the New York Stock Exchange
Group, Inc. (NYSE). Wachovia Bank, Nat’l Ass’n v. VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164,
172 (2d Cir. 2011).
37
In 1975, Congress granted extensive power to the SEC to regulate rules adopted by FINRA and to ensure
the adequacy of the arbitration procedures employed by SROs:
Since the 1975 amendments to § 19 of the Exchange Act, however, the Commission has had
expansive power to ensure the adequacy of the arbitration procedures employed by the SROs. No
proposed rule change may take effect unless the SEC finds that the proposed rule is consistent
with the requirements of the Exchange Act, 15 U.S.C. § 78s(b)(2); and the Commission has the
power, on its own initiative, to “abrogate, add to, and delete from” any SRO rule if it finds such
changes necessary or appropriate to further the objectives of the Act, 15 U.S.C. § 78s(c). In short,
the Commission has broad authority to oversee and to regulate the rules adopted by the SROs
relating to customer disputes, including the power to mandate the adoption of any rules it deems
necessary to ensure that arbitration procedures adequately protect statutory rights.
Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 233–34 (1987).
38
W. Va. Univ. Hosps., 660 F.3d at 649 (“A customer under the exchange’s rules is entitled to invoke the
arbitration provision ‘as an intended third-party beneficiary’ in a dispute with a member.”).

–9–
APPENDIX PAGE 095
FINRA R. 12200, 2015 WL 464978 (emphasis added).

Under the plain language of rule 12200, parties must arbitrate under the FINRA code if

FINRA arbitration is required either by a written agreement or requested by a customer of a

FINRA member.39 The Agreement here does not provide for FINRA arbitration, but Nemaha,

claiming to be a customer of a FINRA member, requested FINRA arbitration. Thus, if Nemaha

is a customer of Esposito, an admitted FINRA member, Nemaha is entitled to demand arbitration

pursuant to FINRA rules.40

The trial court’s order indicates the parties and the court agreed that “if Nemaha is [a]

‘Customer’ of Esposito Securities, then the FINRA rules apply and this Court must send the case

to FINRA arbitration per [Nemaha’s] request.” Thus, as the parties have narrowed the issue, if

Nemaha is a customer, the dispute must be submitted to FINRA arbitration as requested by

Nemaha, but if Nemaha is not a customer, the dispute should be submitted to AAA arbitration

pursuant to the terms of the Agreement.

B. Customer

The FINRA rules do not define the term “customer” other than by stating that a customer

is not a broker or dealer as defined by the Exchange Act.41 Courts that have considered the

meaning of the term agree that “customer” should be given its ordinary meaning of someone

39
“[I]f the rules of an exchange (or similar organization) require arbitration of customer disputes, a
broker’s membership obligation confers upon the customer an option to arbitrate as the exchange rules provide.” Id.
(quoting Zinsmeyer, 41 F.3d at 864); see also UBS Fin. Services, Inc. v. Carilion Clinic, 706 F.3d 319, 323 (4th Cir.
2013) (FINRA members are generally required to arbitrate under FINRA rules when such arbitration is requested by
customers and the dispute “arises in connection with the business activities of the member”).
40
Citing Phillips v. ACS Municipal Broker, Inc., 888 S.W.2d 872, 875 (Tex. App.—Dallas 1994, no writ),
Esposito argues that FINRA rules do not constitute a contract in writing for arbitration. Phillips was decided solely
under the Texas Arbitration Act and before the legislature granted appellate jurisdiction over arbitration proceedings
under the FAA. See id. at 874. This case is governed by the FAA and, as discussed above, we have jurisdiction over
both the appeal and the mandamus proceeding.
41
See FINRA Rule 12100(i), 2015 WL 464972.

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who buys goods or services.42 Thus, “[t]he term ‘customer’ includes at least a non-broker or non-

dealer who purchases, or undertakes to purchase, a good or service from a FINRA member.”43

By agreeing to accept a fee for its services, a FINRA member understands it may be compelled

to arbitrate any disputes with a party to the agreement.44 While this may not be a

“comprehensive definition of the term, it captures virtually all customer relationships.”45

The trial court’s order indicates the court believed Nemaha took inconsistent positions in

this case and in the FINRA arbitration. The court concluded Nemaha was not a customer because

Nemaha took the position in its FINRA statement of claim that it had yet to purchase a service

from Esposito. Nemaha’s statement of claim, however, does not support this conclusion. Nemaha

asserted it was a customer under FINRA Rule 12200 and entitled to arbitrate the dispute with

Esposito under FINRA rules. Specifically, Nemaha alleged the Agreement was fraudulently

induced because Esposito failed to disclose that it did not have expertise in obtaining initial

capital for startup companies and that the transaction on which Esposito claimed a fee did not fall

within the types of transactions described in the Agreement. Nemaha did not deny entering into

the Agreement or receiving services from Esposito. Nemaha denied that those services resulted

in a transaction for which a fee was due to Esposito under the terms of the Agreement. Thus, we

conclude the record does not support the trial court’s conclusion that Nemaha is precluded from
42
Citigroup Global Markets Inc. v. Abbar, 761 F.3d 268, 275 (2d Cir. 2014) (citing W. Va. Univ. Hosps.,
660 F.3d at 650 (citing several dictionary definitions)); Carilion Clinic, 706 F.3d at 325 (“the term ‘customer’ in
Rule 12200 still retains its generally accepted meaning—‘one that purchases a commodity or service.’”).
43
W. Va. Univ. Hosps., 660 F.3d at 650; see Abbar, 761 F.3d at 275 (“a ‘customer’ under FINRA Rule
12200 is one who, while not a broker or dealer, either (1) purchases a good or service from a FINRA member, or (2)
has an account with a FINRA member”); Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 741 (9th Cir. 2014)
(“‘customer’ is a non-broker and non-dealer who purchases commodities or services from a FINRA member in the
course of the member’s FINRA-regulated business activities, i.e., the member’s investment banking and securities
business activities”), cert. denied sub nom. City of Reno, Nev. v. Goldman, Sachs & Co., 135 S. Ct. 477 (2014);
Carilion Clinic, 706 F.3d at 325 (a “customer” is “one, not a broker or dealer, who purchases commodities or
services from a FINRA member in the course of the member’s business activities insofar as those activities are
covered by FINRA’s regulation, namely the activities of investment banking and the securities business.”).
44
Abbar, 761 F.3d at 275 (citing W. Va. Univ. Hosps., 660 F.3d at 650).
45
Id.

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claiming customer status by its allegations in the FINRA arbitration.

Esposito argues that Nemaha is not a customer because it never “purchased”—that is paid

for—the services allegedly provided by Esposito. According to Esposito, a completed purchase

or payment is required to become a customer, relying on Abbar and Morgan Keegan. However,

the controlling factor in those cases was not a completed purchase or payment of a fee, but direct

dealings between the alleged customer and the member. In Abbar and Morgan Keegan, the

alleged customers did not contract directly with the member to purchase any goods or services.

Abbar received services from Citi NY, a FINRA member, but he did not purchase those services

from Citi NY because his contracts were with Citi UK and the fee for all services rendered by

Citigroup personnel was paid to Citi UK.46 The Second Circuit affirmed the district court’s

finding that Abbar was not a customer because “Abbar never held an account with the FINRA

member and (notwithstanding his argument to the contrary) never purchased any goods or

services from it.”47 Contrary to Esposito’s contention that payment is required, the Second

Circuit recognized in Abbar that a “simple, predictable, and suitably broad definition” of

“customer” is necessary,48 and that a “customer” includes one who “undertakes to purchase a

good or service from a FINRA member.”49

In Morgan Keegan, the alleged customers purchased bond funds underwritten by Morgan

Keegan from a third party through their own broker, who was not affiliated with Morgan

Keegan.50 They filed a FINRA arbitration proceeding against Morgan Keegan for alleged

46
Id..
47
Id.
48
Id. at 276.
49
Id. (quoting W. Va. Univ. Hosps., 660 F.3d at 650).
50
Morgan Keegan & Co. v. Silverman, 706 F.3d 562, 564 (4th Cir. 2013).

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securities fraud regarding the bond funds.51 The Fourth Circuit concluded the investors were not

customers of Morgan Keegan because they “did not have a contractual relationship with Morgan

Keegan, and did not purchase from Morgan Keegan services or commodities, related to

investment banking or the securities business.52

Unlike those cases, Nemaha entered into a contract with Esposito to purchase its services

for a fee. The basis of this dispute is Esposito’s claim that it provided those services to Nemaha

and Nemaha refused to pay for them. By “undertaking to purchase” those services directly from

Esposito for a fee, Nemaha became a customer.53

Esposito also contends no case has decided the customer status solely from the face of an

agreement, but the Second Circuit did just that in West Virginia University Hospitals, Inc.54 The

court noted that the agreements between the parties reflected an undertaking by WVUH to pay

UBS a fee for its services and concluded, “In view of that undertaking and a definition of

customer that at least includes an entity that undertakes to purchase a good or service, WVUH

became UBS’s customer under Rule 12200 by contracting with UBS to obtain auction services

for a fee.”55

We conclude the Agreement represents an undertaking by Nemaha to purchase financial

services from Esposito for a fee. Because the definition of customer “at least includes an entity

that undertakes to purchase a good or service”56 from a FINRA member, Nemaha became

51
Id.
52
Id. at 567, 568; See also Raymond James Fin. Servs., Inc. v. Cary, 709 F.3d 382, 386–87 (4th Cir. 2013)
(investors were not customers under rule 12200 where there was no evidence of a contractual relationship with
member regarding the transaction).
53
See Abbar, 761 F.3d at 275; W. Va. Univ. Hosps., 660 F.3d at 650.
54
W. Va. Univ. Hosps., 660 F.3d at 650.
55
Id.; see also Abbar, 761 F.3d at 276 (citing W. Va. Univ. Hosps., 660 F.3d at 650 as noting that a
customer may also be one who “undertakes to purchase[] a good or service from a FINRA member”).
56
W. Va. Univ. Hosps., 660 F.3d at 650.

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Esposito’s customer under rule 12200. The trial court abused its discretion by finding Nemaha

was not a customer.

Esposito next argues that the obligation to arbitrate under FINRA Rule 12200 can be

superseded by a contract. Indeed, there is authority for this proposition.57 However, in light of

the recital in the trial court’s order that FINRA arbitration is required if Nemaha is a customer,

we need not decide whether the Agreement supersedes the customer’s right to request arbitration

under FINRA rules.

We sustain Nemaha’s sole issue.

CONCLUSION

We conclude Nemaha is a customer of Esposito, a FINRA member, and entitled to

request arbitration under FINRA Rule 12200. Accordingly, the trial court erred by denying

Nemaha’s motion to compel arbitration. We reverse that portion of the trial court’s order, render

judgment granting Nemaha’s motion to compel arbitration, and order all disputes between the

parties proceed to arbitration before FINRA pursuant to FINRA rules. We conditionally grant the

petition for writ of mandamus as to the portion of the order granting Esposito’s motion to compel
57
The Second Circuit has said:
In particular, as relevant here, “different or additional contractual arrangements for arbitration can
supersede the rights conferred on [a] customer by virtue of [a] broker’s membership in a self-
regulating organization such as [FINRA].” Kidder, Peabody & Co. v. Zinsmeyer Trusts P’ship, 41
F.3d 861, 864 (2d Cir.1994) (citing Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Georgiadis,
903 F.2d 109, 113 (2d Cir.1990)).
In re Am. Exp. Fin. Advisors Sec. Litig., 672 F.3d 113, 132 (2d Cir. 2011) (alteration in original); see also Goldman,
Sachs & Co. v. Golden Empire Sch. Fin. Auth., 764 F.3d 210, 214–15 (2d Cir. 2014) (FINRA arbitration rules were
superseded by forum selection clauses requiring “all actions and proceedings” to be brought in federal court); City of
Reno, 747 F.3d at 741 (“As a threshold matter, we agree with Goldman that a contract between the parties can
supersede the default obligation to arbitrate under the FINRA Rules.”); Carilion Clinic, 706 F.3d at 328 (“At the
outset, we agree with UBS and Citi that the obligation to arbitrate under FINRA Rule 12200 can be superseded and
displaced by a more specific agreement between the parties.”); Luckie v. Smith Barney, Harris Upham & Co., Inc.,
999 F.2d 509, 514 (11th Cir. 1993) (“arbitration provisions of a more specific customer agreement can supersede the
arbitration provisions of the AMEX Constitution, namely the AMEX Window”); Roney & Co. v. Goren, 875 F.2d
1218, 1223 (6th Cir. 1989) (Customer’s “decision to sign the customer agreement providing for arbitration solely
before the NYSE was not made involuntarily or under any misleading circumstances; therefore the parties, including
appellant, are contractually bound to honor their mutual predispute choice of NYSE arbitration.”).

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arbitration and direct the trial court to vacate that portion of the order. We are confident the

district court will comply without delay. The writ will issue only if it fails to do so.

/Craig Stoddart/
CRAIG STODDART
JUSTICE

141223F.P05

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 Court of Appeals
Fifth District of Texas at Dallas
JUDGMENT

MICHAEL MORFORD D/B/A NEMAHA On Appeal from the 44th Judicial District
WATER SERVICES, GEFFREY ARNOLD Court, Dallas County, Texas
MCFALLS, INDIVIDUALLY D/B/A Trial Court Cause No. DC-14-05795.
NEMAHA WATER SERVICES, NEMAHA Opinion delivered by Justice Stoddart.
WATER SERVICES, LP, NEMAHA Justices Fillmore and Whitehill participating.
WATER SERVICES GP, LLC, NEMAHA
WATER SERVICES OK-1702, LLC, AND
NEMAHA SERVICES HOLDING
COMPANY, LLC, Appellants

No. 05-14-01223-CV V.

ESPOSITO SECURITIES, LLC, Appellee

In accordance with this Court’s opinion of this date, that portion of the trial court’s
August 28, 2014 Order Granting Plaintiff’s Motion to Compel Arbitration denying appellants’
motion to compel arbitration is REVERSED and judgment is RENDERED that:

Appellants MICHAEL MORFORD D/B/A NEMAHA WATER SERVICES,
GEFFREY ARNOLD MCFALLS, INDIVIDUALLY D/B/A NEMAHA WATER
SERVICES, NEMAHA WATER SERVICES, LP, NEMAHA WATER
SERVICES GP, LLC, NEMAHA WATER SERVICES OK-1702, LLC, AND
NEMAHA SERVICES HOLDING COMPANY, LLC’s motion to compel
arbitration is GRANTED and all disputes between the parties shall proceed to
arbitration before FINRA pursuant to FINRA rules.

It is ORDERED that appellants MICHAEL MORFORD D/B/A NEMAHA WATER
SERVICES, GEFFREY ARNOLD MCFALLS, INDIVIDUALLY D/B/A NEMAHA WATER
SERVICES, NEMAHA WATER SERVICES, LP, NEMAHA WATER SERVICES GP, LLC,
NEMAHA WATER SERVICES OK-1702, LLC, AND NEMAHA SERVICES HOLDING
COMPANY, LLC recover their costs of this appeal from appellee ESPOSITO SECURITIES,
LLC.

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Judgment entered this 18th day of September, 2015.

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