In Lichon, the Michigan Supreme Court Changed the Test for the Scope of Arbitration

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By William D. Gilbride, Jr.

 

An age-old inquiry in ADR is under what circumstances must a party’s legal claims be dismissed from court and heard and decided in binding, unappealable arbitration. Over the years, several ground rules for this inquiry have been developed. Practitioners will recall that an agreement to submit a claim to arbitration is a contract, so the rules of contract interpretation will be applied to ascertain the intent of the parties, and the courts must give the language of the agreement to arbitrate its plain and ordinary meaning in determining whether the parties intended to arbitrate the claims that are asserted. Other precedents have looked at whether the claims “relate to” the subject of the parties’ arbitration agreement; and the courts have instructed that we are to consider the facts alleged, and not the legal theories asserted, when analyzing the intent of the parties as to whether there is agreement on submitting the claims to arbitration.

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Michigan Supreme Court decision in Lichon v Michael J Morse, PC

In the recent holding in Lichon v Michael J Morse, PC, a majority of our Michigan Supreme Court has adopted an added layer of sophistication in analyzing what claims are subject to arbitration. Lichon involved two consolidated cases against the Michael J. Morse, P.C. and Michael Morse. The two plaintiffs were former female employees of the Morse firm; each alleged facts that they experienced unwelcomed sexual language and touching that they asserted occurred during the workday in the law office and at an office sponsored Christmas party of the law firm. 

The Morse law firm had an employment manual (“MDRPA”) that provided: “As a condition of my employment, I agree that any dispute or concern relating to my employment or termination of employment, including but not limited to claims arising under state or federal civil rights statutes, must be resolved pursuant to the Firm’s [MDRPA] which culminates in final and binding arbitration. I have been provided with a copy of the Firm’s [MDRPA] and agree to be bound by this Dispute Procedure. This Mandatory Dispute Resolution Procedure shall apply to all concerns you have over the application or interpretation of the Firm’s Policies and Procedures relative to your employment, including, but not limited to, any disagreements regarding discipline, termination, discrimination or violation of other state or federal employment or labor laws.”

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Lower court rulings

Each plaintiff brought a civil action in circuit court (one in Oakland, one in Wayne) alleging various civil causes of action arising out of the unwelcomed sexual advances; the law firm and Morse moved to dismiss the cases in favor of arbitration, and both trial courts applied the language of the parties’ MDRPA, granted the relief requested, dismissed the cases and referred the claims to arbitration. In a split decision, The Michigan Court of Appeals affirmed the dismissals and referrals to arbitration. 

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Michigan Supreme Court analysis

In the Supreme Court, both the majority opinion and the dissent contain extensive, thoughtful, and interesting analyses, far too involved for this column, but a couple of key points are included here to pique your interest. 

First, the majority considered that “‘[R]elated to”—when analyzing the scope of the parties’ agreement to arbitrate—marks a boundary by indicating some direct relationship; otherwise, the term would stretch to the horizon and beyond. As the Supreme Court has explained in the [Employment Retirement Income Security Act, 29 USC 1001 et seq.,] pre-emption context, “related to” is limiting language and “[i]f ‘relate to’ were taken to extend to the furthest stretch of its indeterminacy,” it would have no limiting purpose because “really, universally, relations stop nowhere.” In this regard, our Supreme Court in Lichon has rejected the “related to” standard as imprecise and not workable when analyzing whether a claim is within the scope of an agreement to arbitrate.

Second, after a thorough review of the rules in federal courts and in Michigan’s sister states, the majority instructs that our courts are to evaluate motions to compel arbitration by asking, whether the plaintiff’s claim can be maintained without reference to the contract or relationship at issue? 

The court reasoned, the “related to” standard is not dispositive of the issue because such an analysis “prevents the absurdity of an arbitration clause barring a party to the agreement from litigating any matter against the other party, regardless of how unrelated to the subject of the agreement,” and ensures that the mere “existence of a contract between the parties does not mean that every dispute between the parties is arbitrable.”

As applied in the present case, the court reasoned:

“[P]laintiffs here have brought several claims. Whether the claims are subject to arbitration depends on whether they are covered by the MDRPA, which, in turn, depends on whether the claims are relative to plaintiffs’ employment. We hold that a court answers that question by considering whether the claims could be maintained without reference to the contract or relationship at issue. [To illustrate], if Morse had groped or propositioned opposing counsel or a client while at the Morse firm’s office, or if Morse had grabbed the breasts of a server or other patron of the restaurant during the firm’s Christmas party, could those individuals bring the same claims as plaintiffs?” 

The majority explained: This analysis “functions as a tool to determine a key question of arbitrability—whether the parties agreed to arbitrate the question at issue.” [citation omitted]. Such an analysis “prevents the absurdity of an arbitration clause barring a party to the agreement from litigating any matter against the other party, regardless of how unrelated to the subject of the agreement,” and ensures that the mere “existence of a contract between the parties does not mean that every dispute between the parties is arbitrable.”

Applying the new standard, the Supreme Court majority ordered that because “[n]either the Court of Appeals nor the circuit courts considered this standard when evaluating defendants’ motions to compel arbitration… we vacate the decision of the Court of Appeals and remand these matters to the circuit courts. Further, just as the lower courts did not have the benefit of this framing when evaluating defendants’ motions, neither did plaintiffs have the benefit of this framing when formulating their complaints. In this regard, we remind the circuit courts that, under MCR 2.118(A)(2), ‘[l]eave [to amend pleadings] shall be freely given when justice so requires.’”

In his dissent, Justice Viviano articulates why our historical precedent was sufficient and states: “In sum, the [Morse Employment] manual specifically proscribes unwanted sexual contact and a great deal of behavior that might surround that contact, such as verbal harassment or an abusive work environment. The manual also establishes a general requirement of respect for coworkers, and it puts in place a procedure for complaints concerning violations of the Firm’s policies. The question is whether plaintiffs’ allegations involve concerns with how the Firm’s policies were interpreted or applied to them. I believe that the facts laid out in the complaint meet this requirement. Both plaintiffs allege that Morse engaged in behavior that would directly violate the manual.” For these reasons, Justice Viviano would have affirmed the lower courts.

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Remand to trial court

On remand from the Michigan Supreme Court, the Lichon case went back to the Oakland County trial court where — after some further development of the record — the Morse law firm moved again for summary disposition. A review of the trial judge’s opinion and order provides an example of how practitioners may apply the new standard delivered from the Michigan Supreme Court to determine what claims could be maintained by Ms. Lichon “without reference to the contract or relationship at issue.” The trial court wrote: “Courts are to analyze whether the action could be maintained without reference to the contract or relationship at issue [] …. [Ms. Lichon’s] [c]omplaint contains multiple counts which sound in tort and can be maintained without reference to the MDRPA or the employment relationship and therefore are not subject to arbitration.” Plaintiff’s counts for sexual assault, battery, intentional infliction of emotional distress and negligence, gross negligence and wanton and willful misconduct,” do not depend on the employment relationship. The fact that the alleged conduct complained of occurred in the workplace is not dispositive.” [] “Here, Defendant’s alleged conduct was not related to the MDRPA, or Plaintiff’s work duties and Defendants would have owed the duties described [by Plaintiff in her pleadings] to any person on the Defendant’s premises.” Based on this analysis, the trial court in Oakland County held that Ms. Lichon could proceed in court with her common law tort claims.

The trial judge wrote further: “To the contrary, Ms. Lichon’s claims against the Law firm brought under the Elliot-Larsen Civil Rights Act, which prohibit an employer from discriminating against an individual in any way based upon sex, cannot be brought without referencing the employment relationship, so those claims fell within the MDRPA and were subject to the agreement to arbitrate.”

Defendants appealed the trial court’s order, but the appeal was recently concluded.

Although the companion case involving Ms. Smits was similarly remanded back to the trial court, in this case, Wayne County, no substantive court papers were located, and the case was earlier this month dismissed with prejudice and without costs.

For ADR practitioner, the Lichon decision is worth a full read not only to appreciate the new test in Michigan on the scope or arbitrability, but also for the comprehensive treatment of the subject of compelling arbitration as a method of alternative dispute resolution.

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William D. Gilbride, Jr.,  has represented a variety of clients in the boardroom and the courtroom, providing a collection of perspectives and insights that now inform his role as a neutral. Throughout his career, he has represented a variety of clients in state and federal courts and administrative tribunals in matters involving breach of contract, shareholder rights, employment and non-compete agreements, trade secrets, sales commissions, stock purchases and securities, title and land use, foreclosures, ERISA and employee benefits, intellectual property, supplier disagreements, government contracts, and professional licensure and disciplinary actions.

As outside general counsel and a valued trusted business advisor to for-profit and non-profit organizations alike, Gilbride has pursued and protected clients’ interests in mergers and acquisitions, risk management and corporate compliance, real estate and land use, and employment negotiations and transactions.

Gilbride has practiced with Abbott Nicholson, PC in Detroit since 1989, where he served for 11 years as the law firm’s managing partner. This management and leadership savvy further lends itself to his dispute resolution talents.

Within the legal community, Gilbride is active in state and local bar association activities, including his  service as past Chairman of the State Bar of Michigan’s ADR Section Council and as a fellow with both the Michigan State Bar Foundation and the Detroit Metropolitan Bar Foundation. He has earned the respect of his peers and colleagues, as evidenced by his accolades as a Michigan Super Lawyer, a dBusiness Magazine Top Lawyer, a Law Bulletin Publishing Leading Lawyer, and an AV Preeminent Lawyer rating from Martindale-Hubbell. He was also inducted into the American Board of Trial Advocates, an invitation-only group of accomplished trial lawyers who demonstrate high personal character and honorable reputation. Bill is the 2020 recipient of the George M. Bashara Award from the State Bar ADR Council, the highest honor awarded by the Section.  In November 2020, Bill joined the American Arbitration Association panel for commercial and complex cases.  Gilbride remains active as a Business Court case evaluator for Wayne County.

Gilbride is a graduate of the University of Detroit School of Law and the University of Michigan.



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