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June 01, 2007

INDIANA CASE REVIEW: Arbitration Awards, Qualified Privilege, and Trial Rule 23(C)

Indiana Case Review

Stephen E. Arthur

Arbitration Awards, Qualified Privilege, and Trial Rule 23(C)


Judicial Review of Arbitration Awards

Indiana favors arbitration as a means of dispute resolution and the enforcement of arbitration agreements. A party’s rights in arbitration are derived from Indiana’s Uniform Arbitration Act (“Act”), Ind. Code. 34-57-2, not common law. As such, arbitration awards typically will not be vacated unless the appellant establishes that the arbitrator committed an error specified in the Act. The Indiana Supreme Court affirmed these principles in Natare Corp. v. D.S.I., 2006 WL 3072290 (Ind. 2006).

Natare was an action in which the parties, competitors in business, had settled prior litigation. The settlement agreement provided that the parties would not disseminate disparaging information about each other, and all future disputes would be submitted to arbitration. In addition, the breaching party agreed to pay $5000 in liquidated damages, actual damages if shown, reasonable attorney fees and costs. Thereafter, the defendants breached the settlement agreement and the plaintiff commenced an arbitration action claiming $45,000 in actual damages. The arbitrator ruled in favor of the plaintiff on liability, but did not find actual damages. Accordingly, the arbitrator awarded $5,000 in liquidated damages and, specifically, found that neither party was entitled to an award of attorney fees. The plaintiff sought judicial review and the trial court affirmed the arbitrator’s award. The Court of Appeals reversed on the issue of attorney fees.

The Indiana Supreme Court granted transfer and affirmed the trial court. In support of its decision, the court stated that judicial review of an arbitrator’s award is very limited. To prevail on appeal, it must be shown that the arbitrator exceeded his authority under the Act. However, the court had authority under the settlement agreement to award or not award attorney fees. The decision not to award fees to the plaintiffs did not exceed the court’s power or violate the court’s obligations under the Act. The Supreme Court declined to speculate about the arbitrator’s reasons for not awarding fees as part of its judicial review.

Qualified Privilege

Qualified privilege applies if a communication is made in good faith on any subject matter in which the party making the communication has an interest or in reference to which he has a duty, either public or private, either legal, moral, or social, if made to a person having a corresponding interest or duty. An abuse of the qualified privilege occurs if (1) the communicator was motivated primarily be feelings of ill will; (2) the communication was published excessively; or (3) the communication was made without belief or grounds for its truth. The Indiana Court of Appeals discussed qualified privilege of intra-organizational communications and the necessity of liberal discovery to determine its abuse in Turner v. Boy Scouts of America, 2006 WL 3113984 (Ind. Ct. App. 2006).

In Turner, the plaintiff was a member of the Boy Scouts of America (“Scouts”) and was the focus of third-party telephone calls and letters making complaints to the Scouts that the plaintiff possessed child pornography. The Scouts discontinued plaintiff’s membership as a result of the complaints and a number of internal communications regarding the plaintiff followed. Specifically, Vollmer, a Scout executive, made a number of statements based on his “gut feelings” to other Scout members. The plaintiff brought suit against the Scouts alleging that internal communications within the Scouts were false and defamatory. The plaintiff sought to compel discovery of complaint letters alleging his possession of pornography. The trial court, however, found that because the Scouts could not be subject to liability for the author’s statements in the complaint letters, they were not discoverable. Thereafter, summary judgment was entered in favor of the Scouts.

The plaintiff appealed arguing, among other things, that the letters sent to the Scouts alleging his possession of child pornography were subject to discovery and that Vollmer had subjected the Scouts to liability by abusing the qualified privilege by his intra-organizational statements. The Court of Appeals agreed and held the complaint letters to be discoverable. The court noted that a party may obtain discovery regarding any matter relevant to the subject matter of the case, or which appears reasonably calculated to lead to the discovery of admissible evidence. This standard, and not whether the Scouts could be liable for the statements contained in the letters, was controlling.

Trial Rule 23(C)

As soon as practicable after the commencement of an action brought as a class action, the court, upon hearing or waiver of hearing, shall determine by order whether it is to be so maintained. Ind. Trial Rule 23(C). Indiana case law has held that a trial court is precluded from holding a hearing on a plaintiff’s motion for summary judgment prior to class certification. An issue the court’s had not addressed is whether a trial court may schedule a hearing on a defendant’s motion for summary judgment before addressing plaintiff’s request for class certification.

In Reel v. Clarian Health Partners, Inc., 855 N.E.2d 343 (Ind. Ct. App. 2006), the Court of Appeals, in a matter of first impression, ruled that Trial Rule 23(C) does not preclude the trial court from hearing a defendant’s motion before addressing class certification. The court concluded that a defendant may waive the safeguard of res judicata implicit in Rule 23’s mandate that class certification be addressed as soon as practicable after the commencement of the case, if the defendant files a motion for summary judgment addressed to the merits. In discussing the impact of an early disposition of summary judgment, the court stated: “When Clarian (the defendant) moved for summary judgment, it abandoned reliance on the preclusive effect of the judgment with respect to absent members of the class and cannot complain about either the treatment of the case as an individual action or other one way intervention that will result if the class should be certified at a later time. If the trial court grants Clarian’s motion for summary judgment, Clarian is not protected by res judicata from suits by potential class members. If the trial court denies Clarian’s motion for summary judgment, the Named Plaintiffs could still seek certification of the class.”

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Stephen Arthur is a partner with Harrison & Moberly, LLP, in Indianapolis (harrisonmoberly.com), concentrating his practice in federal and state complex commercial litigation. Mr. Arthur is the author of Indiana Civil Trial Practice (West Publishing Co) and co-author of Professor Harvey’s Indiana Practice treatise. The author thanks Paul Carroll for his assistance in preparing this case review. The opinions and analysis expressed in this column are those of the author.

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