around the country to get these three districts that Judge Bell already mentioned. They have started now by local rule. We encountered a good deal of receptivity to it, and, indeed, we have had other inquiries from other districts. Judges have written in asking for material on it saying that they are interested. So I would expect a good many, but I do not have any hard data. Senator DECONCINI. Perhaps Judge Bell or Mr. Beal would want to comment on this. We have received a letter on April 12, 1978 from the public citizens litigation group indicating that the Department of Justice arbitration experiment in the District of Connecticut goes beyond simple contractual and personal injury litigation to constitutional cases and civil rights cases. It is my understanding that this bill, S. 2253, centers upon tort and contractual cases where monetary damages are not in excess of $50,000. Would you care to comment about this observation? Mr. MEADOR. In Connecticut, where one of the local rule experiments is going on, the judges there, on their own, wanted to include police misconduct cases under section 1343. That is, I think, what the letter refers to. That is a controversial and debatable provision. The judges there did that on their own, though. It was not a Department of Justice recommendation or position. Our bill would not include that. I think this is one reason why legislation is important on this subject. Congress can specify clearly the cases that can be and that cannot be referred to arbitration. Senator DECONCINI. Thank you. Our Staff Director, Romano Romani, is here, and Deputy Counsel, Michael J. Altier, have worked on this bill. I will defer to them for further questions. Mr. ALTIER. I understand there are three district courts that are currently experimenting with compulsory nonbinding arbitration. Is the financial disincentive found in S. 2253 also provided for in each of the three local-rule experiments. If they exist, how if at all, they are different? General BELL. Mr. Meador? Mr. MEADOR. Let me have Mr. John Beal give you the exact information on that. There are varying aspects in each district. He has the details. Mr. BEAL. The provisions are these. In Connecticut, there is no financial disincentive to bringing an appeal. In Philadelphia, parties that demand a trial de novo but do not improve their position are assessed arbitrator's fees and, if the party appealing is the defendant, interest on the award. In California, they provide for the costs of arbitration as defined for costs of court cases under local rule, where the party appealing does not improve its position. General BELL. No interest? Mr. BEAL. No. I might also mention that this discussion presents a reason why a statute is important. There have been some questions raised concerning the extent to which it is permissible to proceed under local rule, without statutory authority, to invoke some of the possible disincentives. There is uncertainty in the pilot districts about which can be legally proceeded with. We would feel much more comfortable with a statute in this area. General BELL. I am not wedded to the idea of disincentives. When I was on the court, I found that nearly half the litigation was in forma pauperis. So we have the problem of putting disincentives on one party only in many cases. The other party can just sign a form of paupers' affidavit and escape paying. This is perfectly proper because they cannot pay. I think the committee would want to think about that in considering disincentives. Mr. ALTIER. Under S. 2253, the Attorney General must indicate, by regulation, the type of cases that would be submitted to arbitration when the United States is a party. In your prepared statement you indicated that you are currently in the process of preparing such a list. When do you expect this list to be completed and what types of cases would be included? General BELL. When I file a statement, sometimes I speak in expansive language. When I said I was preparing that list, that meant Professor Meador and John Beal were preparing it. Mr. MEADOR. We are in the process, as it says. This involves consultation with all the litigating divisions in the Department that handle U.S. Government litigation, to get their views as to what might appropriately be included. That is going on right now. I would think it is something that might be put together within the next few weeks. I'll ask John Beal to elaborate on that a bit, because he has actually done a lot of the consulting with the other divisions. Mr. BEAL. The basic process that we are following is to look at the tort and contract cases in which the Department is involved, and which entail money damage only under $50,000. We are identifying these cases and deciding whether any of them ought not go to arbitration. Perhaps, for example, it would be unfair to the parties because they have already been through the U.S. Court of Claims or before an administrative law judge. The fact that they have done so does not necessarily mean they will be excluded, but we are going through the entire list of cases that we handle in this area and putting particular matters in or out. I think that within 1 month to 6 weeks we should have a list together, which we would be glad to make available to the committee. Senator DECONCINI. Thank you. Without objection, the record will remain open at this point for the purpose of inserting the additional material referred to by Mr. Beal. [Material to be supplied follows:] Hon. DENNIS DECONCINI, U.S. DEPARTMENT OF JUSTICE, Chairman, Subcommittee on Improvements in Judicial Machinery, U.S. Senate, Washington, D.O. DEAR MR. CHAIRMAN: During the hearing before your Subcommittee on April 14, 1978, on the proposed arbitration legislation (S. 2253), Attorney General Bell and I agreed to provide the Subcommittee with a list of classes of cases in which the United States is a party that would be referred to arbitration. Under the bill the Attorney General would determine by regulation the types of cases in which the United States is a party that would be referred to arbitration. It is the intention of the Department of Justice that the regulation initially would contain the categories of cases set forth in the attached list. It should be noted that these proposed categories would be subject to the formal requirements of the Administrative Procedure Act for the promulgation of regulations, such as published notice and opportunity for comment by the public and other agencies. We also agreed to submit to the Subcommittee a memorandum on the constitutionality of such arbitration_legislation. Enclosed is an opinion of the Department's Office of Legal Council on that subject. Specifically, the memorandum addresses the constitutionality of mandatory referral of civil cases to arbitration and of the provisions for the allocation of costs contained in the substitute bill to S. 2253 that I understand the Subcommittee will be considering. Finally, I am enclosing a report summarizing the May 24 meeting of representatives from the three districts which have undertaken arbitration procedures by local rule. If you wish additional information, please do not hesitate to contact me. Sincerely, Attachments. DANIEL J. MEADOR, Assistant Attorney General. Civil actions in which the United States is a party, in which the relief sought consists only of money damages not in excess of $50,000, exclusive of interest and costs, and which: 1. Arise under the Federal Tort Claims Act, 28 U.S.C. 1346(b), 2671 et. seq., unless the District Judge determines that a legal issue relating to the jurisdiction of the court cannot be resolved prior to trial. 2. Are based upon a negotiable instrument or a contract or are for personal injury or property damage and jurisdiction is based in whole or in part on sections 1331, 1345 or 1346 of Title 28, United States Code; 3. Arise under 15 U.S.C. 15a; 4. Involve any of the following statutes: (a) 12 U.S.C. 1749 bbb; (b) 12 U.S.C. 1709, 17151, 1715m, 1715y, 1715z, 1715z-1, 1715z-2; (c) 42 U.S.C. 4201; (d) 12 U.S.C. 1701 et seq; (e) 20 U.S.C. 1071 et seq; (h) 42 U.S.C. 1395f (b), g,h, or hh; or 5. Are in Admiralty with jurisdiction based in whole or in part upon section 2 of the Act of March 9, 1920, as amended (46 U.S.C. 742) or section 1 of the Act of March 3, 1925 (46 U.S.C. 781), except that no such case shall be referred for arbitration if it involves general average; except that no case described above shall be referred to arbitration if: 1. The action is based in whole or in part on the allegation of a violation of a right secured by the Constitution; 2. Relief is sought from a federal official or employee personally for an act performed by such official or employee within the outer perimeter of his official duties, whether or not the action is also brought against the United States or a United States official in his official capacity; 3. The action is by the United States and is based upon fraud or to recover money or property illegally or improperly paid to or obtained by an employee or former employee of the United States or any agency thereof; 4. The Attorney General determines that the resolution of the issue of liability in the case is likely to affect the resolution of claims in other cases arising from the same factual occurrence and the sum of the damages claimed in all such cases will exceed $50,000; 5. The relief sought involves a forfeiture, fine or penalty. Mr. ALTIER. Under the proposed statute, in order to be certified as an arbitrator, an attorney must have been a member of the bar of any State for at least 5 years and be currently admitted to practice before the certifying court. In addition, the attorney must be determined by the certifying court to be competent to perform the duties of an arbitrator. What has been the experience in the three pilot experimental courts with regard to this determination of the competence of the arbitrators? Mr. MEADOR. Basically, in these experimental districts, they are ascertaining whether the lawyer has had any disciplinary proceedings in the past, or anything currently pending of that sort. Otherwise, they are by and large taking all volunteer lawyers. There is, of course, leeway for the judges to exercise some judgment if they think a lawyer is simply temperamentally or otherwise not suitable to sit as, in effect, a judge, or an arbitrator, between parties. These can be left off the list. Those experiments are very new, of course. They are just now getting underway. So there has been limited experience thus far. General BELL. It is rather informal to date, is that right? Mr. MEADOR. Yes. General BELL. I would imagine that would be the way to work it everywhere. The clerk of the court would be the one who gets up the list in most places. As lawyers, we know that is perfectly satisfactory. Mr. ALTIER. In the case of an extraordinary complex case in which money damages are not in excess of $50,000, would it be possible for a hearing before the arbitrators to extend beyond a day or two? This probably would not happen very often, but if it did, what would be your reaction to a mechanism which would authorize a higher fee for this type of situation? General BELL. There would still be cases where the courts would want to use a master in place of an arbitrator, and a master would get paid a substantial fee. I would say the court should have discretion about that. Mr. ALTIER. About the higher fee? General BELL. Yes. Where there is a complex matter. Would not the court have discretion not to refer it, or is the referral compulsory? Mr. MEADOR. Under the bill, the referral is automatic. However, it would be possible to build in provisions to take care of that. For example, in the Northern District of California, there is a provision that on motion of a party and the making of a showing to the court that the case is unusually complex or otherwise unsuitable for arbitration, the judge can order that it not be referred. In Connecticut, they have a provision that fees are imposed of $250 a day after the first 2 days. The parties have to agree to that or the case is returned to the trial court. That is another way of building in a safeguard to get a complex case out of the arbitrators' hands and back into court. There are ways that this can be dealt with, and perhaps some thought ought to be given to writing into the bill a provision that would allow a mechanism of that sort. Mr. ALTIER. I have two more questions. The first concerns the financial disincentive. What are your thoughts on whether the financial disincentive would be constitutional? Mr. MEADOR. Yes, we do. We believe it is constitutional. There are various ways in which Congress has, and can design procedures, that, in one way or another, affect jury trials and control access to a jury. We think the kind of limited disincentives we have here, in context, are a reasonable and constitutional type of provision. Now, we can develop that point more thoroughly for the committee, and we will gladly submit that to you. Senator DECONCINI. Would you give us an opinion? If your staff has the opportunity to delve into any other areas that Congress might have designed in comparison to this area, it would be very helpful. Mr. MEADOR. We will be happy to submit this. Senator DECONCINI. Without objection, the record will remain open for the purpose of inserting this additional material. [Material to be supplied follows:] MEMORANDUM FOR DANIEL J. MEADOR, ASSISTANT ATTORNEY GENERAL, OFFICE FOR IMPROVEMENTS IN THE ADMINISTRATION OF JUSTICE, DEPARTMENT OF JUSTICE Re Constitutionality of certain provisions of draft bill on arbitration. This responds to your request of June 19, for our comments on the constitutionality of certain provisions in a draft bill to authorize federal district courts to refer certain civil actions to arbitration. The bill would amend title 28 of the United States Code to add a chapter on arbitration. The key provisions of the bill may be summarized as follows: It would empower federal district courts to authorize arbitration by local rule. Section 644 would allow a district court to refer to arbitration any civil case pending before it if: (1) the parties consent to arbitration, or, (2) the relief sought consists only of money damages not in excess of $100,000, exclusive of interest and costs, and if "jurisdiction is based in whole or in part on sections 1331, 1332, 1333, 1345, or 1346 [of title 28 U.S.C.] or sections 742 or 781 of title 46, and the action is based on a negotiable instrument or contract or is for personal injury or property damage * * *" However, no case could be referred to arbitration if (1) based on a claimed violation of a right secured by the Constitution, (2) relief is sought from a governmental official or employee "for an act performed by such official or employee within the outer perimeter of his official duties," (3) the United States seeks to recover money or property fraudulently and illegally obtained by a present or former governmental employee, or (4) jurisdiction is based in whole or in part in section 1343 of title 28 U.S. Code, §644 (B) (i)–(iv). An arbitration award would be filed with the clerk of the district court and would become a final, unappealable judgment unless a party, within 30 days after the filing of the award, demands a trial de novo in district court. §646. Where a trial de novo is timely demanded the action would be replaced on the court's docket and treated as if it had not been referred to arbitration. §§646 and 647. Evidence adduced at the arbitration hearing or findings relating thereto would not be admissible in the court action, except testimony given at such hearing could be used for impeachment. §647 (c). If a party, after demanding a trial de novo, fails to obtain in the district court a judgment, exclusive of interest and costs, more favorable to him than the arbitration award, the court may tax against that party costs of the arbitration proceedings as provided in 28 U.S.C. §1920, and the amount of the arbitrator's fee. §647 (d). The bill has a "sunset provision" providing for its termination three years from the date of enactment except with respect to cases referred to arbitration prior to the termination date. §648. 30-434-78-3 |