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A Case to Watch Carefully: The $4.1 Billion Arbitration Award

June 14th, 2009 Authority of Arbitrators, Awards, California State Courts, Commercial and Industry Arbitration and Mediation Group 1 Comment » By Philip J. Loree Jr.

Arbitration fans following the blogosphere — or participating in LinkedIn’s Commercial and Industry Arbitration and Mediation Group (here) — have no doubt heard about the $4.1 billion arbitration award recently confirmed by a California state court.   Check out the coverage in Victoria Pynchon’s Settle It Now Negotiation Blog, here and here, and Victoria VanBuren’s Disputing blog, here.  These posts feature a news article, related links and copies of the judgment and arbitration award.   One of Victoria Pynchon’s posts includes a very amusing video clip from Cabaret, featuring Liza Minelli!

The award arose out of an employment dispute between Paul Chester, the former chief operating officer of  iFreedom Communications, Inc., and iFreedom and its founder, Timothy Ringgenberg.  Mr. Chester claimed, and JAMS arbitrator William F. McDonald, a retired judge, agreed, that iFreedom did not receive commissions, back wages and other benefits due him under his employment agreement, and that he was fired without cause after he confronted his employer about this.  The compensatory component of the award is roughly $1 billion, which Arbitrator McDonald trebled based on iFreedom’s alleged bad faith.  The award is quite lengthy (27 pages), and provides a detailed breakdown of the various claims and corresponding damages.  The award states that the damages are ” appropriate to punish and make an example of defendants.”  (Query whether “making an example of Defendants” is a proper subject of private arbitration. )

Apparently, iFreedom fired its outside counsel midway through the arbitration, and Mr. Ringgenberg took over the defense.  iFreedom apparently did not appear at the final arbitration hearing, which might, depending on the facts and applicable law, raise waiver issues.  Judge Teresa Sanchez-Gordon confirmed the award, and as far as we know, did not issue a written opinion.  Presumably, there will be an appeal, unless the parties reach a settlement.  

Assuming there is an appeal, this is definitely a case to watch.  We shall keep readers advised of developments as and when they occur. 

As a side note, the Arbitration Fairness Act of 2009, if passed, would render unenforceable pre-dispute arbitration agreements requiring arbitration of employment disputes, such as Mr. Chester’s dispute with iFreedom.  (Our posts on the Arbitration Fairness Act of 2009 can be found here.)  It is unclear to us whether a court would have issued an award of this magnitude based on the same facts, although we tend to think not.   And even if it did, it would have to withstand the scrutiny of at least one — and perhaps, two — appellate courts.   Both the House and Senate versions of the Arbitration Fairness Act are predicated on the assumption that arbitration of employment disputes is unfair.  Somehow, we doubt Mr. Chester would agree!


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One Response to “A Case to Watch Carefully: The $4.1 Billion Arbitration Award”

  1. […] court, and provided our readers with some links to other articles on the subject.  (Post available here.)   Since that time we have been told that the defendants did not cross-move to vacate or […]