On March 8, the Judge Richard Holtzberg suspended court proceedings in the University’s lawsuit against former Chief Investment Officer, Thomas Kannam, while an arbitrator decides whether the case will be resolved out of court.
In February, the defense called for the suit to be thrown out entirely, citing a provision in Kannam’s contract which states that any dispute related to “the interpretation, validity, or performance of this Agreement, and any other dispute arising out of [it]” will be settled in by arbitrators in accordance with the rules of the American Arbitration Association (AAA). The University’s attorneys maintain that much of the lawsuit is not subject to arbitration. So far, the case has only been temporarily suspended until arbitrators decide which parts of the suit can be settled out of court.
“Arbitration is a legally-binding process where you have an impartial arbitrator, a person who renders a decision on a dispute that can be enforced in court,” said Emanuel Psarakis, a professor at the Quinnipiac University School of Law and an AAA-qualified arbitrator. “It’s an alternative way of litigating a dispute.”
According to Psarakis, arbitration is very similar to regular court proceeding. Both sides present evidence and call witnesses before arbitrators render a decision. The process differs from other forms of alternative dispute resolution in that the arbitrator ultimately renders a decision (which is legally binding under the Federal Arbitration Act), rather than helping the parties reach an agreement, as occurs in mediation.
Parties choose to arbitrate for a variety of reasons. Psarakis cited the speed and relative simplicity of proceedings as characteristics that have popularized arbitration. Jean Sternlight, a law professor at the University of Nevada, Las Vegas and the director of the Saltmarsh Center for Conflict Resolution says that parties turn to arbitrators because they believe that they can get more congenial results.
“What’s it’s all about is that in each lawsuit each side is trying to pick a forum that will be better for it,” Sternlight said. “It’s thought—it’s not necessarily true, but it’s thought— that juries, when they get outraged, can be more generous [when assigning damages] than arbitrators, who tend to be more reasoned, more analytical.”
Sternlight added that this thinking is based on assumptions about the kind of people who serve as arbitrators as opposed to jurors.
“[The parties’] guess is that the folks on a jury would include more working class and middle class people who would be more outraged by what this guy supposedly did,” he said. “And everybody’s fairly sure, which tends to be true, that arbitrators will likely be some middle-aged or older-than-middle-aged white man who comes out of a business background and might not be as emotionally outraged by what the defendant allegedly did. Nobody’s really sure, but that’s the kind of calculation that they’re making.”
Michael Harrington, an attorney representing Wesleyan, alluded to several possible drawbacks to arbitration proceedings, including limited rights of discovery (that is, the ability to compel the other side to release information) and limited basis for appeal.
“The Supreme Court has held in some cases that parties who have agreed to accept an arbitrator’s decision may not challenge the decision on whether the arbitrator has interpreted the law correctly or not,” he said.
Kannam’s attorney declined to comment.
Psarakis explained that although courts are responsible for enforcing arbitrators’ decisions, they rarely examine them with much scrutiny.
“When arbitration decision is rendered, nobody has to comply with it until one of the parties goes and says ‘court, will you enforce this thing’ or ‘court, this thing is no good, throw it out,’” he said. “But the courts don’t review it that much, they give the arbitrators a wide hand in deciding the dispute.”
Arbitration can only occur when both parties agree in advance, but Psarakis said that disputes over what exactly parties have agreed to are fairly routine.
“Nobody is forced to arbitrate anything unless they have agreed to arbitrate,” Psarakis said. “Oftentimes disputes arise in respect to what’s covered and what’s not, and someone has to interpret them.”
At a hearing before the Middletown Superior Court on March 8, Harrington argued that the scope of the arbitration should be limited. He maintained that only the claims that arise from Kannam’s alleged violation of the terms of his contract are subject to arbitration, but that other claims, which include civil theft, fraud, and improper use of the University’s proprietary information are not covered.
“The parties could have said that any dispute related to Kannam’s employment should be arbitrated, but they didn’t,” Harrington said in an interview with The Argus. “The arbitration provision in Mr. Kannam’s employment agreement repeatedly refers back to the agreement. The University did not make an agreement that its employees would not steal from it or violate the trade secret laws. It felt that those things were understood.”
The arbitrators have yet to decide which parts of the case they have the authority to review, but experts agree that in recent decades, arbitration agreements have been interpreted fairly broadly.
“If I had to place a bet on it, the defendant probably has a better shot than the plaintiff,” Sternlight said.
It is unclear how arbitration could affect the University’s case against Kannam’s co-defendants, who include his wife and many of his business associates. The Belstar Group and Ralph Gil have motioned for stays, which the court has yet to act on. Since they did not have a contract with the University, their cases will not be arbitrated. However, resolving the dispute against Kannam out of court may pose some problems for Wesleyan in its other suits. Sternlight said that any admissions that Kannam might make in arbitration proceedings would probably be confidential, and hence not useable in other cases.
Even if the arbitrators decide in the defense’s favor, litigation will have only begun. At present, arguments center around whether Kannam will have to set aside money that could be awarded as damages if he ultimately loses the suit. The University has not yet filed a formal complaint against its former administrator.
“At the end of the day all the University wants at this moment is sufficient assets preserved while the merits of the case are determined,” Harrington said. “The wheels of justice move slowly, and we want to make that if we win it isn’t a hollow victory because [Kannam] has sold his house or depleted his bank accounts.”
Arbitrators typically take several months to render any decision. Sources within the University were unable to say when there might be new developments in the case, although Director of Media Relations David Pesci counseled patience.
“From my experience these tend to move slowly,” Pesci said.