NEW YORK. Webinar: Non-Members and Arbitration

Transcription

1 DIAMOND DEALERS CLUB NEW YORK Webinar: Non-Members and Arbitration Hello, and welcome to the Diamond Dealers Club webinar Taking Non-Members to Arbitration. My Name is William Zev Lerner, and I m the General Counsel here at the Diamond Dealers Club. nyddc.com/arbitration Before we get started, please make sure that you have downloaded the accompanying webinar materials, a document entitled. If you have not, you can download it from the link directly below this webinar at nyddc.com/arbitration. Disclaimer All information in this webinar and any accompanying materials are provided for educational purposes only and do not constitute legal advice. They are also not a substitute for legal or other professional advice. Individuals should not act or rely upon any information contained therein until they consult their own private legal counsel. This webinar and any accompanying materials are not intended to create, and viewing or receipt of same does not constitute, an attorney-client relationship between the viewer or recipient and the Diamond Dealers Club or William Lerner. Additionally, please note that all information in this webinar and any accompanying materials are provided for educational purposes only and do not constitute legal advice. They are also not a substitute for legal or other professional advice. Individuals should not act or rely upon any information contained therein until they consult their own private legal counsel. This webinar and any accompanying materials are not intended to create, and viewing or receipt of same does not constitute, an attorney-client relationship between the viewer or recipient and the Diamond Dealers Club or William Lerner. INTRODUCTION Over the last few years, many members have come to speak to me, or to our President, Mr. Reuven Kaufman, with basically the same story. They say I have an issue with a non-member. What can I do? Can I take them to arbitration? And the answer, we have had to tell them, unfortunately, is generally no. Then they ask Can I go to court? And the answer is Sure. However, it can take many years and cost you quite a lot of money. So time and time again we've had people come to us with issues with non-members that owe them money or they have some sort of dispute with non-members and they just feel helpless. So the Board of the DDC has resolved

2 to come up with a way to hopefully help members subject non-members to arbitration. In short, as part of our new exclusive member benefit, when you give a stone to somebody or after you give a stone to somebody, you can put an arbitration clause inside your memo, invoice or on your letterhead that says that the non-member agrees to arbitrate any issue regarding the subject matter of the memo or invoice before a DDC arbitration panel. ARBITRATION OVERVIEW Before we go into detail about this exciting new member benefit, we ll go through a short overview of what the DDC arbitration system is, how it works, and what you can do to use this process to help you. What is arbitration? Arbitration is the hearing and determining of a dispute or the settling of differences between parties by an independent third party. Arbitration is essentially a private court system So what is Arbitration? Arbitration, very simply, is when, two people, who have an argument between them, instead of going to court to resolve it, they go to a private third party to resolve it. For instance, at the DDC, instead of going to court to settle a dispute between two diamonds dealers, you come before our arbitrators and those arbitrators hear both sides, and issue a decision about who is right in that case. Arbitration functions essentially like a private court system. Why is arbitration so important to the diamond industry? Cost Time Expertise Arbitration is quite common in many industries, but it is particularly important for the diamond industry, for three reasons. The first reason is cost. Going to court can be quite expensive. Lawyers are all but required, and the legal fees for a lawsuit can be quite expensive, at hundreds of dollars per hour or, very often, your lawyer will take a large percentage of what you win, often up to a third. As many of those watching this may know, margins in the diamond industry are often small, and the legal fees involved often mean that even if you win your court case, you will still lose quite a bit of money. The second reason is time. Court cases often take years to be resolved. In our industry, capital turnover is incredibly important, and it is not uncommon for someone to have a large percentage of their capital tied up in one deal. So even if you win a court case, having your capital tied up in court for years on end is a big problem. The third reason is expertise. As those of you in the industry might know, our industry is quite unique. The diamond industry is highly technical, and functions on longstanding industry traditions that are unusual anywhere else. So as you might imagine, it s hard for judges and especially juries to understand diamond cases. Our arbitrators are all chosen from within the industry, and are therefore intimately familiar both with the trade customs and technical aspects of the diamond industry. With this in mind, I would like to take a moment to thank the Arbitrators of the Diamond Dealers Club, all of whom are volunteers who give freely of their time, and many of whom have served the diamond community for

3 decades. As we just discussed, they provide a vital service to the community, and the DDC greatly appreciates their efforts. The Relationship between DDC Arbitration and the Courts DDC arbitration decisions can be confirmed in court within one year. When confirmed, these judgments are the same as a court decision. DDC arbitration decisions are final. One of the most common questions that members have asked me about arbitration is What happens if the DDC arbitration panel decides a case and the other person just doesn't listen? Firstly, of course, members who do not comply with arbitration can be suspended from the club and their names posted in the club and around the world. But more importantly, especially for non-members, is that DDC arbitration decisions are enforceable in court. Under New York law, the winners of an arbitration case have one year in which to have an arbitration decision confirmed in court, which will give the arbitration decision the same force that a court decision would have. This means that the winner of a case will have all of the same powers and rights that it would have if it won a court case.. Additionally, DDC arbitrations are final. You can appeal a decision to a DDC appeal panel, but once the DDC system is finished, the loser can t appeal to a court and have the court decide the case once again. Generally, the only time a court will overturn an arbitration decision is if there was some sort of wrongdoing or there is something wrong with the proceedings. It is extremely rare for courts to overturn an arbitration decision. NEW DDC REGULATIONS RE: NON-MEMBERS Because arbitration is such a powerful tool, and because it is so essential to the diamond industry, one of our goals is to allow members to use it in as many situations as possible. New DDC Regulations Re: Non-Members Subject to the By-Laws and the Rules and Regulations of the Diamond Dealers Club, the following claims and/or transactions shall be subject to the exclusive jurisdiction of the Diamond Dealers Club arbitration process: A transaction in which a member has sold, transferred, or delivered goods to a non-member, and the non-member has signed or otherwise agreed to an acceptable arbitration clause. Such arbitration clause shall be contained in the member s form of memo or invoice, or shall be written on the member s letterhead. An acceptable arbitration clause shall be one that requires the non-member to arbitrate disputes with the member at the Diamond Dealers Club, either specifically for the transaction in question or more generally for transactions in which the member sells, transfers or delivers goods to the non-member. To allow members to bring non-members to arbitration, the DDC Board of Directors passed the following regulation, among others. Please take a moment to read it, and feel free to pause if you need more time.

4 Three General Requirements You are a member You (the member) are the party selling, transferring, or delivering goods to a nonmember The non-member signed or agreed to an acceptable arbitration clause. (We ll discuss what an acceptable arbitration clause is later) To simplify things a little bit, there are three basic requirements for someone to be able to take a non-member to arbitration under this regulation. You have to be a member. Only members can put this in their memos, invoices or letterhead. If a nonmember takes this arbitration clause and puts it in their own memo, invoice, or letterhead, that will not subject the parties to the jurisdiction of a DDC arbitration under this regulation. This is a benefit that is intended only for DDC members. The member must be the party who is selling or transferring the goods. If you, the member, are buying from a non-member, or receiving a stone on memo from a non-member, this regulation would not allow you to sign an arbitration clause on your letterhead to arbitrate the case. And remember the first requirement: this regulation does not give a non-member the right to put an arbitration clause on their memos to be able to take a DDC member to arbitration. This privilege is only for DDC members. The third requirement is that the non-member has to sign or agree to an acceptable arbitration clause. (We'll discuss a bit later what makes an acceptable arbitration clause.) Under this regulation, a non-member must agree in a memo, invoice, or on a member s letterhead that includes an arbitration clause, that they are going to come to arbitration later on if a dispute arises. Why do the non-members have to sign anything at all? Why can t the DDC just force them to come to arbitration? In order for an arbitration to occur, both parties always have to agree to it. A signature is the best evidence of an agreement. DDC members agree to arbitrate with other members when they join the Club. A few people have asked me why the non-members have to sign anything. Why can't the DDC just say all nonmembers have to come to arbitration? An important rule to understand about arbitration is that in order for arbitration to occur both sides have to agree to it. Somewhere, at some point, they both have to agree to come to arbitration. For instance, if you are a DDC member, when you became a member, you signed an agreement saying you'll arbitrate any claims you have with other members of the DDC and other WFDB diamond bourses. So that's your agreement to arbitrate with other members. But non-members, who never signed something like that, have to agree to something saying that they're going to come to arbitration. It is important to remember, that when I say that both sides have to agree that they re going to come to arbitration, it doesn t mean that they have to agree at the time of the arbitration. If they agreed beforehand, such

5 as in a memo or invoice or on letterhead, that will likely serve as a binding agreement unless you also agree to cancel the arbitration clause. What is an arbitration clause? An arbitration clause is a sentence or a paragraph in an agreement that requires the parties to settle their disputes through an arbitration process, in this case, at the Diamond Dealers Club. One of the best ways to have the other side agree to come to arbitration is to get them to agree to an arbitration clause. I m going to use that phrase a lot, Arbitration Clause. So what is an arbitration clause? An arbitration clause is a sentence or a paragraph in an agreement that requires the parties to settle their disputes through an arbitration process and organization specified in the arbitration clause, in this case, at the Diamond Dealers Club. It basically says you're agreeing to come to arbitration. You ll see some examples of arbitration clauses in the Webinar Materials that you downloaded. Where may I put the arbitration clause? Memo Invoice On your letterhead So where can you put your arbitration clause? Under this regulation, you can put it in three places: You can put it in your memos. Most of you have your memos, you have your standard language in your memos, and you can take an arbitration clause and put it in your memo so when the person signs the memo, they're agreeing not just to the terms you had before in your memo but to all the other terms that the arbitration clause has as well. You can put it in an invoice. The same thing applies with an invoice as applies to memos. You can add an arbitration clause to your invoices. Now, it s important to remember that buyers don t usually explicitly agree to or sign invoices, so in this case you would generally want the person to agree to the invoice in some way. Probably the best practice is to have the person sign the invoice. You can put it on your letterhead. You can even have a general arbitration clause by itself, written on your letterhead, and have the non-member agree to it. Remember, in all cases, you must get the person to agree to it, preferably by signing it. It s important to note that its not quite as simple as just inserting the language into your memos or invoices or letterhead. There are a number of important things to be aware of in order to make sure the arbitration clause is binding. A bit later we re going to go through some very important best practices to keep in mind, along with a few cautionary notes. We ll also go through some of the examples in the Webinar Materials that you downloaded. What may the arbitration clause cover? Either: (1) Just the single transaction that the memo, invoice, or letterhead refers to. (2) All transactions where the member is the seller or transferor of the stone.

6 So what can the arbitration clause cover under this regulation? So you ll notice in the examples, there are a few options. If you want, the arbitration clause can cover just the specific transaction that the memo, invoice, or letterhead refers to. For instance, the simplest example is if you have a clause in your memo that says that the non-member is bound to arbitration for anything related to the subject matter of the memo. So whatever happens related to that memo, the non-member is bound to arbitrate about just that memo. Alternatively, if you want, as you'll see in the examples, you can add language that binds them not just to things relating to a particular transaction but to any transactions where you, the member, are the seller or the person transferring the goods. That means they can sign one memo or one invoice or one piece of letterhead, and the agreement will cover many transactions. So for example, let s a member gives a 4 ct. stone to a non-member on memo and that memo had an arbitration clause in it. Two days later the member gives the non-member a different 2 ct. stone on memo, but that memo doesn t have an arbitration clause. If the member used option 1, the arbitration clause would cover only disputes related to the first stone, the 4 ct. But if the member used option 2, the arbitration clause would cover disputes related to both stones. Its important to note that the language to bind the non-member to DDC arbitration for transactions other than the memo transaction must be very clear. So if you are relying on option 2, you should be extra cautious. The safest thing to do would still be to get the non-member to sign an arbitration agreement for each transaction. Remember, as we discussed before, that for both cases, you have to be a member to put this in your memos, invoices, or on your letterhead, and that, under this regulation, only transactions where the member is the seller or transferor or deliveror of the stone are covered. Arbitration clauses are a two-way street ALL disputes related to the transaction covered by the arbitration clause can be brought to arbitration. It is very important to understand that arbitration clauses are a two-way street. What do I mean by that? If a transaction is covered by an arbitration clause, then ALL claims or issues about that transaction can be brought to arbitration, by both sides. Let s use an example to illustrate what that means. Arbitration clauses are a two-way street Example DDC member sells a 4 ct. D IF to a non-member. The non-member signs an arbitration clause in the invoice that says that he agrees to arbitration just for this transaction. What claims are covered by this clause? DDC member takes non-member to arbitration because the nonmember didn t pay him for the 4 ct. D IF. Non-member takes DDC member to arbitration because the DDC member sent him a CZ instead of the real 4 ct. D IF diamond. Non-member takes DDC member to arbitration because the DDC member hasn t paid him for an unrelated 2 ct. stone that the DDC member bought from him.

7 So for instance, let s say a DDC Member sells a 4 ct. D IF to a non-member, and the non-member signs an arbitration clause in the invoice that says that he agrees to arbitration just for this transaction. What claims are covered by this clause? Let s say the DDC member wants to take the non-member to arbitration because the non-member didn t pay him for the 4 ct. D IF. Is that covered? Yes. It s a claim about the transaction covered by the arbitration clause. Let s say the Non-member wants to take the DDC member to arbitration because the DDC member sent him a CZ instead of the real 4 ct. D IF diamond. Is that covered? Yes. It s a claim about the transaction covered by the arbitration clause. Let s say the Non-member wants to take the DDC member to arbitration because the DDC member hasn t paid him for an unrelated 2 ct. stone that the DDC member bought from him a month beforehand. Would that be covered? No. Why not? Two reasons. First, because it s a claim about a different transaction, one where there is no arbitration clause that covers it. Second, even if the non-member had signed a general arbitration clause, this regulation only allows it to cover transactions where the member is the seller, and here, the non-member is the seller. Arbitration clauses are a two-way street THE RULE TO REMEMBER THE RULE TO REMEMBER If a transaction is covered by an arbitration clause, then any claims about that transaction can be brought to arbitration by both the member and the non-member. If a transaction is covered by the arbitration clause, then any claims about that transaction can be brought to arbitration by both the member and the non-member. So again, remember. If a non-member signs an arbitration clause with you about a transaction, ALL claims about that transaction can be brought to arbitration, including claims made by the non-member. COUNTERCLAIMS It's also important to know that in an arbitration, the arbitrators will also hear and decide counterclaims brought by the member or non-member. For instance, let s say you bring a non- member to arbitration and you claim the non-member owes you $20,000. The non-member has the right to bring a counterclaim, and claim that the reason he hasn t paid is that you owe him $40,000. The DDC could be forced to hear both claims. In a situation where you owe the non-member more than he owes you, the arbitrators could determine that you owe money. What makes an arbitration clause binding? Courts might ask: (1) Did the parties actually agree to arbitration? (2)Does the arbitration clause apply to this transaction?

8 What makes an arbitration clause binding? A court might ask to look at the arbitration clause to see if it's binding. The court might ask: 1. Did the two people actually agree to arbitration and 2. Does the arbitration clause apply to this transaction. What makes an arbitration clause binding? How do we know if the parties agreed to arbitration? (1) The arbitration clause is reasonably communicated. (2)The other party actually agreed to it. What might courts look at to see if they think the parties actually agreed to arbitration? They might look to see if the arbitration clause was actually and reasonably communicated to the other person. They might try to determine whether the other person actually agreed to it. What makes an arbitration clause binding? The question is: Is a court more or less likely to say that the arbitration clause was reasonably communicated and that the parties agreed? It s a spectrum. What does that mean? If you put an arbitration clause in your memos, invoices, or letterhead, you could ask yourself, is a court more or less likely to say that the arbitration clause was reasonably communicated to the other person? Meaning, is a court going to say, "There's no way the other person saw this.? Or is the court going to look at this and say, "A reasonable person would have seen this and looked at it and agreed to it.? It can be viewed as a spectrum, its hard to find something that s 100% perfect or 100% terrible. A court might look at the situation and make a judgment call. What makes an arbitration clause binding? Some ways to make the agreement more clear: (1)Bold font (2)Larger font (3)ALL CAPS (4)Underline (5)Red font (6)On the front of the document (7)Above the signature line

9 So here some helpful things you can do to try to make the arbitration clause clearer in your memo or on your invoice, or on your letterhead, so that a court will hopefully look at it and say, this was clearly communicated to the other person. You can use bold font, big fonts, all capitols, underline, red font, put it on the front of your document instead of on the back, and/or put it above where the person signs it as opposed to below. What makes an arbitration clause binding? Best practices: (1)Make sure the other party signs the document or clearly indicates agreement! (2)Make sure the person who is agreeing can bind the company to arbitration. It's generally important to make sure that the other party indicates that they agree to the arbitration clause. The best practice is generally to make sure that the other party clearly indicates agreement. Signatures are generally the best way to do that. Even though invoices are generally not signed or agreed to in writing by the other party, if that s where you are putting your arbitration clause, the best thing to do is to have the other party sign the invoice. The other important best practice is to make sure the person who is agreeing on behalf of the non-member has the power and authority to bind the company to arbitration. Generally speaking, the higher up the person you can get to sign it, the better. SAMPLE ARBITRATIONCLAUSES nyddc.com/arbitration So now we re going to go through some of the sample arbitration clauses in the Webinar materials that you downloaded. If you haven t downloaded it yet, please pause the webinar and download it at nyddc.com/arbitration. Again, the materials here are examples for educational purposes. You should consult your own lawyer before using any clauses or making any changes to your documents. Options It can be on a memo, invoice, or on a member s letterhead. Let s go through the four samples. As we mentioned before, under this regulation, the arbitration clause can be on a memo, invoice, or on a member s letterhead. Let s go through the four sample arbitration clauses one by one. Feel free to pause the webinar if you want to look at one more carefully, either on the screen or on the webinar materials that you downloaded.

10 Sample 1- Memo Any dispute, controversy, or claim between you and/or your company and [insert member name and company here], arising out of or relating to this memo and/or the goods described therein, or any past or future transactions in which [insert member name and company here] has sold, transferred, or delivered goods to you or your company, shall be exclusively determined by arbitration administered by the Diamond Dealers Club, Inc. in New York City under its By-Laws and Rules and Regulations. The parties to this memo submit themselves to the jurisdiction of the DDC, and judgment on any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. You agree to be personally responsible for any awards rendered by the arbitrators. You hereby waive any claim or objection relating to forum non conveniens. So let s go through the four sample arbitration clauses one by one. The first sample is simply one that would appear in a memo. For all of the clauses, where it says insert member name and company here, as you see underlined, someone would have their actual name and company in that space. So for example, if a member s name was John Smith and their company was Smith Diamonds, it would look like this. Sample 1- Memo Any dispute, controversy, or claim between you and/or your company and John Smith and/or Smith Diamonds, arising out of or relating to this memo and/or the goods described therein, or any past or future transactions in which John Smith and/or Smith Diamonds has sold, transferred, or delivered goods to you or your company, shall be exclusively determined by arbitration administered by the Diamond Dealers Club, Inc. in New York City under its By-Laws and Rules and Regulations. The parties to this memo submit themselves to the jurisdiction of the DDC, and judgment on any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. You agree to be personally responsible for any awards rendered by the arbitrators. You hereby waive any claim or objection relating to forum non conveniens. You'll notice there's a section in blue that appears in the first three examples. That section in blue is the optional language that someone might put in depending on if they want the arbitration clause to apply to just the particular transaction or to every transaction between the parties where the member is the seller. Sample 2- Invoice Any dispute, controversy, or claim between you and/or your company and [insert member name and company here], arising out of or relating to this invoice and/or the goods described therein, or any past or future transactions in which [insert member name and company here] has sold, transferred, or delivered goods to you or your company, shall be exclusively determined by arbitration administered by the Diamond Dealers Club, Inc. in New York City under its By-Laws and Rules and Regulations. The parties to this memo submit themselves to the jurisdiction of the DDC, and judgment on any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. You agree to be personally responsible for any awards rendered by the arbitrators. You hereby waive any claim or objection relating to forum non conveniens.

11 The second sample is very similar to the first one; it s one that might appear in a member s invoice. Again, an important reminder, even though invoices aren t normally signed, the best practice here would be to have the other party sign the invoice. Sample 3- Letterhead (Covers a specific transaction) Any dispute, controversy, or claim between you and/or your company and [insert member name and company here], arising out of or relating to [describe memorandum or invoice with date and invoice number] and/or the goods described therein, or any past or future transactions in which [insert member name and company here] has sold, transferred, or delivered goods to you or your company, has sold, transferred, or delivered goods to you or your company, shall be exclusively determined by arbitration administered by the Diamond Dealers Club, Inc. in New York City under its By-Laws and Rules and Regulations. The parties to this memo submit themselves to the jurisdiction of the DDC, and judgment on any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. You agree to be personally responsible for any awards rendered by the arbitrators. You hereby waive any claim or objection relating to forum non conveniens. The third and fourth options are forms that a member might put on their letterhead. Number three is where the member specifies exactly which transaction the arbitration clause refers to, and can also include other past and future transactions. Where it says describe memorandum or invoice with date and invoice number a member would put add in those details. So if the letterhead is referring back to an invoice date October 1, 2015, it would look something like this. Sample 3- Letterhead (Covers a specific transaction) Any dispute, controversy, or claim between you and/or your company and [John Smith and/or Smith Diamonds, arising out of or relating to the invoice between the parties dated October 1, 2015, Invoice #12345, and/or the goods described therein, or any past or future transactions in which John Smith and/or Smith Diamonds has sold, transferred, or delivered goods to you or your company, has sold, transferred, or delivered goods to you or your company, shall be exclusively determined by arbitration administered by the Diamond Dealers Club, Inc. in New York City under its By-Laws and Rules and Regulations. The parties to this memo submit themselves to the jurisdiction of the DDC, and judgment on any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. You agree to be personally responsible for any awards rendered by the arbitrators. You hereby waive any claim or objection relating to forum non conveniens. The third and fourth options are forms that a member might put on their letterhead. Number three is where the member specifies exactly which transaction the arbitration clause refers to, and can also include other past and future transactions. Where it says describe memorandum or invoice with date and invoice number a member would add in those details. So if the letterhead is referring back to an invoice date October 1, 2015, it would look something like this.

12 Sample 4- Letterhead (General) Any dispute, controversy, or claim between you and/or your company and [insert member name and company here], arising out of or relating to any past or future transactions in which [insert member name and company here] has sold, transferred, or delivered goods to you or your company, shall be exclusively determined by arbitration administered by the Diamond Dealers Club, Inc. in New York City under its By-Laws and Rules and Regulations. The parties to this memo submit themselves to the jurisdiction of the DDC, and judgment on any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. You agree to be personally responsible for any awards rendered by the arbitrators. You hereby waive any claim or objection relating to forum non conveniens. Number four is more simple, and is for where a member wants to have the non-member sign one simple piece of paper that will cover all transactions where the member is the seller or transferor. Options Consider: does the person want it to apply to: Just this transaction All transactions (where the member is the seller or transferor of goods). Personal liability Before someone would put something like this in a memo or invoice, something to think about is: do you want the arbitration clause to apply to just this transaction or do you want it to apply to every transaction when you deal with this person where you're the seller? If you want to do the latter, the best practice is probably still to have it in every memo or invoice whenever you do business with this party, and have it signed, to cover your bases. The second important thing you'll notice, the second to last sentence of all of these clauses is a personal liability clause, which says that the non-member agrees to be personally liable for their transactions. This is important because as some of you may know, some people try to hide behind the corporate veil. They try to hide behind the corporation, they say the corporation is bankrupt and they try to get away without paying by not having any money in the corporation and keep all the money themselves personally. With this line, the nonmember is signing that they agree to be personally liable themselves for the transaction, not just their company. We can t promise that it will be effective, but at the very least there s a shot. Someone may or may not want to have this clause in there, depending on who they are doing business with and who is signing it. THANKS FOR WATCHING! Webinar: Taking Non-Members to Arbitration And with that, I want to thank everyone for watching this webinar. If you have any questions, or if you d like to attend a live seminar on this topic, please feel free to call the DDC at or stop by the DDC office at 580 Fifth Ave, 10 th Floor. Thanks again for watching.