As businesses
increasingly use arbitration rather than litigation to resolve disputes, they
have become increasingly critical of the process, with some predicting its
demise. What are these criticisms? Here's a sample. Arbitration is not the cheaper, faster,
better alternative to litigation that its proponents touted. Arbitration is becoming just like/ too much
like litigation. Discovery and motion
practice in arbitration are becoming too costly and time consuming. Since arbitrators are paid by the parties and
judges are paid by the taxpayers, arbitration can be more expensive than
litigation. Arbitrators tend to "split
the baby" rather than ruling on the law and the facts. There's virtually no appeal from a "wrong"
result. Others complain that arbitration
is not as fair as litigation-discovery is more limited, there is no jury, and
there's a "repeat player" problem favoring companies over individuals. (Hence the pending legislation in Congress to
limit arbitration in certain areas like employment, consumer, and franchise
disputes.)
Are these
criticisms valid? Some of the complaints
about fairness are specific to particular types of arbitration (employment,
consumer, and the like) outside of business-to-business arbitration. But that line of criticism reminds us of the need
for all arbitration to be both efficient and
fair. The complaint that arbitrators
tend to "split the baby" may come from the history of labor arbitration of
day-to-day grievances on the shop floor and may not be a real problem with
experienced commercial arbitrators. And
while there's generally no realistic avenue for an appeal to a court of a
"merely wrong" result, some arbitration providers, including JAMS and AAA, have an optional appeal process to
another arbitrator or panel of arbitrators that the parties can agree to. Also, some critics of commercial arbitration may
be parties who did not prevail in their first arbitration and who have
therefore decided not to repeat the experience, without reflecting on the mixed
results and negative aspects of litigation.
But even
with all of these defenses, as arbitrators many of us also see that arbitration
is not always as quick and economical as it could and should be. Why not?
We may first look to the drafters of arbitration clauses/ agreements as
responsible, and suggest changes for them to make to their agreements. Last minute, off-the- shelf, "midnight
clauses" certainly can contribute to problems.
We may look to counsel who advocate for the parties in arbitration as
responsible, saying that most are current or former litigators who are either
just doing what they have learned to do or, more sinisterly, spending maximum
time for their own hourly fees. We may
look to the parties themselves for either being overly aggressive in their
marching orders to counsel, or remote and uninvolved until an elaborate
procedure is cast in stone and they are looking at high bills and a very slow
schedule. But human nature being what it
is, we arbitrators probably look at ourselves last as being responsible for any
unnecessary cost or delay. We would do
better to recognize that as arbitrators we can and should actively manage each
case before us to minimize or eliminate unnecessary delay and expense. This paper will focus on the arbitrator as
leader and manager of efforts to prevent runaway costs, unnecessary
litigation-type processes, and rigid procedures that waste time in arbitration,
and on the important role of in-house counsel in improving arbitration
efficiency.
In-house
counsel
As a former
in-house attorney for over twenty years, I can look back at my roles as a
contract drafter and as a manager of dispute resolution processes including
mediation, arbitration, administrative hearings, and litigation, and see how attorneys
as drafters, advisers, and advocates can all help to make arbitration more
efficient. To someone who has not spent
her career as a litigator, the potential flexibility of arbitration, like
mediation, is very appealing. As an
in-house attorney, I learned the importance of being informed and involved from
the contract drafting stage, of staying involved and aware of all the options
in all dispute resolution processes, and of communicating the client's desire
for efficiency to the other participants in the process.
It's
difficult to draft a good pre-dispute
arbitration clause, precisely because the exact nature of the dispute is not
then known. And after a dispute arises
it's hard to get the parties who are now at odds to agree on an arbitration
agreement. But in both instances
drafters should keep efficiency in mind and consider broad language about the
general scope of, or general limits on, discovery (including document
discovery, depositions, and e-discovery) and motion practice. This language can provide the arbitrator with
tools to control the time and cost of the arbitration. The JAMS
"Recommended Arbitration Discovery Protocols" developed in January 2010 and
available at www.jamsadr.com contain various options to consider. Attorneys with knowledge of the contract (the
deal), knowledge of the business, and experience in arbitrations working
together will produce the best arbitration agreements.
Once a
dispute arises, in-house counsel know how important it is to share information
about the law and the arbitration process with the key business person(s) who will
often have the best handle on the value to the business of the disputed
matter, including its risks. They will
discuss frankly the expense, delay, and lost opportunity cost of proceeding in
the most litigation-like manner in arbitration, especially discovery and motion
costs, scheduling the evidentiary hearing (how soon and how lengthy), and hearing
procedures. In arbitration the parties
can and should decide how much "process" they want, and want to pay for. Parties will be more satisfied with the
process if they are included in these discussions and strategy sessions.
The
arbitrator
1.) Review the arbitration clause. One of the first things an arbitrator will do
is to check the arbitration clause to see what rules and procedures will apply
to the case. Rules and procedures are
key to efficiency. We may see that the
parties agreed to a particular arbitration provider, such as JAMS or AAA, and may have selected the arbitration
rules of that provider or other rules. The
arbitration clause may also spell out particular procedures that will override any
conflicting rules and procedures that apply generally. For example, the arbitration clause may state
that the federal Rules of Civil Procedure will apply to discovery, that the Federal
Rules of Evidence will apply to the evidentiary hearing, or that each side will
be permitted to take a particular number of depositions and that dispositive
motions will be allowed and ruled on exactly the same as in court. Such provisions may increase the cost and
time of the arbitration.
An
arbitrator focusing on efficiency will carefully note anything in the documents
that may add to cost and time as discussion items for the initial
conference. While keeping in mind that
the process is a product of the agreement of the parties, there may be options
available to save time and money without sacrificing fairness that are in
keeping with the agreed-upon rules and procedures, or the arbitrator may
identify options to discuss with the parties that they could agree to
and that would fit the particular case well.
2.) Plan the initial conference carefully. The initial conference can be a crucial step
for the arbitrator to establish his or her role as an effective manager of an
efficient and fair arbitration. The
arbitrator can encourage all of the participants to pause, step back, and
appreciate that this is arbitration not litigation and that arbitration is more
flexible, streamlined, and potentially more efficient than litigation. There may be many ways to save money and time
and prevent business disruption while still effectively handling the dispute,
and this conference may present the best opportunity to achieve those
goals. It is fairly standard for the
arbitrator(s) and counsel for the parties to convene on a telephone conference
call to go over basic matters, and set a schedule for all steps in the case
including discovery, motions, briefs, and the date(s) for the final evidentiary
hearing. Many arbitrators send counsel a
template or format for a scheduling order that will result from this
conference.
In some
cases, the arbitrator may decide that an in-person conference would work better,
and may specifically invite the parties or their business representatives to
attend, in addition to counsel, and set aside sufficient time to explore
procedural issues in a thorough manner before positions are set. The arbitrator may take this opportunity to
introduce the possibility of more streamlined procedures than those referenced
in the arbitration agreement or clause, and with all parties and counsel
present with the arbitrator for the first time, they may agree to these
suggestions. By taking the lead, the
arbitrator can emphasize the differences between arbitration and litigation,
the flexibility of the arbitration procedure, and the ability of the parties to
fashion the process to fit the particular case.
While it may seem odd to suggest a costlier in-person preliminary
conference, it may save time and money in the long run. Of course the arbitrator must be careful to
remain neutral at all times during these discussions and to respect the fact
that if either party wants to stick with previously agreed upon procedures,
then that's the way it will be. But even
in those cases, by focusing everyone on the goal of efficiency, there can be
many ways to fill in the blanks in existing procedures so that the process is
not needlessly formal, slow, or expensive.
As stated in the JAMS
"Recommended Discovery Protocols," the arbitrator must be "sufficiently assertive
to ensure that an arbitration will be resolved much less expensively and in
much less time than if it had been litigated in court and at the same time,
being sufficiently patient and restrained to ensure that there is enough
discovery and evidence to permit a fair result."
To promote
efficiency, the parties may agree to: a mechanism for quick resolution of
discovery disputes; tools that will help the arbitrator be more efficient such
as pre-hearing briefs, a joint exhibit book, and a method to record the hearing
testimony; "staging" steps to resolve preliminary issues like proper parties or
arbitrability of issues; or partial discovery on limited issues. The parties may also agree on the big
pre-hearing issues of discovery (including depositions, if any, and
e-discovery) and motions, especially motions for summary judgment.
The other
major agenda item at the preliminary hearing is scheduling the dates for the
evidentiary hearing and establishing ground rules and procedures for that
hearing. The arbitrator may encourage a
relatively prompt hearing, and emphasize that once set, the hearing will not be
postponed without the arbitrator's approval for good cause. On hearing procedures, if, for example, the arbitration
clause states that the Federal Rules of Evidence will apply, the arbitrator may
point out that these Rules may be less appropriate in arbitration than
litigation because: there is no jury; there is a tradition in arbitration of
generally letting evidence in "for what it's worth;" and one of the few grounds
for vacatur by a court of an arbitration award under the Federal Arbitration
Act is the exclusion of "pertinent and material" evidence at the hearing. The arbitrator may propose instead that at
the hearing counsel could note that evidence should be given less weight
because, for example, it is hearsay, rather than making formal objections under
the Federal Rules of Evidence.
The
arbitrator or counsel may also suggest from a host of other procedures those that
would fit the dispute and streamline the hearing such as time limits for each
side, experts for both sides testifying on the same day and perhaps even being
allowed to ask questions of each other, all exhibits in a joint exhibit book
automatically admitted absent specific objection, or direct testimony on
"non-crucial" witnesses submitted by written statement.
3.) Prepare for the hearing. The arbitrator should be available to the
parties with reasonable notice throughout the pendency of the arbitration. There should be a plan in place so any
problems that arise unexpectedly can be handled promptly by a telephone
conference with the arbitrator.
Pre-hearing briefs may be helpful.
And a final pre-hearing telephone conference may be scheduled to avoid unnecessary surprises or misunderstandings at the
hearing and to take up any last minute matters
4.) Conduct a fair and
efficient hearing. With
all of the planning described above, the hearing will obviously run perfectly
smoothly, right? Not likely but the
best assurance of a fair and efficient hearing will be the prior and ongoing effective
management of the process by the arbitrator and buy-in by the counsel and
parties to efficiency as a goal. By the
time of the main event, counsel should be in the habit of seeing procedural issues through the lens of fairness and efficiency, comfortable with raising
any problems promptly so they can be resolved quickly, and in the habit of
hearing or suggesting novel solutions that fit the case and take advantage of the
relative flexibility of the arbitration process.