Careful pre-arbitration planning by in-house counsel can play a pivotal role in reining in litigation costs in complex commercial cases.
Commercial arbitration began as a streamlined version of courtroom litigation between willing participants. Quick and simple discovery, a confidential hearing and summary decision-making provided fast, cost-effective dispute resolution between participants jointly committed to speed and simplicity.
But as arbitration clauses have proliferated, arbitration now occurs more frequently in complex, high stakes cases where speed and simplicity may not be primary goals. As a consequence, the cost of commercial arbitration is increasing.
In house counsel can save costs by actively managing commercial arbitration through written agreements on issues such as discovery, scheduling, use of expert witnesses, use of panels or technical advisors, and appeals procedures. Closely managing the commercial arbitration process allows in-house attorneys and their companies to benefit from a flexible, confidential and cost-effective dispute resolution process.
Agreements Before The Arbitration
Arbitration is the product of agreement. Arbitration provisions in commercial transaction documents such as purchase orders, leases, license and franchise agreements, construction contracts, and insurance policies should specify as many of the parameters of arbitration as commercially practical.
Reference the procedural rules of JAMS, AAA or another organization that administers commercial arbitrations to provide a convenient default process.
Once a dispute arises, the parties will save time and money if they agree to:
• the dispute to be arbitrated;
• the identity of their decision-maker;
• discovery procedures;
• hearing procedures and schedule;
• briefing schedule and length;
• the form of the award; and
• the scope of allowable remedies.
Counsel who invest time negotiating these subjects before the arbitration will minimize costly disputes during the process.
The scope, method and schedule of discovery are subject to agreement. The parties can agree to limit the number and length of depositions, interrogatories or requests for documents, as well as the scope of expert testimony.
Parties may substitute other discovery methods, including meetings between key executives to discuss disputed issues directly. Even if they agree to disagree, they can narrow the issues in dispute.
When parties cannot agree on the scope of discovery the model rules of organizations that administer arbitrations, such as JAMS or AAA, offer default procedures. The parties can agree instead to apply the civil procedure rules of their local jurisdiction, or a hybrid of rules. The arbitrator will resolve disputes, often through a telephone conference with counsel, applying the rules selected by the parties.
Schedule the hearing for the clients’ convenience. Staying late one day to finish an expert’s testimony, or interrupting a witness to accommodate the schedule of another is easy to do.
Video conferencing offers another way to maximize flexibility but requires careful preparation (e.g., all documents must be in the same location as the witness, etc.). Arbitrators, unlike most jurors, are experienced fact-finders who can be trusted to overlook the order of presentation while they stay focused on the separate evidence offered by each party.
The parties can agree to interrupt plaintiff’s case-in-chief to hear a defense witness, confident that the arbitrator will exclude the defendant’s evidence from consideration when evaluating a motion to dismiss at the close of plaintiff’s case.
Single Arbitrator v. Panel
Don’t pay for a panel of arbitrators if one arbitrator can decide the case effectively. On the other hand, don’t be “penny wise and pound foolish” if you need the deliberative process that results from a panel collaboration.
Generally, if a commercial dispute can be tried in less than two weeks, involves fewer than 10 significant witnesses, and requires no more than one area of specialized expertise, a single arbitrator can handle the job. The arbitrator needs experience conducting hearings and making legal decisions, some expertise in the subject matter, and must be impartial.
On the other hand, a panel of three impartial decision-makers is useful when the factual complexity, legal novelty, or public significance of a case may challenge the memory, acumen, or courage of a single arbitrator. A protracted hearing with numerous witnesses testifying about multiple areas of technical specialization may be more effectively arbitrated by a three-member panel whose breadth of expertise and expanded ability to attend to details justifies the additional cost.
Traditional Partisan Panels
Most arbitrators acknowledge that very few cases benefit from panels composed of one impartial arbitrator and two other neutrals hired to serve as “partisans” – advocating the position of one party.
That model may have made sense when non-lawyer advocates unfamiliar with evidentiary rules or legal analysis presented disputes to adjudicators whose decision-making process was unclear to unsophisticated litigants.
Now, however, when commercial arbitration practice attracts the highest level of litigation skill, counsel can be relied upon to advocate their client’s positions. The arbitrator should be hired for his or her special expertise in impartial fact-finding, legal analysis, and decision-making.
Party-representative panels can be very effective when the “representative” panelists are not arbitrators, but party executives. True party representatives (e.g., the chief financial officers) can provide great value not only to the analysis of the case, but also to the design of a resolution – producing the most commercially sensible remedy.
In cases involving ongoing business relations, participation of executives as arbitrators can promote a vision past the immediate dispute to more profitable future opportunities.
Another way to expand the arbitrator’s expertise is to authorize the arbitrator to use an impartial expert advisor approved by all parties. The “on-call advisor” is less expensive than a panel and fills the arbitrator’s “knowledge gap.”
Counsel must select the “on-call advisor” carefully, because like the arbitrator, the technical advisor usually is not subject to examination by the parties concerning his/her thought process once the arbitration begins.
A lot of cost and time is devoted to the battles of experts. Consider letting the parties’ expert witnesses testify in the presence of each other, with time to comment on each other’s testimony.
When the arbitrator has the benefit of each expert’s analysis of the other, and the opportunity to ask the experts the same questions, the arbitrator is better equipped to evaluate the expert’s conflicting conclusions.
In hotly contested, high stakes cases parties may want to incorporate an appeal procedure in their arbitration agreement. Three-member appellate panels can review the decision of a single arbitrator.
The agreement should define the standard of review, the briefing schedule, and decision deadline prior to the arbitration. It’s important that appeal panelists have prior experience reviewing legal decisions. Although an appellate panel adds time and expense to an arbitration, it is less expensive than using a panel to hear the case at the trial stage and provides a comforting “safety net” to litigants who fear the finality of a single arbitrator’s decision.
Maria C. Walsh is a mediator and arbitrator with JAMS – The Resolution Experts, the nation’s largest private alternative dispute resolution provider. She is also of counsel to the Boston law firm of Perkins, Smith & Cohen, where she concentrates her practice in employment law. More information is available at www.jamsadr.com, and she can be contacted at [email protected].