Summary Disposition in Breach of Contract Cases: The Benefits and Risks

Does your company’s standard contract contain an arbitration clause requiring customers to arbitrate any and all claims against you? If so, imagine the following scenario.

Your customer serves you with a lawsuit claiming breach of contract. Based on your arbitration clause, you impose arbitration in the belief that the arbitration process is faster and less expensive than litigation. You then watch the arbitration drag on for months and generate litigation-like fees and expenses. In the end, you are left wondering what benefit, if any, came from this so-called less lengthy and expensive alternative to litigation.

If you have the right case and know the rules of arbitration, you might be able to avoid the above scenario. Some alternative dispute resolution neutrals conduct arbitration pursuant to rules that permit the arbitrator to decide cases on “summary disposition, which like summary judgment permits an arbitrator to decide a case without the need for an evidentiary hearing where witnesses are examined and cross-examined for days and at great expense.

Summary disposition is appropriate where the arbitrator concludes that there is no genuine issue of material fact and the application of the relevant legal principles to those undisputed facts requires a certain result. Although neither the Federal Arbitration Act (9 U.S.C. ڇ, et seq.) nor the original Uniform Arbitration Act provide for an arbitrator to grant a request for summary disposition, the Revised Uniform Arbitration Act (2000) specifically allows arbitrators to determine cases upon a request for summary disposition.

Even though Massachusetts has adopted the Uniform Act (G.L. c. 251, § 1), et seq., not the Revised Act, private ADR companies are free to select and follow their own rules and parties to an arbitration can agree on the rules that will govern the arbitration.
Contract Cases Are Good Candidates

In assessing whether your case is appropriate for summary disposition, you need to determine whether the contract provision at issue unambiguously supports your interpretation of the contract. If you can convince the arbitrator that contract provision is not ambiguous, the law permits the arbitrator to interpret the meaning of that provision as a matter of law. Berkowitz v. President & Fellows of Harvard College, 58 Mass. App. Ct. 262, rev. denied, 440 Mass. 1101 (2003) (construction of unambiguous written contract is question of law rather than question of fact).

This means there is no need for the arbitrator to hear or receive evidence on the intended meaning of the provision (i.e., no need to spend time and money examining and cross-examining witnesses or introducing exhibits). It is only where the opposing party can convince the arbitrator that the contract language at issue is ambiguous that it is appropriate for the arbitrator to hear the testimony of witnesses and consider exhibits on the issue of the intended meaning of the contract. City of Haverhill v. George Brox, Inc., 47 Mass. App. Ct. 717 (1999).
Potential Cost Savings

Although there is time and expense associated with preparing for summary disposition (marshalling and briefing the undisputed material facts and legal principles), it is much less than is required to prepare for and attend days of evidentiary hearings. The summary disposition approach may also limit the expense associated with discovery.

Although discovery in arbitration is more limited than it is in the courts (if it is permitted at all), it can still be a significant expense in the arbitration setting when a party seeks the discovery to ascertain what the parties intended by the contract language at issue. Such discovery can include depositions and the production and review of boxes of documents.

A party pursuing a summary disposition strategy may be able to avoid the time and expense associated with such discovery if it can convince the arbitrator that the discovery is premature since the contract language at issue is not ambiguous and can be interpreted as a matter of law. The argument in favor of such an approach is that arbitration is supposed to be a more efficient and economical process than civil litigation and that if the arbitrator can resolve the dispute without requiring the parties to spend a significant amount of time and money on discovery he should, at least initially, take this approach.

Such an approach would be consistent with the principle that the parties to a contract dispute are not entitled to present the fact finder with facts outside the contract relevant to the intended meaning of the contract if the contract is not ambiguous. Morse v. City of Boston, 260 Mass. 255, 262 (1927).

There is little downside and, potentially, a big upside to this approach. The obvious upside is that, if the motion for summary disposition is successful, the arbitration will have been concluded in a much more efficient and economical manner than if the parties had to engage in discovery and participate in an evidentiary hearing.

The downside is usually not great. If the arbitrator finds the contract ambiguous, the parties can engage in whatever discovery is permitted after such a finding is made. Furthermore, the arbitrator’s findings on the ambiguity may provide the parties with a road map on the type of discovery that is appropriate and, thereby, serve as a basis for limiting the subsequent discovery on the issue of the intended meaning of the language at issue.

In the end, the argument over about whether the arbitrator should entertain a summary disposition motion before permitting any discovery will depend on the arbitrator’s reaction to the parties’ contentions whether the language at issue is ambiguous. If the arbitrator is convinced that the language is unambiguous, he may be inclined to entertain the summary disposition motion without permitting any discovery.

However, if the party opposing this approach is successful in sowing some doubt in the arbitrator’s mind about whether the language is unambiguous, it is likely that the arbitrator will either permit some limited discovery before ruling on a motion for summary disposition or discourage the filing of such a motion.

Since it may help protect the award in court from an attack based on the arguments that the arbitrator refused to hear evidence material to the controversy and/or conducted the arbitration in a manner that substantially prejudiced the rights of a party (see G.L.c. 251, 䅈 (4) and 9 U.S.C. 䅆 (3)), the safest course for the arbitrator inclined to believe the language is unambiguous is to permit some limited discovery on the issue.

This is especially so where the party opposed to the summary disposition procedure can make a colorable argument that some limited discovery is appropriate. Although such an approach will defeat the goal of eliminating the expense of discovery, the party seeking summary disposition is still in a position to have the arbitrator limit the amount of discovery and, thereby, limit the amount of time and money spent on discovery.
Choosing the Right Arbitrator

The risks associated with summary disposition are informed by the identity of the arbitrator. It is elementary that this can be the “whole ballgame” in arbitration. Summary disposition presents particular issues relating to choosing an arbitrator.

The primary problem is the generally held belief among many arbitrators that they should give the parties their “day in court” (i.e., they should give the parties a hearing at which they can present their witnesses and exhibits). If you want an arbitrator who will seriously consider deciding the case on summary disposition, you do not want an arbitrator with this mind-set.

The type of arbitrator that you want is someone who is used to, and therefore comfortable with, deciding cases on paper (without the need to hear live testimony) after hearing the arguments of counsel. Former appellate judges should be seriously considered because they routinely decide cases on paper after hearing oral argument.

Similarly, but to a lesser extent, former trial court judges have experience deciding cases on paper by ruling on motions to dismiss and motions for summary judgment. Furthermore, trial lawyers may be receptive to the summary disposition procedure because they are used to having cases decided on motions to dismiss and motions for summary judgment and understand the rationale and wisdom behind such procedures.
The Risks

There are certain risks associated with summary disposition. The biggest risk is that the arbitrator will agree with you that the contract is not ambiguous but will then proceed to interpret it in favor of your opponent.

Another risk is that your summary disposition strategy will fall apart because the opposing party is able to convince the arbitrator that the contract provision at issue is ambiguous. Although good lawyers are adept at spotting or creating ambiguities, if the contact language at issue is clear it will hem in creative lawyering and permit an arbitrator to issue an award summarily in the face of such advocacy.

Ambiguity is not created in a contract simply because a controversy exists between the parties, each favoring an interpretation contrary to the other side. Suffolk Construction Co. v. Lanco Scaffolding Co., Inc., 47 Mass. App. Ct. 726 (1999). A contract term is ambiguous only if it is susceptible of more than one meaning and if reasonably intelligent persons would differ as to which meaning is the proper one. Bercume v. Bercume, 428 Mass. 635 (1999).