As courts have become ever more congested, with caseloads outpacing staffing increases and funding levels under the budgetary axe, lawyers and litigants have turned with increasing frequency to arbitration as a mechanism for extrajudicial dispute resolution.
The practice of arbitration dates back at least to ancient Greece and Rome. Here in the United States, it remains largely a creature of contract, with a skeletal procedural framework supplied by statutes such as the Federal Arbitration Act and similar state statutes.
The Arbitration Process
Parties may enter into arbitration agreements pre-dispute by incorporating arbitration provisions into their original contracts or post-dispute by crafting such agreements after the fact. These agreements can be created sui generis by the parties or can be adopted or modified from the templates offered by dispute resolution service providers such as JAMS (jamsadr.com), the American Arbitration Association (AAA; adr.org), or the National Arbitration Forum (adrforum.com). The agreement typically will refer to the operative set of rules that will govern the arbitration. For example, the standard AAA clause for the arbitration of a commercial dispute provides, “We, the undersigned parties, hereby agree to submit to arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules the following controversy. . . .” Arbitration service providers such as those noted above have developed specialized rule sets for various types of cases, ranging from the simplest consumer case to the most complex multi-party, multi-million-dollar commercial dispute. Because arbitrations are creatures of contract, however, one need not have an arbitration administered by a particular tribunal in order to use that tribunal’s rules. These rules generally are available online and can be downloaded from the tribunals’ websites. (One should avoid tribunals that historically have favored the industry or entity that specifies them in their contract documents.)
When a conflict between the parties arises, a claimant files a demand for arbitration (articulating the claim and desired relief) with the selected tribunal and pays the filing fee (sometimes also called the “initial fee”). These fees are often based on the amount in controversy, and fees of the arbitrator(s) are charged separately. For example, in a commercial case with up to $75,000 in controversy, the AAA’s initial fee is $750, with an additional $800 due at the time the first hearing is set (the AAA calls this a “final fee”). ADR Services, Inc. (adrservices.org), a tribunal covering all of California and Nevada, charges a $300 initial filing fee, a $250 per-party administrative fee, and a one-time $250 conflict check/disclosure statement fee for California arbitrations, but no fees for Nevada arbitrations.
Because these fees typically are substantially higher than the fees charged by the courts, and thereby create a barrier to access, many tribunals offer a reduced-rate fee structure for consumer cases, or some other mechanism for spreading the payments over time. In addition, many jurisdictions now require the non-consumer party imposing an arbitration requirement on the consumer party (such as an employer requiring employees to arbitrate all employment-related disputes) to bear all costs of the arbitration in excess of the filing fee that would have been paid to a court in that jurisdiction.
After opening the case, the tribunal typically will forward the demand to the named respondents with a copy of the tribunal’s rules and a form for response. The respondents may default, respond to the claim, and counterclaim (with additional fees required).
Once the matter is at issue, the tribunal generally proceeds to the selection of an arbitrator or arbitrators. (Larger cases traditionally called for a three-member panel of arbitrators—one selected by the claimant, one by the respondent(s), and the third by the other two; this practice seems to have fallen into disfavor as costs have increased with the use of professional neutrals such as retired judges and trained legal professionals.) Originally, the arbitrator was selected from the members of the merchant guild to which the claimant belonged. This practice evolved into panels of lay arbitrators with expertise in the area of dispute. Thus, a patent dispute often would engender the selection and appointment of an arbitrator from a panel of patent lawyer-arbitrators. The parties have to exercise care and be proactive to ensure that the tribunal administrator proposes a list of candidates who are suitable to the case. For example, in a recent case involving claims of product defect in coagulation diagnostic and therapeutic products, the appropriate list of candidates was not a selection of patent lawyers but rather a selection of hematologists or trauma physicians. (In that case, the litigants were fortunate to have two MD-JD arbitrators, both practicing lawyers with a background in emergency medicine, drafted onto the list of candidates by the tribunal.)
With the selection of the arbitrator completed, the proceeding usually commences with a “get to know you” pre-hearing conference among the self-represented parties, counsel, in-house counsel for corporate parties, and the arbitrator. At that conference, issues such as the scope and timing of discovery will be tendered and resolved. Although some arbitrations still are conducted using the old-fashioned “trial by ambush” methodology, most tribunals now require sufficient discovery to permit a full and fair development of the factual issues. For example, JAMS has developed its Recommended Arbitration Discovery Protocols “to provide JAMS arbitrators with an effective tool that will help them exercise their sound judgment in furtherance of achieving an efficient, cost-effective process which affords the parties a fair opportunity to be heard.” Under its protocols, “JAMS arbitrators strive to enhance the chances for limited, efficient discovery by acting at the first pre-hearing conference to set hearing dates and interim deadlines which, the parties are told, will be strictly enforced, and which, in fact, are thereafter strictly enforced.”
After the completion of discovery, including exchanges of information, some rules permit motions for summary disposition of a particular claim or issue. Once the issues are settled, the matter will proceed to hearing. Most tribunals require a pre-hearing submission akin to that required in a federal pre-trial conference. Ideally, the hearing will be conducted on consecutive days, with witnesses compelled to attend and documents compelled to be produced by subpoena. (The parties may need to proactively monitor the duration of proceedings to avoid abuse by an arbitrator who uses the assignment as a retirement enhancement exercise.) Most tribunals have departed from the old “anything goes” standard and require some adherence to principles of evidence. For example, JAMS Comprehensive Arbitration Rule 22(d) provides:
Strict conformity to the rules of evidence is not required, except that the Arbitrator shall apply applicable law relating to privileges and work product. The Arbitrator shall consider evidence that he or she finds relevant and material to the dispute, giving the evidence such weight as is appropriate. The Arbitrator may be guided in that determination by principles contained in the Federal Rules of Evidence or any other applicable rules of evidence. The Arbitrator may limit testimony to exclude evidence that would be immaterial or unduly repetitive, provided that all Parties are afforded the opportunity to present material and relevant evidence.
By agreement, the parties may require that the arbitrator comply with particular rules of evidence, such as the Federal Rules or the California Evidence Code. Similarly, most tribunals require some adherence to legal principles. For example, JAMS Comprehensive Arbitration Rule 24(c) provides:
In determining the merits of the dispute, the Arbitrator shall be guided by the rules of law agreed upon by the Parties. In the absence of such agreement, the Arbitrator shall be guided by the rules of law and equity that he or she deems to be most appropriate.
It therefore is incumbent on the parties to agree on the applicable rules of law for the decision of their case. Otherwise, as in the chancery courts of yore, the result might be determined by the “length of the Chancellor’s foot.”
Once the hearing is concluded, the arbitrator(s) will issue an award. The parties will have the opportunity to seek correction of the award by the arbitrator(s) to correct any computational, typographical, or other similar error. When the award becomes final under the tribunal’s rules, if those rules so provide and the parties agree, the award may be reviewed under the tribunal’s optional appeal procedures. In the absence of, or on completion of, such review, the prevailing party may seek to enforce or confirm the award, and the losing party may seek to modify or vacate the award, pursuant to the controlling arbitration law. Once confirmed, judgment on the award may be entered by any court of competent jurisdiction, and that judgment may be enforced as any other judgment of that court.
Proceed with Caution
If an expeditious and confidential proceeding is required, arbitration can offer a useful alternative to the judicial process. Care must be taken, however, both during the crafting of the contractual provisions as well as during the proceedings themselves, to ensure that the costs of the arbitration do not outweigh its other benefits.
For more information on the arbitration process and other arbitration initiatives and publications, please reach out to the ABA Section of Dispute Resolution (americanbar.org/dispute), particularly its Arbitration Committee (tinyurl.com/bvxkrxy). Further information also can be found at the websites of arbitration service providers such as the American Arbitration Association (adr.org), JAMS (jamsadr.com), and the National Arbitration Forum (adrforum.com).