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March 26, 2018 Articles

Summary Disposition in Arbitration

By John A. Shope and Diana Tsutieva

When we ask in-house counsel whose companies avoid arbitration clauses to explain why, the answer frequently includes the assertion that "you can't get summary judgment in arbitration." No in-house lawyer wants his client's senior executives to have to travel a long way and undergo cross-examination in a dispute over contract interpretation that could be resolved just by having a judge read the contract, or where the email trail makes the controlling facts indisputable. But while there is a historical and continuing kernel of truth to the assumption that a summary judgment—or more appropriately in the context of arbitration, a "summary disposition"—is unlikely to be rendered in an arbitration case, that assumption is increasingly less likely to be true. Leading arbitration tribunals now expressly permit summary disposition, arbitration panels are issuing partial or total summary dispositions, courts are enforcing these awards, and parties are including provisions in their arbitration agreements to encourage summary disposition.

This article provides an overview of the current state of relevant arbitration rules and discusses the historical reasons why summary judgment has been disfavored in arbitration, the current trend of the courts towards enforcing summary arbitration awards, and how parties can encourage arbitrators to grant appropriate summary dispositions and ensure that courts will enforce the resulting awards.

The Arbitration Fora Rules
The rules of various well-known arbitration forums currently run a gamut from: (i) making no mention of early dismissal or summary disposition but arguably implicitly authorizing them in general provisions granting the panel discretion to manage the proceedings, (ii) explicitly authorizing early dismissal of facially defective pleadings but not mentioning summary disposition based on facts extrinsic to the pleadings, or (iii) explicitly authorizing both early dismissal and fact-based summary dispositions. (In this regard, summary disposition should be distinguished from expedited proceedings, sometimes confusingly called summary proceedings, or requests for interim measures.)

Three major arbitral institutions have recently implemented rules on summary disposition. Effective March 1, 2017, the International Chamber of Commerce's Arbitration Rules feature a set of rules for "expedited procedure," which apply to claims of $2 million or less unless the parties opt out, and provide that, after consulting the parties, the tribunal may decide the case on documents only without examination of witnesses or even a hearing. In addition, the ICC Court recently announced that, within the broad scope of Article 22 of its regular rules, a party can make an "application" to the arbitral tribunal for "the expeditious determination of one or more claims or defences, on grounds that such claims or defenses are manifestly devoid of merit or fall manifestly outside the arbitral tribunal's jurisdiction." The arbitral tribunal has full discretion to decide whether to allow the application to proceed.

This is a notable change given that just a decade ago, an ICC task force declined to amend its rules expressly to allow summary dispositions on the ground that the procedure would likely "not work in the ICC context and culture." But even before the recent changes, ICC tribunals have in fact held that they have authority to grant a summary disposition.

The ICC change falls in line with recent rule amendments by two other arbitral institutions. Article 39 of the latest revised arbitration rules of the Arbitration Institute of the Stockholm Chamber of Commerce (January 1, 2017), applicable to claims of any size, expressly permits summary procedure for issues of fact and law and arguments that pleadings are legally insufficient. The latest Singapore International Arbitration Rules (August 1, 2016) provide (in Rule 29) for "early dismissal of a claim or defence" if it is either "manifestly without legal merit" or "manifestly outside the jurisdiction of the Tribunal." The Hong Kong International Centre's recently proposed changes to its arbitration rules also contemplate an early determination procedure.

U.S. arbitral bodies led this global trend. The American Arbitration Association's Commercial Rule 33 (effective October 1, 2013) and Construction Rule 34 (effective July 1, 2015), for example, provide that an arbitrator may permit and rule upon dispositive motions upon a prior written application, although Commercial Rule 33 requires a predicate showing that the motion is likely to succeed and will dispose of or narrow the issues. The JAMS rules (Comprehensive Rule 18, Construction Rule 18, and International Rule 26) authorize the arbitrator(s) to permit motions for summary disposition if there is "reasonable notice to respond." FINRA's Rule 9264 permits the respondent to file a motion for summary disposition (without leave of the Hearing Officer if prior to hearing).

The International Institute for Conflict Prevention and Resolution (CPR) has rules that do not specifically mention summary disposition. However, CPR's guidelines for administered and non-administered proceedings specifically deem summary disposition permissible pursuant to the general provision in CPR's Rule 9.1 that "subject to these rules, the Tribunal may conduct that arbitration in such manner as it shall deem appropriate." The guidelines encourage the tribunal to admit written evidence and factual presentations as appropriate for such motions, and note that, as a disincentive to frivolous motions (perhaps filed for delay), the tribunal may assess the costs of such a motion against an unsuccessful applicant separately from the overall costs of the case.

Factors Historically Disfavoring Summary Disposition in Arbitration
Several factors have limited the frequency of summary dispositions. While the most significant is the fear of vacatur, discussed below, a number of other historical reasons have constrained the use of summary determinations in arbitration. Some older U.S. arbitrators "grew up" as lawyers before the U.S. Supreme Court revolutionized summary judgment practice in 1986. To this day, summary judgment (or disposition) is not available in many other legal systems. Some arbitrators have believed that, in contracting for arbitration, the parties essentially expected an evidentiary hearing for any dispute. But this reasoning is arguably somewhat circular, and is certainly unsound for contracts made after the adoption of rules just noted.

Some have suggested that arbitrators will nonetheless continue to decline to issue summary dispositions because doing so eliminates the fee income to them from a multi-day evidentiary hearing. We think that the likelihood is diminishing. The panels are increasingly populated by full-time arbitrators motivated to maintain reputations for professionalism and efficient case management, such that they will continue to be selected. Furthermore, arbitrators are now explicitly asked to state their views on summary disposition in publicly available responses to questionnaires.

This is not to say that arbitrators will always grant meritorious motions for summary disposition. In this regard, however, arbitration is not to be compared to an idealized court proceeding, but rather to motion practice as it actually exists (or not) in trial courts. As noted, summary disposition is not available at all in many if not all continental systems. In the United States, it is very difficult to move successfully for summary disposition in most state court systems, in which the judges are overburdened with hundreds if not thousands of cases and have little or no law clerk support. This is especially so in the majority of states where the judges are elected and the necessity of running for reelection and avoiding offense to litigants or their counsel incentivizes passing all disputed questions to the jury. Even in the minority of states where judges are appointed rather than elected, state court judges frequently serve on a rotational assignment basis under which the granting of summary disposition entails extra work and the risk of reversal for the judge hearing the motion, but the denial of summary disposition merely passes the work of an unnecessary trial to another judge. It is no surprise that meritorious motions are frequently denied in state courts.

Even in the U.S. federal courts, which enjoy judges with life tenure, single-judge docketing, and law clerk support, only a small percentage of cases are decided by summary judgement. In one study, only 12 percent of cases experienced a motion for summary judgment that was granted in whole or in part. One reason is that the federal judges have hundreds of cases before them at once, vastly more than any arbitrator will ever simultaneously consider.

The Trend of Enforcement of Arbitral Summary Dispositions
In the United States, enforcement of arbitral awards is governed by the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq., or, in international cases, the New York Convention. Among other grounds, § 10(a)(3) of the FAA permits courts to vacate arbitration awards "where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy." Arbitration lore holds that, at least in the United States, an arbitrator's grant of summary disposition risks vacatur on the theory that, by deciding the case without a hearing, the arbitrator will be "guilty of misconduct" in "refusing to hear" "pertinent and material" evidence. But there is scant support for that position, the limited authority is predicated on now-superseded administrative rules, and the overwhelming majority of more recent cases, especially at the appellate level, effectively hold that the award should not be vacated simply because it was issued without an evidentiary hearing, but rather should be confirmed absent evident partiality or exceedance of contractual authority.

In general, arbitration awards may be vacated for misconduct rather than mistake. (See Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576 (2008). The New York Convention dictates a similar standard. Judges in the United States who have practiced under the U.S. Supreme Court's 1986 trilogy of summary judgment decisions (see Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)), which encouraged the use of the summary judgment procedure, are very unlikely to deem it unfair per se. Courts have held that no "bright line rule" requires arbitrators to conduct oral hearings. (See Oracle Corp. v. Wilson, No. 17 Civ. 554 (ER), 2017 U.S. Dist. LEXIS 134208 (S.D.N.Y. Aug. 22, 2017)). In determining whether the arbitrators who issued a summary judgment were "guilty of misconduct," courts in effect ask not whether they disagree with the arbitrator's legal conclusions, but whether the summary judgment procedure was fundamentally unfair (see e.g., Sherrock Bros. v. DaimlerChrysler Motors Co., 260 F. App'x 497, 501-02 (3d Cir. 2008); Campbell v. Am. Family Assur. Co. of Columbus, 613 F. Supp. 2d 1114, 1118-19 (D. Minn. 2009); Laccinole v. Experian Info. Solutions, Inc., C. A. No. 15-337-M-LDA, 2017 U.S. Dist. LEXIS 19668 (D.R.I. Feb. 10, 2017)). It is hard to characterize use of a summary disposition procedure as "misconduct," when the rules of the arbitration to which the parties agreed specifically contemplate that procedure. Courts have also found that even those arbitral tribunals that operate under the rules with no express provisions for summary disposition generally have the broader power to use procedures that are not inconsistent with those rules – including summary determination (see Sheldon v. Vermonty, 269 F. 3d 1202 (10th Cir. 2001); Weirton Med. Ctr. v. Cmty. Health Sys., No. 5:15CV132 (STAMP), 2017 U.S. Dist. LEXIS 203722 (N.D. W. Va. (Dec. 12, 2017)). And a party cannot challenge an award issued summarily without a hearing if it did not avail itself of the opportunity to be heard by proffering further evidence, seeking discovery, or requesting an evidentiary hearing. (See Oracle Corp., 2017 U.S. Dist. LEXIS 134208).

Furthermore, the FAA predicates vacatur on "refusal to hear" material evidence. Courts properly recognize the distinction between "refusing to hear" evidence, on the one hand, and receiving evidence in opposition to summary judgment but deeming it legally immaterial, on the other hand (see Battles v. Am. Van Lines, Inc., No. 15-cv-62247-BLOOM/Valle, 2016 U.S. Dist. LEXIS 43888 (S.D. Fla. Mar. 30, 2016)). An arbitrator who grants a party opposing summary disposition the opportunity to submit affidavits and documents in opposition and assumes their veracity, while deeming them legally insufficient to foreclose judgment, has not "refused" to hear evidence but, at most, made a legal error in deeming it irrelevant. Such an error, for the most part, is insufficient to support vacatur. Indeed, it would construe the FAA in a nonsensical manner to hold that an arbitrator's legal error was unreviewable if he or she deemed oral testimony at a hearing irrelevant, but fully reversible if he or she reached the same conclusion as to the same testimony if submitted by affidavit. And although it is not necessarily binding in federal court, and has not been adopted in all states, the Revised Uniform Arbitration Act's express authorization of summary disposition upon reasonable notice will likely be influential to validate the practice. Thus, at least in the United States, the fear of vacatur of a summary disposition, at least one in which the losing party had a reasonable opportunity to oppose with a proffer of evidence, is something of a historical bogeyman. That said, well-crafted contractual provisions can minimize any residual risk of vacatur.

The same is true in other jurisdictions. In England, so long as the tribunal adopts summary disposition procedures that give all parties a reasonable opportunity to present their case, the risk that a court will not enforce a summary award, or will set aside a summary award, is low. Vacatur of arbitral decisions based on summary disposition is unlikely in the leading civil law jurisdictions as well. Courts in France, Holland, and Switzerland have enforced summary judgments rendered in U.S. court proceedings, so it is not much of a stretch to expect such courts to enforce an arbitration award made in a similar fashion.

Proposed Clauses
The best way to both preclude any issue of enforcement or arbitrator reluctance is to include a provision for summary disposition in the agreement to arbitrate. One Big Four accounting firm's standard engagement letter, for example, provides that "the arbitrators may render early or summary disposition of some or all issues, after the parties have had a reasonable opportunity to make submissions on those issues." This clause comprehends factual as well as legal issues, and leaves the timing and the particulars for the tribunal to decide in a particular case. It also waives any challenge to enforcement based on the absence of an evidentiary hearing. If misuse of the process for delay or other tactical advantage is feared, the agreement could also specify that a losing movant would pay the costs and fees of the motion irrespective of the final case outcome.

One merit of arbitration is that there is, in effect, competition. The business "customer" can by contract select the forum with the rules that it considers best. Numerous competing dispute resolution providers now tout the superior efficiency of their respective rules and procedures. The different fora and individual arbitrators will distinguish themselves, and potentially gain market share, by facilitating the efficient grant of summary disposition in appropriate cases. It is not fanciful to envision the coming day when summary disposition will be easier to obtain in arbitration than in court.

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