Lack of Diversity Continues to Hurt Alternative Dispute Resolution

In 2018, Jay-Z criticized the “Large and Complex Cases” database of the American Arbitration Association (AAA), which included only 3 “token” African Americans (one of whom was conflicted out) in a list of more than 200 qualified arbitrators. In his complaint requesting injunctive relief to avoid arbitration, Jay-Z argued that “[t]he AAA’s failure to provide a venire of arbitrators that includes more than a token nu1mber of African-Americans renders the arbitration provision in the contract void as against public policy.” Complaint ¶ 9, Carter et al. v. Iconix Brand Grp., Inc., Index No. 655894/2018 (N.Y. Sup. Ct. Nov. 28, 2018). The dispute arose when Jay-Z (filing under his legal name, Shawn C. Carter) sold his Rocawear fashion brand to Iconix Brand Group, Inc., and entered into a master settlement agreement in 2015, which contained a binding arbitration provision. Iconix initiated arbitration with the AAA on October 1, 2018. Jay-Z succeeded in temporarily halting the arbitration. He later withdrew his request for a preliminary injunction because the “AAA has indicated an openness both to an arbitrator selection process in [the] Arbitration that will allow for meaningful consideration of African-American arbitrators and to broader remedial measures intended to improve the diversity of the arbitrator roster for future arbitrations.” Letter from Counsel at 3, Carter et al. v. Iconix Brand Grp., Inc., Index No. 655894/2018 (N.Y. Sup. Ct. Dec. 9, 2018).

Earlier that same year, the ABA’s House of Delegates adopted ABA Resolution 105, which encouraged ADR providers to expand their rosters to include and select additional minorities, women, persons with disabilities, and persons with differing sexual orientations and gender identities. It is unclear whether this resolution has been successful, but Jay-Z’s message may have struck a chord. In December 2018, Jay-Z told the New York court that the AAA “now had provided [him] with a list of African-American arbitrators qualified to hear large commercial cases and committed to working with [Jay-Z] to expand the roster of diverse arbitrators.” Letter from Counsel at 3, Carter et al. v. Iconix Brand Grp., Inc., Index No. 655894/2018 (N.Y. Sup. Ct. Dec. 9, 2018).

The following year, in October 2019, JAMS hired its first “diversity program manager,” Joanne Saint Louis. Ms. Saint Louis is tasked with “bringing on high-caliber, diverse neutrals to its panel and working with law firms, in-house counsel and affinity bar organizations to diversify the selection of mediators and arbitrators.” This is a step in the right direction, but the statistics remain discouraging. AAA’s 2019 B2B Dispute Resolution infographic reported that in 2019, just 26 percent of arbitration cases considered a diverse roster and 30 percent of arbitration cases used diverse appointments. A 2015 survey for the National Academy of Arbitrators’ Research and Education Fund found that of more than 400 practicing employment arbitrators, 74 percent were male and 92 percent were non-Hispanic white. The International Centre for Settlement of Investment Disputes (ICSID) panels formed from 2012 to 2017 show that out of 951 appointments, 11 percent were female, and only 3 appointed arbitrators were female, non-white, and from a developing country.

We have more to do. This article explores the issues and what can be done to improve the diversity problem.

Increased Diversity Enhances the Business of ADR

Increased diversity enhances the business of ADR for several reasons. First, ADR is inclusive in theory, and it naturally follows that its practitioners should be inclusive. For example, the ACR Mediator Certification Task Force’s Report and Recommendations from 2004 advocates a process that “emphasiz[es] the core principles of party self-determination, impartiality and diversity in its broadest sense.” In 2008, ADR experts David Hoffman and Lamont Stallworth warned that “public policy supporting the enforcement of civil rights laws will be undercut if minorities are de facto excluded from serving as fact-finders, mediators, and arbitrators in cases alleging civil rights violations.” Increased diversity is intrinsically valuable as it brings vigor to the deliberative process and allows for different perspectives to be heard. Diversity also disrupts the potential for groupthink and impedes cognitive biases.

Second, there is consensus that in a deliberative process like ADR, practitioners should reflect their claimants’ demographics. Unlike traditional litigation, claimants in ADR have an opportunity to choose their panel, and they may wish (for very good reasons) to choose arbitrators who are similar to themselves and have had similar experiences. Third, clients need to trust the neutral third party conducting the process, and claimants are more likely to trust an arbitration panel that reflects their identity. Fourth, by its nature, ADR is largely unregulated. This lack of universal standards for practicing ADR allows for creative solutions often lacking in litigation, but the lack of oversight also opens the door for a lack of equality that—arguably—may not exist in traditional litigation. That being said, the same diversity problems exist among judges in traditional litigation. Regardless of the forum for litigation or ADR, there is a significant risk of bias against minority clients and practitioners.

Finally, and perhaps most importantly, diversity in ADR makes good business and ethical sense. Increasing the pool of arbitrators may provide greater choice for claimants, encourage better performance among ADR practitioners, and reduce the likelihood of repeat appointments that may disadvantage inexperienced claimants. These reasons are true regardless of location. For example, in Cofely v. Bingham, the High Court of England and Wales removed an arbitrator on the grounds of apparent bias when the same party had nominated him numerous times. Diversity serves to break the monotony and ensure a range of voices in the process.

Given the importance of an ADR outcome, its proponents are obliged to ensure that parties participating in ADR feel comfortable with the process and the practitioners conducting that process. In this regard, the participation of lawyers and clients is imperative. If ADR practitioners wish to demonstrate diversity in practice, and not just in theory, they should demand and use a diverse list of ADR practitioners. For example, JAMS has an “inclusion rider” in its arbitration agreements. This rider “encourages parties to consider diversity when choosing an arbitrator or panel of arbitrators.”

Increased Diversity Legitimizes ADR Decisions, Especially in a World of Binding Arbitration

Not only does it make business sense to increase diversity, there is also a credible argument that a homogeneous arbitration panel will be unable to fully understand a diverse claimant’s concerns. This leads to a loss of faith in the process. In Jay-Z’s temporary restraining order/preliminary injunction memorandum, he argued that a lack of African American arbitrators “deprives litigants of color of a meaningful opportunity to have their claims heard by a panel of arbitrators reflecting their backgrounds and life experience, and all but excludes the voices of diverse decision makers in the arbitration process.” Memorandum of Law in Support of Order to Show Cause at 9, Carter et al. v. Iconix Brand Grp., Inc., Index No. 655894/2018 (N.Y. Sup. Ct. Nov. 28, 2018). If diverse claimants do not believe the arbitration process is fair, they are less likely to pursue arbitration and, perhaps more importantly, less likely to have faith in the process when they are involved in an arbitration proceeding. ADR’s legitimacy as a conflict-resolution process only stands to increase when diverse claimants can see themselves represented in the process.

This is imperative given the number of binding arbitration clauses that exist. In reality, claimants often do not have a choice whether to pursue arbitration. Under the Federal Arbitration Act (FAA), courts have upheld binding arbitration clauses in a variety of subject areas. Although arbitration is historically rooted in labor law, since 1926 when the FAA was passed, the U.S. Supreme Court has repeatedly upheld binding arbitration clauses. The AAA has reported that since the 1980s, the number of arbitration case filings has increased each year. According to the AAA’s 2019 B2B Dispute Resolution discussed above, the top subject matters arbitrated in 2019 were life sciences, construction, real estate, technology, transportation, energy, aviation/aerospace and national security, health care, entertainment/media, and cannabis.

Binding arbitration has its benefits, and many clients and counsel find arbitration to be a favorable alternative to traditional litigation. However, the FAA’s policy favoring arbitration also means that claimants are mandated to use ADR, putting diverse claimants at a disadvantage. The Economic Policy Institute, for example, reported that consumers and employees often find it more difficult to win in arbitration than in court. This does not even take into account diverse employers and consumers, who may be additionally disadvantaged without a panel that includes diverse ADR practitioners.

How Can We Improve?

There are three immediate steps practitioners should take to increase diversity in ADR.

First, practitioners must raise awareness. Major ADR players should continue tracking, publishing, and considering diversity-related statistics. They should also make the panel selection process as transparent as possible. Increasing transparency in the arbitrator selection process allows claimants to better consider diversity in their selection. A good example is the International Institute for Conflict Prevention & Resolution’s Diversity in ADR Task Force, which created a two-year mentoring and apprentice program “designed to further diversity among neutrals chosen to mediate or arbitrate by large corporations.” Programs like this serve to increase awareness and provide viable progress to increase diversity in ADR.

Second, practitioners must show diversity in practice, not just in theory. The Mansfield rule may be a good model—practitioners could aim to consider at least 30 percent diverse candidates in selecting a panel. However, while many in-house counsel have diversity mandates for hiring law firms, the choice of selecting an ADR practitioner is often left to outside counsel, without considering diversity requirements.

Third, ADR practitioners should try to think outside the box. What are less conventional ways we can increase diversity today and lay the path for the future? Perhaps this means ADR practitioners creating increased opportunities for law students to observe ADR proceedings. Or law firms encouraging their partners and associates to pursue ADR. Or law firm partners bringing associates into the panel selection process. Or ADR practitioners engaging industry players to provide information, education, and direction to encourage diversity within specific industries. Or organizations like the ABA encouraging and supporting efforts to foster diversity within ADR. Solutions exist, but we have to open the dialogue to allow them to proceed.

These are legitimate challenges that lack a single, finite solution. However, moving in the right direction is imperative, lest ADR fail those claimants who could benefit the most. The lack of diversity in ADR legitimately impedes the field, and as in the legal community at large, the best chance of improving diversity comes from ADR practitioners pressuring ourselves to act inclusively, ethically, and with the best business practices.

Armeen F. Mistry is an associate at Pepper Hamilton LLP and cochair of the ABA Section of Litigation’s Alternative Dispute Resolution Committee’s Diversity Subcommittee.

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