A defining quality of commercial arbitration is that it is generally less expensive and faster than civil litigation. It is supposed to be a vehicle that “cuts to the chase” and resolves the dispute on the merits more directly and, in conversational terms, with less muss and fuss.
For some time now, one of the common war stories among commercial arbitrators involves arbitration agreements that incorporate Fed. R. Civ. P. 26 (Rule 26) and the other federal discovery rules into the arbitration process. What on earth were the drafters of those arbitration agreements thinking? The typical arbitrator’s reaction to such agreements is often bewilderment, perplexed resignation, or worse.
The reason for such reactions is clear. After all, Rule 26 permits any and all discovery so long as it is “reasonably calculated to lead to the discovery of admissible evidence.” So when parties import it into the arbitration process, they can practically kiss the notion of efficiency goodbye—“Start turning over all those stones, boys!”
Like most war stories, this one involves some hyperbole. Federal courts have been applying Rule 26 for years, and if the discovery permitted in federal court can be characterized as liberal, it would be awfully hard to argue that it is typically abusive or out of control. Federal courts have the discretion to control discovery; so do arbitrators when they apply the federal rules to discovery issues in an arbitration setting. Still, there is little doubt that importing Rule 26 into the arbitration process makes dispute resolution more like litigation and less like the cheaper and faster process arbitration is supposed to deliver.
In any case, all of that may be about to change. Amended Rule 26, which is scheduled to come into effect on December 1, 2015, reads as if it came straight out of the Arbitrator’s Almanac. Particularly so with respect to the “proportionality” concept:
Scope in General. Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable. (Emphasis added.)
Proportionality is a fundamental concept guiding the scope of responsible discovery in commercial arbitration cases. The factors listed in Amended Rule 26 are the same factors that most commercial arbitrators use to help them decide how much discovery should be permitted in an arbitration when the parties cannot agree on the scope of discovery themselves.
Of course, how Amended Rule 26 is put into practice is yet to be seen in the federal courts. But arbitrators need no longer shudder when Rule 26, as amended, is incorporated into the discovery provisions of a commercial arbitration agreement. And clients and counsel involved in arbitrations where the federal rules apply can still benefit from arbitration’s efficiency. Proportionality and practical considerations—such as the amount in dispute, the true needs of the case, and the importance of the issues presented—will continue to be important factors in determining how much discovery is appropriate in a given case.
Keywords: alternative dispute resolution, adr, litigation, discovery, Amended Rules of Civil Procedure, Rule 26, proportionality