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The new norm of social distancing and a recent decision out of the U.S. Court of Appeals for the Eleventh Circuit are changing the way that arbitrations are conducted. Now is the time to update the arbitration provisions in your contracts to take advantage of these changes the next time you have to arbitrate a dispute.
Arbitration Hearings: To Zoom or Not to Zoom
The standard arbitration hearing has always involved the parties, attorneys, witnesses, and arbitrators together in the same room, similar to an informal trial setting. The COVID-19 pandemic may change that for the foreseeable future. Just as businesses are transitioning away from in-person conferences and toward Zoom meetings, so too are arbitration hearings.
The rules for many arbitration tribunals—like the American Arbitration Association and JAMS—allow arbitrators to decide whether to hold hearings in person or via videoconference, unless the parties have agreed otherwise. So, the next time you negotiate a contract with an arbitration provision, think about whether it would be to your advantage to require that disputes be arbitrated in person or remotely, and then draft that into the contract.
Here are a few things to consider in making this decision:
- Are you likely to need a quick resolution to the dispute? If so, a virtual hearing may be to your advantage because coordinating travel schedules for out-of-state parties, attorneys, witnesses, or arbitrators to attend in person can make scheduling more difficult.
- Is your dispute likely to be complex and document-intensive? If so, requiring an in-person hearing may make it easier to present your case to the arbitrators. Conversely, if your position will be easy to convey, consider requiring any hearing to be conducted via videoconference.
- Will the other party have greater financial resources to devote to the arbitration? In-person hearings are often more expensive than virtual ones, especially if travel is involved. If you are concerned that the other party might leverage its financial position to drive up the cost of arbitration, you may want to require that hearings be conducted via videoconference.
- Which party is likely to appear more credible and sympathetic in person? If it’s you, then you may want to require a live hearing. Be aware, though, that the advantage may be lost if everyone is required to wear face masks at a live hearing.
Nonparty Depositions: Zoom Often Not an Option
One significant difference between litigation and arbitration is the relative ease of getting discovery from nonparties. In a federal court lawsuit, you can subpoena documents from a nonparty anywhere in the country. In arbitration, the only way to get those documents is to subpoena the nonparty to appear before one or more of the arbitrators and demand that she bring the documents with her. In essence, you are subpoenaing her to attend a “mini-hearing” at which she can be questioned about the documents and other matters.
As you can imagine, the associated costs in arbitration can be significant—e.g., flying your attorney and the arbitrator to the nonparty’s location to conduct the document review and questioning. And if the arbitrators decide the cost and disruption would outweigh the value of the evidence sought, they can simply decide not to issue the subpoena, essentially eliminating the nonparty’s evidence from your case.
A common work-around has been for an arbitrator to “attend” the mini-hearing via teleconference or videoconference, minimizing time and travel expense and making it easier to coordinate scheduling. That option, however, no longer exists for most arbitrations in Alabama, Florida, and Georgia. The Eleventh Circuit, which governs these three states, recently ruled that the arbitrator must be physically present when the nonparty is questioned, and that the questioning must be part of the actual arbitration hearing and not simply a separate prehearing deposition. Managed Care Advisory Group v. CIGNA, 939 F.3d 1145 (11th Cir. 2019). In other words, just as the rest of the world is moving toward conducting business remotely, that avenue is being cut off for some parties seeking nonparty documents or testimony in arbitration.
Not only will this affect strategies for gathering evidence in arbitrations, it also demands that parties reevaluate whether to continue including arbitration provisions in some of their contracts. When negotiating your next contract, consider whether, if a dispute arises, you might need documents or testimony from nonparties to prove your case. If so, the safer route may be not to include an arbitration provision in the contract and instead to litigate any disputes in the courts. Conversely, if the other party is likely to need nonparty evidence, then keep the arbitration provision and consider adding language affirmatively prohibiting the arbitrator from issuing nonparty subpoenas in the first place.
These are just two examples of how arbitration is changing as the business world moves toward operating more remotely. Now is a good time to review your arbitration agreements in order to reevaluate whether they help you take advantage of the changing landscape of virtual arbitration and to draft language that puts you in the best position should disputes arise.
Henry R. Chalmers is the immediate past cochair of Arnall Golden Gregory LLP’s Litigation Group, an arbitrator with the American Arbitration Association, and cochair of the ABA Section of Litigation’s Alternative Dispute Resolution Committee.
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