Sooner or later, every trial lawyer with a commercial practice will end up in an arbitration. Perhaps the most likely scenario is a contract dispute between parties that have agreed to mandatory arbitration with a specified alternative dispute resolution provider, most commonly the American Arbitration Association (AAA). Your client asks you to handle the matter, but you have no experience with arbitration. Not to worry—there is nothing in the process that a good trial lawyer isn’t fully equipped to handle. This is an overview of the AAA process and some advice on how to navigate it successfully.
In general, an arbitration is like a fast-tracked civil case that gets tried to the bench with little discovery, no rules of evidence, and an extremely limited right of appeal. The whole prehearing process is much less rule-driven than a civil case; there are no discovery rules, for example, and no rules on motion practice. Instead, there is only a general framework within which the parties and the arbitrators have wide latitude to tailor the proceedings to the circumstances. An arbitration hearing itself is not so different from a civil bench trial, except for the absence of evidentiary objections (which would have little role anyway in a typical contract case tried to the court) and a less formal atmosphere.
Some arbitrations start with a lawsuit. The parties have been talking about a dispute between them; it becomes apparent to at least one side that their talks will not be fruitful; and someone decides to go to court, despite an arbitration clause in the contract. There can be a number of reasons for a party to do this:
- A party may feel that it has a better chance with a jury as the decision maker than with a lawyer or a panel of lawyers, perhaps because the case depends on arguments of fairness and equity.
- It may believe that it will benefit from fuller discovery than is available in arbitration.
- It may want to have a full right of appeal.
- More cynically, it may seek delay or want to raise the stakes and gain leverage by dragging its opponent into a more costly and inconvenient forum.
Faced with a complaint, you can of course waive arbitration. Or you can move to stay the case and to compel arbitration.
You will want to decide what law applies. If the contract includes a choice of law provision, the chosen state law will apply, not the Federal Arbitration Act (FAA)—even if interstate commerce is involved. If there is no choice of law provision, the FAA will apply to a contract involving “commerce”—defined as “commerce among the several states or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Territory and another, or between any such Territory and any State or foreign nation. . . .” 7 U.S.C. § 1. If the FAA applies, you can seek relief under Sections 3 and 4 of that statute in state court—indeed, you have to go to state court with your motion to stay and/or to compel arbitration, unless there is some independent basis for federal jurisdiction (diversity or a federal question).
Both federal law and the law of most states recognize a strong presumption of arbitrability, and motions to stay litigation and/or to compel arbitration are generally met with favor. As the Ohio Supreme Court put it, “there is a presumption of arbitrability in the sense that an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” Acad. of Med. of Cincinnati v. Aetna Health, Inc., 108 Ohio St. 3d 185, 188, 842 N.E.2d 488, 492 (Ohio 2006). Moreover, the courts will enforce a clause that gives arbitrators themselves the authority to decide whether a dispute is arbitrable. If parties “have clearly and unmistakably vested the arbitrator with the authority to decide the issue of arbitrability, the question of whether a matter is arbitrable is to be decided by the arbitrator.” Belmont Cnty. Sheriff v. Fraternal Order of Police, Ohio Labor Council, Inc., 104 Ohio St. 3d 568, 570, 820 N.E.2d 918, 921 (Ohio 2004).
Section R-7(a) of the AAA’s Commercial Arbitration Rules provides: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” By agreeing to AAA arbitration, the parties would thus appear to have “vested the arbitrator with the authority to decide the issue of arbitrability.”
Unless your contract contains an unusually narrow and qualified arbitration clause, chances are very good that the matter will go to arbitration.
The initial arbitration pleading, filed by the claimant, is a demand. The only requirements of the AAA rules are that the demand state the nature of the dispute, the names and addresses of the parties, the amount involved, the remedy sought, and the hearing locale. AAA Commercial Arbitration Rules § R-4. This can be accomplished simply by filling out a one-page AAA form. We have seen some practitioners commence arbitrations, even in large and complex cases, with nothing more. That certainly has the advantages of speed and simplicity, and makes sense if there is a race to secure a preferred forum. But the more common and better practice is to file a demand that resembles a civil complaint—with some important differences.
Instead of a bare-bones, short and plain statement of your claim, it is a good idea to file a demand that presents the essential facts and arguments of your case in a persuasive and compelling way. Unlike the pleadings in a civil case, the pleadings in an arbitration get close attention from the decision makers. The demand is the first thing that an arbitrator will see that tells him or her anything about the substance of the dispute, and the arbitrator will read it. You should not pass up this first and earliest opportunity to begin persuading the arbitrator of the justice of your cause. The AAA rules do not require it, but they “encourage” the parties “to provide descriptions of their claims in sufficient detail to make the circumstances of the dispute clear to the arbitrator.” Id. § R-4(d). You should not need that encouragement.
The claimant pays a filing fee based on the dollar amount of its claim. Having received the demand and the fee, the AAA then sends the “respondent” a “notice of filing” of the demand. This starts a 15-day period for the respondent to file an “answering statement,” which may include a counterclaim. There is no need to worry about a default judgment; a party that files nothing is “deemed to deny the claim,” and the case goes forward. Id. § R-4(c). But it is good practice to file something. Even if the claimant has filed only the one-page AAA form, you should take the opportunity to explain the case to the arbitrators and to lay out your defenses.
If the claimant filed something like a conventional complaint, respond as usual, paragraph by paragraph, but do not confine yourself to the ritual admissions and denials of an answer filed in court, which probably gets the least attention of any document in a civil case. The “answering statement” in an arbitration is very different. The arbitrators read whatever you file, and this is their introduction to your case. You need to show them that you have strong defenses, and you need to start trying to persuade them in this very first submission.
As counsel to claimants, we have been surprised to see answering statements filed by sophisticated counsel that were basically unreadable because they said only that the respondent admitted, denied, or was unable to admit or deny the allegations of numbered paragraphs, but in no way told a story or tried to show that the respondent should win the case. The result was that, going into the first encounter with the arbitrators, we had the benefit of a one-sided presentation of the case.
A potential trap for the unwary is the provision in Section R-43(d) that the arbitrators may award attorney fees “if all parties have requested such an award or if it is authorized by law or their arbitration agreement.” Even if the contract does not provide for attorney fees, the panel may thus award them if you and your opponent both ask for them. So be careful what you ask for, especially if you think you have the weaker case. If you are the respondent, do not unthinkingly mirror the claimant’s request for fees, or you may have some explaining to do when the award comes out.
Another potential trap for the unwary in the AAA Commercial Arbitration Rules is the requirement in Section R-7(c) that the respondent “must object to the jurisdiction of the arbitrator or to the arbitrability of the claim or counterclaim no later than the filing of the answering statement.” The claimant might include in its demand claims or issues that are not clearly arbitrable and others that are. That might happen in only a sentence or even part of a sentence. If you do not pick up on it and raise an objection in your answer, you may face a waiver argument.
The AAA rules do not specify that waiver is the consequence of a failure to object. As with most AAA rules, there is little or no case law. But on this issue, there is at least one case—Sciamarelli v. Semet, 2010 Unpub. LEXIS 1019 (N.J. Super. Ct. App. Div. May 10, 2010)—in which the respondent did not raise an arbitrability objection in his answering statement but did so later in his arbitration brief. The arbitrator issued an award without addressing the issue. On a motion to vacate, the court held that the arbitrator had erred in failing to decide the issue, and the court rejected the argument that the arbitrator must have decided that the objection was untimely under section 7(c) because the objection was not raised in the answering statement:
We see no reason why an arbitrator might not also permit consideration of the [arbitrability] argument on its merits despite an untimely objection, in the manner in which our courts will also at times excuse procedural missteps in order to decide cases on their merits.
This is a good response to a waiver argument.
What if an objection to arbitrability is first raised in an amended answering statement? The AAA rules simply do not address that (like so much else). Certainly, the respondent would have an argument that arbitrators, like judges, should liberally permit amendments to ensure that cases are resolved on their merits, not on technicalities or pleading deficiencies, and that in the absence of bad faith, undue delay, or prejudice, the respondent should be permitted to raise such objections in an amended filing.
Selecting the Arbitrators
When the pleadings are complete, it is time to appoint an arbitrator or arbitrators. The AAA rules contain an appointment procedure to be followed if the parties “have not appointed an arbitrator and have not provided any other method of appointment” (section R-11), but usually the contract will specify how the arbitrator(s) will be appointed. The most common method is for each party to name an arbitrator and for these two party-appointed arbitrators to then pick a third arbitrator to serve as a chairperson. Unless the parties have agreed otherwise, the arbitrators whom they appoint must meet AAA standards of impartiality and independence. Id. § R-17(a). They are “neutrals,” not advocates.
Picking the right arbitrator can be instrumental to a successful outcome. What should you be looking for?
First, you want someone whom you believe you can persuade. It would be wrong to assume that just because you have appointed the arbitrator, he or she is going to decide the case in your favor. That is simply not true; most arbitration decisions, in our experience, are unanimous, which of course means that an arbitrator voted against the party that appointed him or her.
Interview any prospective arbitrator before making your choice, and gather as much information about him or her as you can from colleagues and others in the legal community. The rules expressly permit you to communicate ex parte with the candidate “in order to advise the candidate of the general nature of the controversy and of the anticipated proceedings and to discuss the candidate’s qualifications, availability, or independence in relation to the parties.” Id. § R-18. It is important to do this, to see how well you relate to the candidate (assuming you do not know him or her already), and to explore and understand any relationship the candidate has had with your firm or with opposing counsel. Has he or she been co-counsel with members of your firm? Has he or she litigated against your firm, and if so, how was the experience? Does he or she respect your firm? Have you referred work to his or her firm, or vice versa? Does he or she have personal friendships with any of your partners? Is he in an “inn of court” or club with members of your firm? And so on. You want to be aware of any circumstances that might give your firm, and you, an added measure of credibility with the candidate. (And, of course, you want to figure out if the candidate is close to your opponent.) The object is not to find an arbitrator who is biased, but to find one who, for entirely appropriate reasons, might tend to be receptive to your arguments.
Second, you want to pick someone whom you believe can persuade other lawyers—specifically, the two other lawyers on the panel. If the arbitrator agrees with your position, you need him to persuade at least the chairperson to win the case. So you need a consensus builder, someone who is smart but not arrogant, who gets along well with others and is not only liked but respected by his or her peers. One measure of this is whether the candidate has been selected by his or her peers as a leader in bar association or other activities. Find out whether the candidate has served on other arbitration panels, and if so, whether the outcomes were unanimous. A candidate with knowledge of the relevant industry could be a terrific asset to you in the panel’s deliberations, particularly if the case involves technical issues or special industry practices.
Is there any reason to prefer a former judge? We don’t think so. Trial court judges are deciders, not persuaders, by profession. You are looking for a persuader. A former judge may command respect and deference, but we are not convinced that is a sufficient reason to appoint him or her unless the former judge has the other characteristics outlined above.
Choosing the Chairperson
Third, you want someone whom you can trust to pick a good chairperson. After the two party-appointed arbitrators have been named, the AAA has them fill out disclosure forms identifying any previous relationship with the parties or their counsel, and then sends the completed forms to the parties. You then have a period of time to object to the appointments. If there is no objection, the two arbitrators are then cleared to appoint the third arbitrator—a critically important job because the third arbitrator can always cast the deciding vote.
The AAA rules expressly permit you to communicate ex parte with your appointed arbitrator about whom the chairperson should be. Id. § R-18. The rules do not prohibit you from talking with candidates for the role of chairperson, but neither do they permit it; they expressly allow you only to communicate ex parte “with a candidate for direct appointment pursuant to Section R-12”; that is, a candidate whom you appoint yourself. The arbitrator whom you appoint interviews candidates for chairperson and can then discuss with you his or her impressions and opinions. You are involved only indirectly, behind the scenes, and ultimately may have to defer to the judgment of your appointed arbitrator if the candidates are lawyers whom you do not know—as will often be the case in big-stakes litigation where the candidates for chairperson can be from far-flung locations, chosen more for their reputation and ability than for their proximity to the hearing locale, the lawyers, or the parties.
What are you looking for in a chairperson? Most important, someone to whom your appointee believes he or she relates well and with whom he or she has credibility; someone whom your appointee can persuade, if ultimately convinced that your position is correct. Look for proven case management skills if cost, efficiency, or a prompt decision is important. If the candidates include former judges, check their reported decisions to see how they have ruled on claims such as those in your case. Ask other lawyers about the candidates’ approach to case management. And, of course, consider whether they are likely to be receptive to your own arguments, for all the reasons outlined in the discussion above of party-appointed arbitrators.
Here again, the question arises whether to prefer a former judge. We have heard the argument that if the case is likely to be decided on purely legal grounds, it is better to have a judge because judges are more likely to look with favor on dispositive motions and on technical legal arguments. We don’t accept this generalization. In our experience, many judges are very reluctant to grant dispositive motions, perhaps because of bad experiences with reversals by courts of appeals. We have seen former judges discourage the filing of dispositive motions in arbitration and urge the parties to schedule a single hearing after which all issues will be decided. In contrast, practitioners are always filing dispositive motions and tend to believe strongly that cases can and should be resolved on motion. So we wouldn’t automatically prefer a judge just because the case might involve dispositive motions. But if a particular judge has a strong record of granting summary judgments, that might be worth considering.
Occasionally, it happens that the two party-appointed arbitrators (in consultation with counsel for the parties) do not agree on a chairperson but do agree on a list of candidates that both sides would find acceptable. In that event, they may also agree on a process for selecting the chairperson from that list, such as ranking three or four candidates in order of preference and selecting the candidate with the highest combined ranking.
Once the chairperson has been selected, he or she must fill out the AAA disclosure form and the AAA gives the parties time to object to the appointment based on the disclosures. If there is no objection (and it is very unlikely that there will be), the AAA formally appoints the chairperson. From that point on, you can have no more ex parte communications with your own appointee relating to the case.
What if you had a good experience with a party-appointed arbitrator, and there later arises a similar dispute under the same contract between the same parties? Can you go back to the same arbitrator and appoint him or her again? This should not be a problem. We have seen objections to this by the party that lost the first arbitration, on a couple of grounds. One argument is that the arbitrator will disclose information from the earlier case to the current panel and thus breach the confidentiality of the first arbitration, violating Canon VI of the Code of Ethics for Commercial Arbitrators. This is not one of the grounds for disqualification listed in Section R-17 of the AAA Commercial Arbitration Rules, and it has been rejected in case law. In Trustmark Ins. Co. v. Clarendon Nat’l Ins. Co., No. 09C6169, 2010 U.S. Dist. LEXIS 807A (N.D. Ill. Feb. 1, 2010), for example, the court rejected an argument that disclosure of confidential information from a previous case was “inevitable,” and the court observed that an “arbitrator is still able to articulate her viewpoints with reference only to the record in front of the [current] arbitration panel, and without reference to prior arbitrations”—thus, the arbitrator “does not need to disclose confidential information as part of her duties as an arbitrator.”
Another argument we have seen in these circumstances is that the arbitrator cannot be impartial because the arbitrator has already prejudged the facts or legal issues between the parties and cannot erect a “Chinese wall” in his or her head. Again, the courts have not been receptive to this argument. The Trustmark court, for example, noted that there is a “strong presumption” that “arbitrators can disregard what they already know” from an earlier related case. Another court noted:
The selection of an experienced arbitrator necessarily entails the risk that he has already encountered the question of law which might arise. To hold that such a prior decision makes out a claim of partiality . . . would be to turn that ground of vacatur into a vehicle for “forum-shopping” among arbitrators.
Conroy v. Country Wide Ins. Co., 427 N.Y.S.2d 646, 647–48 (N.Y. App. Div. 1980).
So, although there may be unusual and compelling circumstances in which involvement in a previous case might be evidence of “partiality” or “lack of independence,” anyone raising that argument will face a very high burden indeed. It is also worth noting that a motion to disqualify in these circumstances would be directed to the AAA (under Section R-17(b) of the rules), which in our experience decides the matter without argument, without a reasoned decision, and without any opportunity for review. These motions go into a black box.
The arbitrators are required to keep all aspects of the arbitration confidential, under Canon VI. But nothing in the AAA rules requires the parties to keep anything confidential. Unless there is a confidentiality provision in the parties’ contract, an arbitration is no more confidential than a court case.
Once a panel is in place, the first event in the case is likely to be a preliminary hearing. It establishes the procedural framework of the case, like an initial scheduling conference in court. It almost always takes place by telephone and is led by the chairperson, with a representative of the AAA (the “case manager”) listening in. The AAA sends out a form agenda in advance, which in our experience is not followed closely, if at all.
It is a good idea to confer with your opponent before the preliminary hearing to see whether you can agree on any procedural items such as a date for the exchange of documents; whether depositions will be permitted, and if so, how many; a motions deadline; deadlines for expert reports; potential hearing dates; whether there will be pre – and/or post-hearing briefs; and so on. Arbitrators are generally even more likely than judges to accept agreements between the parties—arbitration is, after all, a creature of contract—so it is definitely worthwhile to think in advance of the preliminary hearing about what procedures are most likely to help your case and to try to reach agreement on those procedures with the other side. You have far more freedom in scheduling here than in court, especially when it comes to hearing dates, and you should be able to get a reasonably prompt and convenient hearing on the merits.
The preliminary hearing usually starts with a brief statement by each party of its claims or defenses. If the panel doesn’t ask for this, you should offer it. This is your second chance to start persuading the panel early. You should be prepared with a 5-to- 10-minute summary of the facts you will prove and the reasons why you should win. Come out swinging.
A subject that is certain to come up, particularly in a large and complex case, is discovery. There are no AAA rules on discovery, except one that permits arbitrators to “direct (i) the production of documents and any information, and (ii) the identification of any witnesses to be called.” AAA Commercial Arbitration Rules § R-21(a). In “large, complex commercial cases”—cases in which more than $500,000 is at stake—the arbitrators are authorized to order depositions and interrogatories. Id. § L-4(d). The most contentious item is likely to be depositions. You have no right to these, and may face resistance from the other side, even if you are willing to put up your own people for deposition. The best approach in these circumstances is to show the panel that there are specific issues on which you need discovery and to ask for only a few depositions or a 30(b)(6)-type deposition on those issues. If you do that, the panel is likely to allow at least limited deposition discovery (such as three depositions for each side, limited to four hours each).
In a case involving few or no significant factual disputes and no experts, consider proposing a schedule under which the parties file cross-motions, supported by affidavits, on which the panel hears oral argument, to be followed by either a decision of the panel or an evidentiary hearing if the panel determines that it needs to hear live testimony. We have agreed to such a procedure in several arbitrations and have called the cross-motions “motions for summary judgment.” There is, however, no “summary judgment” procedure in the AAA rules. The AAA’s employment and construction arbitration rules provide for “dispositive motions,” but its Commercial Arbitration Rules are silent on this point. Case law has recognized, appropriately, that arbitrators can nevertheless decide an AAA case under those rules without an evidentiary hearing. Schlessenger v. Rosenfeld, Meyer & Susman, 40 Cal. App. 4th 1096 (1995). The panel should not consider itself constrained by hornbook summary judgment law reserving issues for trial if, drawing all inferences against the moving party, reasonable jurors could find against the movant. After all, there is no jury to decide the case if the arbitrators do not. The issue on these cross-motions should simply be whether the arbitrators can decide the case on the papers or whether they need to hear witnesses to resolve credibility disputes or to obtain more information than the parties have presented by affidavit.
The possible advantages of such a procedure are several:
- It can obviate the need for an evidentiary hearing, which can be expensive, difficult to schedule or to complete in one sitting, and a distraction for company witnesses.
- It can lead to a more efficient and earlier conclusion of the case.
- It may work to your advantage if you have a case that you can present more effectively on paper than through witnesses.
- It can at least sharpen the issues and result in a more focused evidentiary hearing, if there is one.
The possible disadvantages are the expense and delay resulting from two hearings instead of one. But the additional expense may not be that great if the motions hearing causes the panel to focus tightly on one or two issues and thus shorten the evidentiary hearing. (Moreover, there is a good chance that the oral argument on the motions may lead to a settlement after the parties have seen each other take their best shots and have heard the questions and comments of the arbitrators.)
A discovery issue that might arise at the prehearing conference is whether the panel will subpoena documents or deposition testimony from third parties. There is no question that the arbitrators can subpoena a third party to produce documents or give testimony at a hearing; Section R-31(d) of the AAA’s Commercial Arbitration Rules provides that “an arbitrator or other person authorized by law to subpoena witnesses or documents may do so upon the request of any party or independently.” But there is a split of authority on whether a court can enforce a subpoena that would require a prehearing production of documents or deposition, and the panel may be reluctant to issue a subpoena that would not be enforced.
Section 7 of the FAA states that arbitrators “may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document or paper which may be deemed material as evidence in the case.” 9 U.S.C. § 7. This can be interpreted to mean that arbitrators can only compel attendance and document production at a hearing where the arbitrators are present. The Second and Third Circuits have so interpreted it. Life Receivables v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 218 (2d Cir. 2008); Hay Grp., Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3d Cir. 2004). But the Sixth and Eighth Circuits reached the opposite conclusion, finding that section 7 “implicitly include[s] the authority to compel the production of documents for inspection by a party prior to the hearing.” Am. Fed’n of Television & Radio Artists, AFL-CIO v. JWBK-TV, 164 F.3d 1004, 1009 (6th Cir. 1999); In re Sec. Life Ins. Co. of Am., 228 F.3d 865, 870–71 (8th Cir. 2000). These courts did not reach the question of whether an arbitrator may subpoena a third party for a discovery deposition. See Am. Fed’n of Television & Radio Artists,164 F.3d at 1009 n.7. Their rationale for finding that the FAA authorizes prehearing document subpoenas would seem, however, to apply equally to prehearing deposition subpoenas.
So it might be unclear whether you can compel prehearing discovery from a third party. One possible solution, approved by the Second and Third Circuits, is to have the arbitrators subpoena third parties to “attend before them or any of them” at a separate hearing independent of the hearing on the merits, conducted by only one member of the panel, and addressing only document production or testimony. See Hay Grp., 360 F.3d at 413 (Chertoff, J., concurring); Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567, 577–79 (2d Cir. 2005). As a practical matter, the issue may not come up because the panel may be willing to issue a subpoena and to leave the question of enforceability to the courts, and a third party served with the panel’s subpoena may not choose to resist it.
Note that many state arbitration laws are different from the FAA in this regard and expressly authorize arbitrators to issue subpoenas for depositions. E.g., Ohio Rev. Code § 2711.07.
A couple of jurisdictional arguments may arise that are peculiar to arbitration. One is based on the common “no modification” clause in the parties’ contract providing that the arbitrators shall have no authority to amend or modify any of the terms of the contract and/or to enter any award that has that effect. There is a lot of case law on such provisions, mostly labor cases, that you or your opponent may draw on to argue that the relief being sought in the arbitration is so inconsistent with the plain terms of the contract that to grant it would be to change the contract—something that the arbitrators are without power to do. In a Sixth Circuit case, for example, the contract defined an employee’s absence for more than three days without notice as a “voluntary quit.” An arbitrator ordered reinstatement of an employee who had indisputably been absent for more than three days, and the arbitrator excused the lack of notice on the ground that the employer had acted unreasonably. The court of appeals vacated the award on the ground that it violated a “no modification” clause:
Had the arbitrator not unilaterally resorted to creating contract terms and conditions beyond those that had been negotiated by the parties, he would have been bound to rule in favor of the [c]ompany. . . . Any other disposition would be a total disregard for the plain language of the contract.
IBEW v. Thomas & Betts Corp., 182 F.3d 469, 472 (6th Cir. 1999).
These principles have application in all sorts of commercial contexts, and you should consider whether there is a similar basis for arguing that the arbitrator simply cannot grant the relief sought by your opponent.
Another possible argument arises in a “baseball” arbitration, where the contract limits the arbitrator(s) to awarding the exact relief proposed by either the claimant or the respondent. If the contract narrowly defines the issues that are subject to arbitration, there may be an argument that the panel cannot even consider the relief proposed by one of the parties because it cannot do so without deciding other disputed issues that the parties did not commit to arbitration. For example, assume that arbitrators are empowered to revise a price formula in the contract; one of the parties makes a proposal that includes the use of estimated consumer price index data before the final numbers become available from the Department of Labor; the parties dispute whether the use of estimates is permitted under the contract, and the contract does not say anything about arbitrating that particular dispute. There is not much law to cite if this kind of argument arises, apart from the general rule that arbitrators have “the jurisdiction and obligation to decide any issue necessary for the resolution of the controversy submitted for arbitration.” Amgen, Inc. v. Ortho Pharm. Corp., 708 N.E.2d 385, 391 (Ill. Ct. App. 1999); accord Ormsbee Dev. Co. v. Grace, 668 F.2d 1140, 1146 (10th Cir. 1982). (“Parties who agree to submit matters to arbitration are presumed to agree that everything, both as to law and fact, necessary to render an ultimate decision is included in the authority of the arbitrators.”)
The hearing generally takes place in a conference room in one of the arbitrator’s offices and can be considerably more informal than a courtroom trial. Under the AAA rules, “conformity to legal rules of evidence shall not be necessary.” AAA Commercial Arbitration Rules § R-31(a). An arbitrator may, however, “exclude evidence deemed by the arbitrator to be cumulative or irrelevant.” Id. § R-31(b). There is, accordingly, no point in making hearsay or other technical evidentiary objections, or motions to strike, during the hearing. But do speak up if you have a good relevance objection.
The degree of formality at the hearing varies widely. The important thing is to prepare your witnesses for a relatively informal environment, in which there may be banter among the panelists or between the panelists and the lawyers and witnesses. Your witnesses should not let their guard down and should understand that no matter how friendly it all seems, the lawyers for the other side are out to destroy your client’s case and to take your client’s money, and that this is very serious business.
The AAA does not provide a court reporter. It makes sense to hire a reporter so that you have transcripts of at least some of the proceedings for use in your closing and post-hearing briefs and a record in the event of litigation over the award. (A reporter’s notes could also be very useful if a panel member has to resign for health or other reasons during an adjourned hearing.) Share the cost with your opponent. If cost is an issue, there is no need to have the reporter’s notes transcribed until and unless there is subsequent litigation.
Because your audience at the hearing is not a jury, but lawyers in mid– to late career, you can and probably should rely less on audiovisual aids than you would in a courtroom. These folks have no problem with short attention spans and do not need to be entertained. They just want the tools to make the right decision. We have found it effective in contract cases to give the panel a one-page handout containing the key operative language from the contract, so that this is always in front of them. If we are arguing motions and the argument touches on a key document, we hand a copy of the document to each arbitrator. The only visual aid that we use is an overhead projection of exhibits, using PowerPoint, during examination or cross-examination of witnesses, because it is helpful to have the witness and everyone else in the room looking at the same thing. But in closings, we dispense with the PowerPoint, preferring to speak simply and directly to the panel, and to have their eyes on us instead of on a screen.
Because you are arguing to lawyers, it can be effective to organize your closing by the individual issues that the panel must decide and to give the panel highlighted documents and testimony for each issue showing that they should decide in your favor, all collected in a notebook with a tab for each issue. If you do something like this, you know that the panel will have at its fingertips when it decides your case all of the evidence that you believe compels an award in your client’s favor.
We generally propose an exchange of posthearing briefs, too. The benefit of such briefs is that the panel will then have not only your evidence but also your argument to review when deliberating over an award.
The arbitration hearing is not formally closed until the post-hearing briefs and any additional evidence have all been submitted and the arbitrators formally declare the hearing to be closed. Id. § R-35. At that point, the arbitrators have 30 days to make their award, unless the parties agree to extend that deadline. Id. § R-41.
It comes as a surprise to many that under AAA rules, arbitrators do not have to explain their award unless the parties have requested a “reasoned award” before the arbitrators were appointed. Id. § R-42(b). This is obviously something that is important to keep in mind at the earliest stage of the case. Most clients will want to have a reasoned award, if only because they want an explanation for the result after putting so much time and money into it. Moreover, a reasoned award can provide much-needed clarity on issues that may recur between the parties. And any challenge to the arbitrators’ decision will be more difficult if the grounds for the decision are unknown. In the absence of special considerations, such as insurance coverage issues that might cause you not to want specific findings or conclusions from the panel, it is probably best to request a reasoned award.
A misconception about arbitration is that arbitrators tend to “split the baby” and search for compromise solutions so that no one is too unhappy with them. This is not so—in more than 90 percent of cases, the arbitrator(s) accept the position of one party and reject the position of the other.
Under the FAA and state counterparts, you have a full year to seek confirmation of an award, but only three months to move to vacate it, on very limited grounds. 7 U.S.C. §§ 9, 12. Because filing a motion to confirm may prompt your opponent to file a motion to vacate, it might make sense as the winner to wait four months, unless there is a need to confirm the award promptly and use court processes to enforce it.
Overall, most trial lawyers will find arbitration a rewarding process that frees them from the constraints of the Rules of Civil Procedure and Rules of Evidence, allows them to exercise their advocacy skills in a more informal and flexible setting, and delivers justice for their clients swiftly and efficiently.
The views set forth here are personal views of the author and do not necessarily reflect those of his firm.