Nearly all of the cost and timing decisions in an arbitration proceeding are made at the preliminary hearing. Furthermore, the tribunal’s scheduling order, which memorializes preliminary hearing decisions and agreements, usually states that it will be strictly enforced, without modification, except for good cause shown. (However, when parties jointly request a scheduling change, tribunals generally approve. If it is a unilateral request, the requesting party will need to show good cause.) Therefore, it is in the best interests of a party and counsel that a party representative attend.
At the preliminary hearing, the party representatives need to hear what the opposing party wants and, in concert with counsel, reach reasonable agreements on size and due dates of prehearing and post‑hearing briefs, depositions, interrogatories, prehearing motions, document production (including who bears the production costs); the number, location, and dates of the hearing days; whether to engage a court stenographer to create an official record of the hearings; whether daily transcripts will be required; how expert testimony will be presented; and the form of the award.
After discussing the importance of party representatives, this article examines the five decisions with the biggest impact on costs and timing that are made at the preliminary hearing:
Party representatives are important for two main reasons.
First, as more and more businesses choose arbitration, instead of litigation, as the preferred dispute resolution process, more and more business litigation lawyers with little experience in or comfort with arbitration proceedings become more comfortable by turning the arbitration process into a private litigation proceeding. A party representative can have a moderating influence—but only if present at the preliminary hearing. In-house counsel, who often act as party representatives, have knowledge and skills that give them the opportunity for meaningful participation in the decisions made and ordered at the preliminary hearing. They also have responsibility to manage dispute resolution.
Second, although the lawyers are more likely to know (or at least know of) the potential arbitrators for the case and it is the lawyers who most often choose the arbitrator(s), party representatives can and should play an active role in this most important decision. General counsel, and other in-house counsel in particular, may have at least as extensive knowledge of arbitrators as counsel on the case. And even those who do not should understand why counsel is recommending the specific arbitrators for the case.
Each day of evidentiary hearings involves the participation of the tribunal, counsel, witnesses, and one or more client representatives for at least eight hours, unless otherwise agreed. The parties each usually have at least two lawyers present where the amount in controversy is between $100,000 and $1,000,000. In large, complex cases, there are sometimes as many as six lawyers, two to three paralegal assistants, and two tech assistants for each party.
The smaller cases generally have three to five hearing days. Larger cases can run for 10 or more hearing days. One of my cases had 73 hearing days.
Counsel spend hours focused on the facts, witness preparation, strategy, expert witness reports, transcripts of the previous day’s hearing, and legal research for each hearing day. Client representative participation is needed some, if not all, of the time.
The tribunal may spend 15 minutes to an hour or more reviewing each day’s presentation of evidence. On large, complex cases, the tribunal often consists of three arbitrators who attend each hearing day and may meet to review the day’s presentation of evidence and discuss their thoughts about what they have heard. A three-arbitrator panel adds cost and complicates scheduling. Some parties have opted to entrust the proceedings in large, complex cases to a single, highly experienced, and respected arbitrator.
Party representatives, in discussion with counsel, need to give significant thought to the witnesses and number of hearing days necessary to present their case. A cost-benefit analysis becomes critical.
A major difference between litigation and arbitration is the amount of discovery that occurs. Three components of discovery are interrogatories, depositions, and document production.
Until recently, interrogatories and depositions, common in litigation, were unheard of in arbitrations.
Interrogatories are written questions asked by one party of other parties, who are expected to timely deliver written answers. The questions can go on for many pages and can take a lot of time to answer, with the client and counsel working together on the answers. They are costly.
Depositions involve the questioning of parties and witnesses by opposing counsel, in-person and under oath. Depositions can take significant time, are recorded by a stenographer, and are costly.
The third component of discovery is document production—that is, requests by counsel to produce documents. The documents may be writings, photographs, artist renderings, graphs, charts, plans, specifications, and other documents, some of which may be stored electronically.
It is important that the parties agree on what is reasonable and proportional regarding interrogatories, depositions, and document production. In some instances, reaching agreements related to the extent and production of electronically stored documents can be difficult. Retrieval can be time-consuming. The parties need to agree upon the timing and responsibility for production costs.
An important point to consider is that obtaining the deposition of and document production from third parties who are not within the jurisdiction of the site of the evidentiary hearings, and who do not volunteer, requires special treatment and the presence of the tribunal in the geographic areas where the third party is located. It is a time-consuming and costly event. Appropriate consideration needs to be given about the importance of deposing or demanding document production from such a third party.
Prehearing motions have become common. Motions can relate to document production failures, the exclusion of evidence, the exclusion of witnesses, sanctions, and partial or complete disposition of the case, among others.
The preparation and presentation of motions and the tribunal’s handling of motions are costly. It is important to have an agreement at the preliminary hearing about how prehearing motions can be presented and handled.
Generally, there are three forms of arbitration awards:
The standard award is conclusory in form. It does not set out reasons for the conclusions. It takes the least amount of time to prepare and issue. It is most appropriate for cases decided based on written submissions, as well as cases with little or no discovery and no more than one day of evidentiary hearings.
The reasoned award states the conclusions and the reasons why the tribunal reached its conclusions, similar to a judgment rendered in a civil trial. It can consist of anywhere from several pages to 60 or more pages, depending on the number of issues and witnesses involved, the expert witness reports and testimony, the amount in controversy, the relief sought, the number of hearing days, and the size of the post-hearing briefs. A reasoned award can take many hours to prepare and issue.
Findings of facts and conclusions of law would usually be part of a reasoned award. However, these are generally issued only when requested by the parties. They add to the time and cost of producing the award, and tribunals often ask counsel to propose them when they are requested, increasing counsel’s and the tribunal’s billable time.
Among the perceived benefits of binding arbitration over litigation is the finality of the arbitration award. Most business arbitrations are binding arbitrations. Binding arbitrations are not subject to appeal.
Many, if not most, arbitrated business disputes are governed by the Federal Arbitration Act. The act does not provide for appeals from binding arbitration awards. It does provide for the vacation of arbitration awards on limited grounds. However, the bar for vacatur is high, and motions to the courts to vacate an arbitration award are more often denied than granted.
The arbitration rules of some of the alternative dispute resolution (ADR) provider organizations expressly prohibit an arbitrator from redetermining or modifying the substance of or setting aside an award after it is transmitted to the parties.
However, some ADR provider organizations provide the parties using their arbitration rules with an option to elect an appeal from an arbitration award. The appellate review would be conducted by an arbitrator on the ADR provider organization’s panel of arbitrators.
The appellate review option defeats the perceived benefit of finality and adds to the cost of the arbitration proceeding. Parties do not often choose the option to have an appellate arbitration proceeding. However, for those that do, it provides comfort to parties who are uncomfortable with the finality of an arbitration award issued in a binding arbitration proceeding.
At the preliminary hearing, there are many decisions made, agreed upon, and then cast in the form of an order of the arbitration tribunal. All have an impact on timing and cost.
It is in the best interests of the persons who will bear the costs and must arrange their schedules and those of their employees and independent contractors—per decisions made, agreed upon, and ordered by the arbitration tribunal at the preliminary hearing—to attend that preliminary hearing. It is equally in the best interests of counsel to have such persons in attendance, to avoid being second-guessed by a client unhappy with the time consumed and the cost of the outcome.
An arbitration proceeding properly designed at the preliminary hearing can provide an outcome, after a full and fair hearing, that is more prompt, expeditious, confidential, and cost-efficient than a court proceeding—if the parties or counsel don’t turn it into a private “litigation” proceeding. Party representatives can have a moderating influence at this critical juncture.
Bottom line: Be there.
