12 Ways to Achieve Efficiency and Speed in Arbitration
Some lament that arbitration has become too much like litigationprotracted and expensive. This article suggests a dozen ways that corporate counsel can keep domestic arbitration from evolving into its evil twin.
1. A Little Planning Goes a Long Way
All too often an arbitration clause, removed from the critical path of negotiations, merely states that disputes will be arbitrated pursuant to institutional rules vesting the arbitrator with unbridled discretion regarding extent of discovery and schedule. To avoid excessive discovery, ancillary court skirmishes, and a lengthy path to final judgment, parties should seize control of their destiny before the ink dries on the underlying contract. At this stage, they have power to circumscribe the future.
A one-size-fits-all arbitration clause, of course, may be more appropriate for some disputes than others. If an arbitration arises that would benefit from loosening restrictions discussed below, litigants can attempt to do so by agreement. Or, to build in more flexibility, the contracting parties could insert an escape provision. . . except when the arbitrator, in the exercise of discretion, directs otherwise. Such discretion shall be sparingly exercised so as to promote speed and efficiency.
Or, the contract could provide for application of expedited, streamlined rules in cases where the amount in controversy falls below a specified amount. The American Arbitration Associations (AAA) Commercial Arbitration Rules provide for expedited procedures in matters involving less than $75,000, exclusive of interest and arbitration fees/costs. See Rule R-1 (b) and Rules E-1 through E-10 at adr.org. CPR also publishes optional Fast Track Arbitration Rules.
2. Dont Be a Dope, Clarify the Scope
The arbitration clause should unambiguously define the scope of arbitral matters. This scope establishes the arbitrators subject matter jurisdiction. Parties have wasted much money and time litigating scope at the courthouse because drafters failed to be clear on this fundamental point.
The scope should be broad, using such phrases as, any controversy or claim arising out of or relating to this contract, or the breach thereof, whether sounding in contract, tort, or other legal theory. See AAA Clause Builder. It makes no sense to limit the arbitrators purview to contract claims, allowing related tort and statutory claims to be litigated in court on a parallel track.
The contract should also mandate an award of attorneys fees and costs to a party who obtains a court order compelling arbitration. Also, consider a clause imposing both attorneys fees and liquidated damages ($X per day for each day the arbitration is delayed). Enforceability of liquidated damages could be problematic, but the mere threat of such relief may be sufficient to deter end-runs.
3. Sticks and Stones May Break Your Bones . . . and Words May, Too
Consider disallowing dispositive motions unless (a) they present straightforward questions of law, and (b) granting the motion would significantly shorten or streamline the proceeding.
Also, impose reasonable page limits. Parties sometimes file lengthy dispositive motions to educate a court or to wage a war of attrition. Such iffy, burdensome, and time-consuming motions should be discouraged.
4. Streamline Arbitrator Selection
Provide that if the parties cannot agree on an arbitrator or panel within, say, 30/60/90 days after notice is served, the arbitrator(s) will be selected promptly by AAA, CPR, or another named institution or person. See AAA Rules R-12(c) and R-13(a).
5. Are Three Heads Better Than One?
Providing for one arbitrator instead of three means earlier seating, earlier hearing, quicker decision-making, and less cost. In complex, high-stakes matters, however, a panel of three may be cost-justified. The old adage that two heads are better than one rings true. Arbitrators benefit from joint deliberation on difficult issues, and three people are likely to hear, understand, and retain a plethora of evidence more effectively than one.
6. Tame the Discovery Beast
Depositions and electronic discovery have become lead horses in driving litigation costs. The arbitration provision should rein in these steeds.
Deposition limits can be hard or soft. Some examples:
- Hardest: No depositions. Period.
- Hard: No more than three depositions per party/six hours each. No exceptions.
- Soft: No more than three depositions per party, except for good cause shown by a clear-and-convincing standard.
Here are some options to consider regarding e-discovery:
- None allowed. Each party must produce the documents on which it intends to rely, but cannot be compelled to search its files. This model, common in international arbitration, horrifies many U.S. litigators. Nevertheless, it may be appropriate where parties need swift resolution or where a dispute would justify little, if any, discovery.
- State the parties intent that e-discovery (a) should be narrowly focused, and (b) should not be allowed to cause significantly delay.
- Limit the number of custodians whose files must be searched. See Steve Susmans Pretrial Agreements Made Easy.
Also, to speed decision-making in panel arbitrations, the chair alone should decide discovery disputes, except when he/she determines that an issue warrants input from the entire panel.
7. Keep A Fire Under Their Feet
Provide that the hearing must occur no later than X days after the panel is seated and that the award must be rendered within Y days after the hearing ends. Such deadlines should be made realistic, perhaps by providing for varying time periods depending on the claim amount. Add a cushion for unforeseen contingencies.
8. Remember Parkinsons Law
As Cyril Northcote Parkinson noted in his 1955 Economist essay, Work expands so as to fill the time available for its completion. Limit the number of hearing days, and/or limit the number of fact witnesses and experts who may be called to testify. Again, be realistic and provide a cushion.
9. A Stinger for Incorrigibles
To deter obstreperous conduct or scorched-earth tactics, provide that the arbitrator shall award (a) reasonable attorneys fees and costs against a party whose unreasonable conduct engenders attorneys fees and costs, and (b) monetary sanctions for unreasonable conduct causing unnecessary delay.
10. To Be Administered or Not
Should the proceeding be administered by a third party, such as AAA? Some believe that cutting out the middleman speeds the proceeding. Probably not. AAA's accelerated exchange program allows direct communication between counsel and the arbitrators, so long as it is not ex parte. AAA vets arbitrator nominees, coordinates scheduling, manages arbitrator billing and collection, and publishes the award. None of these functions significantly affect the schedule.
On the plus side, AAA's vetting process formalizes disclosures of potential conflicts/biases and thus minimizes the likelihood of a flawed proceeding. (Picture this: The parties select a panel and spend considerable time and money getting to an award. The losing party seeks vacatur because the arbitrator failed to disclose prior relationships with a party. A lower court decides the issue, then an appellate court, then the state supreme court. Two years post-hearing, the award is vacated with instructions that the matter be reheard by a new panel. Disastrous.)
Also, should a perceived conflict later arise, AAA can resolve it quickly, and briefing on the issue will be kept from the panel. Without an administrator, a litigant must move the arbitrator to recuse himself. (i.e., If you shoot at the king, you better kill him.) Finally, a competent administrator will goad an arbitrator who is not moving the proceeding apace.
11. Oh, What A Difference the Person Makes
Select arbitrators who will be muscular about preventing unnecessary delay and expense. Do careful due diligence about their reputation and histories. Aggressively proactive case management may be necessary to accomplish speed and efficiency.
When screening candidates, insist upon disclosure of their availability to (a) conduct a prompt telephonic scheduling conference, (b) conduct the hearing at an acceptable date, and (c) promptly deliver an award.
12. Do Not A Wallflower Be
Sometimes parties/counsel assessing blame for delay and cost need look no further than the mirror. Speed and efficiency suffer when parties agree with each other to (a) waive discovery limitations, (b) schedule a lengthy hearing, (c) set it distantly, and/or (d) postpone it repeatedly. An effective arbitrator will reject unilateral efforts to eschew contractual limits or to delay/complicate the proceeding. But do not expect him/her, chosen by agreement inside a proceeding created by agreement, to buck parties joint proposals.
Litigators accustomed to courthouse procedures, fearful of surprise, and wanting to gain every possible edge, may favor unlimited discovery and aggressive motion practice. Given busy schedules, hearing dates can approach too rapidly for comfort. Corporate counsel should be clear that they must pre-approve any motion, discovery request, or agreement. Similarly, they should instruct outside counsel, and urge the arbitrator, to set a realistic hearing date (with some cushion built in) and hold to it firmly. Otherwise, the arbitration may morph into its evil twin.
Gary McGowan has been an arbitrator for 23 years in both domestic and international matters. He is a member of the Panel of International Arbitrators of the International Centre for Dispute Resolution (New York), a division of the American Arbitration Association; a member of CPRs Energy, Oil, and Gas Panel of Distinguished Neutrals; a member of CPRs Insurance/Policyholder Coverage Panel of Distinguished Neutrals; and a fellow of the College of Commercial Arbitrators. Mr. McGowan is also a former business litigator and was a founding partner of Susman, Godfrey & McGowan. Website: www.mcgowan-adr.com. Contact: email@example.com; McGowan Dispute Resolution, 5009 Caroline, Suite 100, Houston, TX 77004; 713-552-1855.