Eric Wiechmann ()
Editor’s note: This is the first in a series of articles by Eric Wiechmann on arbitration.
Over the past two decades the number of disputes resolved by arbitration has continued to grow and trial lawyers trained and experienced in the courtroom before judges and juries find themselves more frequently presenting their case to arbitrators. While many of the hearing (trial) preparation and presentation skills needed are similar, the rules under which the process will be controlled and the trier of fact are usually different enough that the advocate should focus on these differences to increase the chances of a successful outcome.
There are several cardinal principles that should be considered in handling an arbitration. First, arbitration is a creation of the parties who in the controlling arbitration clause will decide how the arbitrators will be chosen, where it will be held, what law applies, how fast should it be completed, the form of the decision, and limitations on damages to be awarded. These criteria are either spelled out in the clause, the underlying contract or in the arbitral organization rules (i.e., AAA, JAMS, CPR, ICC, ICDR) that are chosen by the party. These procedures are not necessarily cast in stone. If both parties agree, they can be modified. After the arbitrator has been appointed, the parties usually will also need the consent of the arbitrator.
Second, arbitration is meant to be a quick, efficient, inexpensive and usually confidential process. To ensure the efficiency of the process arbitrators will try and keep the parties to a set schedule, limit discovery (prehearing information exchange) and discourage prehearing motion practice. This mandate in many cases comes into conflict with trial lawyers experienced with the expense, complexity and timing of discovery, motion practice and other pretrial preparation in state and federal courts. As arbitration is the parties’ process, many times the arbitrators will, if necessary, make sure that the clients are aware of and understand the costs and approve the attorney’s proposed prehearing plans.
Third, the arbitration process is a more informal process than a court proceeding. The arbitrator usually has broad discretion in establishing both the schedule and prehearing and hearing procedures. There is usually ample flexibility in working with the arbitrator in establishing an efficient process. As long as the communication is not ex parte there is more access to the arbitrator to address issues that arise. Even though there are very limited grounds for appeal of their awards, arbitrators want to get it right.
Fourth, an arbitrator’s award is usually not appealable even if there is an error of law or incorrect finding of fact. A party usually cannot even ask the arbitrator to reconsider his award or change any of his conclusions or findings. The arbitrator is limited to only correcting a clerical error or clarifying his finding (AAA Civ. Rules R-42).
In light of these principles, the following is the first of 10 suggestions from arbitrators for attorneys to consider when preparing for and trying an arbitration.
Know Your Documents
Arbitrations are a creature of the clause entered into by the parties. The scope, timing and process by which the arbitration will be conducted are controlled by the clause or the rules of the arbitral organization referred to in the clause. Make sure you fully understand the clause, what powers it gives to the arbitrator and whether in light of the actual dispute, a fair and effective arbitration can be had. I once arbitrated three consolidated arbitrations with similar arbitration clauses requiring arbitral awards to be rendered within 60 days of filing the claim. As the dispute involved up to 90 construction sites and over $80 million in claimed damages, this streamlined process was impractical and both parties agreed to change the timing. Also, make sure there are no ambiguities that need be addressed as to what law applies to what issue and which parties and disputes might be subject to the arbitration clause. For example, it is not uncommon to have a transaction involving a series of related contracts such as a contract for sale, contract for financing and a contract for servicing/maintenance. Sometimes the various interrelated agreements involve overlapping parties and might have differing dispute resolution clauses or one or more have no such provision. As soon as practical, the parties should get an understanding of which issues should be decided by the arbitrator or court and who decides that question. Also, should third parties be involved in the arbitration? Many times the language of the arbitration clause will in large part be determinative of the answer. But in certain instances courts look to principles of state contract law to determine whether nonsignatories to the arbitration agreement can be bound by an arbitration award, see Arthur Anderson v. Carlisle, 556 U.S. 624 (2009). If they are to be bound, you must consider what should be their role in the various aspects of the arbitration?
Frequently, dispute resolution clauses have a stepped approach where arbitration can only be invoked after the parties’ executives have tried to resolve the issue and/or mediation was attempted. As these are part of the parties’ agreement, the arbitration cannot proceed unless the prior steps are attempted or both parties waive the requirement. It is important to address these and other issues arising from the arbitration clause at the beginning as later in the proceeding it might be too late to protest the arbitrator’s actions or challenge the ultimate award.
Next, we’ll focus on hearing preparation.