Many practitioners in major domestic commercial arbitrations bring the habits of civil litigation with them. They come to the initial preliminary hearing with long lists of witnesses whose depositions they want to take. They are surprised and disappointed to learn that at least in the U.S. Court of Appeals for the Second and Third circuits, the arbitrators do not have the power to summon third-party witnesses for depositions, but they retain their enthusiasm for taking the depositions of numbers of employees of the opposing party.
Like most arbitrators, I share the view that the role of the arbitrators is to decide what the parties cannot agree on. When both parties want depositions, the arbitrators may try to persuade them to limit the number, but ultimately are unlikely to require that they do so.
I do not appeal to arbitrators to place limits on depositions but rather to suggest to counsel, and their clients who must foot the bill, to consider whether there is any real reason to conduct depositions given the other information sources available today.
This reflexive enthusiasm for depositions is understandable. In many civil litigations, depositions have been a critical discovery tool. In a products liability case, for example, the parties may know virtually nothing about one another.
In the kinds of cases that go to arbitration, however, the parties do know something about one another, since they are parties to the contract containing the arbitration clause. They will be familiar both with the negotiating history of the contract and with whatever performance has taken place.
In a former day, depositions in contract cases were nonetheless useful to fill in the gaps in the documentary record. Today, however, that documentary record is far more complete. With all the discussion of the costs and burdens of e-discovery in litigation and arbitration, it is easy to lose sight of the substantial benefits. The technological change of recent years has brought tremendous amounts of new information to the document production process.
Today, for example, the entire drafting history of the contract is preserved electronically. Furthermore, a great many conversations that would have been conducted orally a decade ago are now conducted by e-mail and preserved.
In this new environment, the case for depositions is reduced. There is no real danger of trial by ambush, since so much of the history is preserved electronically and will be available to all parties through the document discovery process.
Of course, there remain advantages of a deposition even in the face of a rich documentary record. The question is whether those advantages outweigh the cost. And that cost is substantial. At large firm rates, the cost of preparing for and taking a one-day deposition is approximately $50,000.
There can be no doubt that a deposition is a relatively inefficient way of discovering information. When the trier of fact is not in the room, witnesses are more likely to obfuscate, to evade, to profess lack of memory, and to claim to not understand the question. This means that deposition testimony is generally of lower quality than trial testimony and that much deposition testimony must be taken in order to generate a few useful answers. To some extent, these behaviors may be reduced by videotaping the deposition, but this adds additional cost on the order of $1,200 per day.
A deposition does give the examiner an opportunity to assess the witness’ personality and facility in dealing with questions. While these are doubtless advantages, they are counterbalanced by the witness’ opportunity to assess the examiner and get comfortable with the process and gain facility in dealing with questions.
Furthermore, in order to get at the most relevant material, the examiner may be required to tip her hand and thus give the witness and his counsel the opportunity to prepare to meet the examiner’s theories at trial. On balance, I believe that in most cases the witness gains more in the exchange than the examiner and that an experienced examiner is better off at the arbitration hearing when the trial witness has not had a prior opportunity to confront her.
Proponents of depositions argue that conducting a deposition permits hearing testimony to be presented more efficiently and thereby shortens the hearing time. This seems right, but substantial efficiencies are needed to justify the expense. This can be expressed in quantitative terms so long as one is willing to place confidence in rather soft assumptions: While arbitrator rates vary, the marginal cost in having the arbitrators sit through a day of testimony in a large commercial case is likely to be in the $10,000 to $15,000 range.
On the assumption that the costs associated with a hearing day are comparable to those of a deposition day, a hearing day would cost about $55,000 to $57,500 per side ($50,000 plus ½ of arbitrator fees). In order to be justified on a cost basis alone, each deposition day would have to save about 85 percent to 90 percent of a hearing day. Except in a case where the deposition eliminates entirely the need to call the witness at the hearing, this level of savings is unlikely to be achieved.
Of course, the fact that the deposition takes place well prior to the hearing may provide some other advantages, including reduced costs. For example, if a deposition makes clear that further pursuit of a particular line of inquiry would be of no benefit, further expense in preparing to pursue that inquiry at the hearing may be avoided.
And perhaps more importantly, if deposition answers open up new and fruitful lines of inquiry, there will be time to fully develop them prior to the hearing. Such discoveries first made at the hearing itself might come too late to permit them to be developed and used effectively. But as noted, any such advantages must be sufficient to outweigh the substantial cost burden.
In coming to arbitration with a pro-deposition mind-set, lawyers lose sight of a fundamental difference between arbitration and contemporary civil litigation: In arbitration, barring settlement, there will almost certainly be a hearing on the merits, while in civil litigation a trial is highly unlikely. Civil depositions today serve as instruments to position parties for settlement rather than as steps in trial preparation. The deposition is the closest the case ever gets to trial.
The arbitration environment is quite different. While arbitrators occasionally decide a matter without a hearing if a dispositive ground appears, there is generally no procedure for summary judgment or a motion to dismiss. Motivated by their desire to give the parties an enforceable award, arbitrators are reluctant to dispense with a hearing, since one of the few grounds for overturning an award is failing to permit a party to present its case.
Every case is different, and there surely are cases where the arguments for taking a pre-hearing deposition in arbitration are compelling. But at a time when clients are acutely focused on the cost of dispute resolution, counsel should think long and hard as to whether the deposition is likely to justify its costs. If not, counsel will enjoy the bracing experience of confronting the witness fresh at the hearing.
George A. Davidson is a partner at Hughes, Hubbard & Reed.