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In the last decade, arbitration has become a staple of the American judicial system. The advantages of arbitration over court proceedings are widely celebrated: less clogging of an already overburdened judicial system, a less expensive alternative to a traditional lawsuit, a faster means of concluding a matter and privacy. Our courts themselves refer to the value of arbitration. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 628-633 (1985); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1983). Raw statistics show how popular arbitration has become. The American Arbitration Association (AAA) reports on its Web site, located at www.adr.org, that it has arbitrated more than 2 million cases, and in the past year: It has administered more than 230,000 cases. 3,298 of those cases were commercial cases with claim amounts of $250,000 or greater. It has handled 418 technology-related arbitrations, where the total claims were $728 million. There are hundreds of other organizations that stand ready to arbitrate disputes. Large broker-dealers, employers and construction contractors routinely insert arbitration clauses in their contracts with employees, customers and owners or subcontractors. For example, in Circuit City Stores Inc. v. Adams, 352 U.S. 105, 123 (2001), the U.S. Supreme Court resolved a circuit conflict and held that the Federal Arbitration Act applies to employment contracts. The court reasoned that “[a]rbitration agreements allow parties to avoid the costs of litigation, a benefit that may be of particular importance in employment litigation . . . often involv[ing] smaller sums of money than . . . commercial contracts.” Rule IM-10100(a) of the National Association of Securities Dealers (NASD) Code of Arbitration Procedure provides: “It may be deemed conduct inconsistent with just and equitable principles of trade and a violation of Rule 2110 for a member or a person associated with a member to . . . fail to submit a dispute for arbitration under the NASD Code of Arbitration Procedure.” See www.nasd.org. All this sidesteps the question for the commercial trial lawyer: Is arbitration appropriate for large, complex, commercial cases? Before reflexively assuming that it is, consider that the very same factors that make arbitration appealing to litigants in specialized settings–speed, cost, privacy and finality–may militate against using it for a nonroutine, fact-intensive, multiple-issue, commercial case. Before sacrificing the benefits of time-tested procedural protections, parties should evaluate arbitration carefully. Slow speed ahead? There is little empirical data to document the most popular reason for choosing arbitration in lieu of a traditional lawsuit: the supposed speed of disposition. See, e.g., Chris A. Carr and Michael R. Jencks, “The Privatization of Business and Commercial Dispute Resolution: A Misguided Policy Decision,” 88 Ky. L.J. 183, 203 (2000) (citing Richard C. Reuben, “The Dark Side of ADR,” Calif. Lawyer, February 1994, at 54 (“For all the promised benefits of ADR, independent statistics documenting them are almost nonexistent”), and Editorial, “Mandatory ADR: Can We Talk?,” 78 Judicature 272, 272 (1995) (“[T]he empirical research completed to date does not support [contentions of earlier settlements and decreased costs]“). There is, however, evidence that many courts today can quickly adjudicate complex commercial cases. There are now many “rocket docket” courts that have established limited discovery periods, shorter filing deadlines and policies prohibiting extensions of deadlines, including trial dates, thus substantially abbreviating the litigation process. The U.S. District Court for the Eastern District of Virginia has the most renowned rocket docket. Everything from the initial case- management conference when a trial date is set, to responding to discovery, to filing and arguing dispositive motions, proceeds at an accelerated pace, and the reported average lifespan of a case from filing to completion is eight months. See M. Patricia Thayer, “Rocket Dockets: What, When and Where,” 619 Prac. L. Inst. 51, 53-54 (2000). Other federal courts have followed this model, including the U.S. district courts for the Middle District of Alabama, the Western District of Arkansas, the Northern and Southern districts of Florida, the District of Maine, the Eastern and Western districts of Oklahoma and the Western District of Wisconsin. Some states-including Delaware, Illinois, Massachusetts, Nevada, New Jersey, New York, North Carolina, Pennsylvania and Virginia-have also established commerce courts, which allow business-related disputes to proceed more quickly. See William C. Smith, “Maryland Panel Urges Biz Court: Emphasis on Tech and Commerce Would Make it Unique,” NLJ, Nov. 27, 2000, at B1; Charles S. Fax, “Specialized court starts to operate: High tech cases will be key focus of Maryland’s new case management system,” NLJ, July 28, 2003, at 19. Thirteen other states are considering such programs. See Linda Loyd, “Philadelphia’s ‘Commerce Court’ Expedites Business Cases,” The Philadelphia Inquirer, March 7, 2001. Experience teaches, too There is anecdotal evidence of numerous obstacles slowing the progress of an arbitration. It usually takes a minimum of 30 to 60 days to constitute the panel. Most large commercial cases will be adjudicated by a panel of three arbitrators who are selected because they are accomplished in their field. These arbitrators, whether they are lawyers or industry-specialists, usually have busy practices and professional commitments. Thus, simple matters like scheduling, holding of conferences and holding of actual hearings can become gridlocked. In contrast, in a traditional lawsuit a single judge has the power, and with a busy docket, the incentive to move a case even if that results in inconvenience to the litigants. Thus, no matter how efficient the arbitration process, it would be a challenge to complete the case within the eight-month proven standard of the rocket docket. Arbitration is often praised as much less expensive than court proceedings. See Carol Mager, W. Reece Bader and Lawrence M. Watson Jr., ABA Section of Litigation Task Force on ADR Effectiveness, Survey on Arbitration, August 2003 (reporting that 78% of trial lawyers surveyed believed that arbitration is generally timelier than litigation, and that 56% feel it is more cost-effective; yet also noting that “[t]he overall cost and time effectiveness of arbitration was . . . challenged by those [who] generally decline to use the process with administrative expenses and arbitrators’ fees and costs cited as making the process more costly (63%), and lawyers’ schedules and excessive hearing time (51%) listed as making arbitration less timely than litigation.”) Again, there is not a lot of hard data about the cost of arbitration in comparison to litigation. See Chris A. Carr and Michael R. Jencks, “The Privatization of Business and Commercial Dispute Resolution: A Misguided Policy Decision,” 88 Ky. L.J. 183, 203 (2000). Big bucks It is clear, however, that significant fees are associated with arbitration. The most considerable fees are for the arbitrators. Complex commercial arbitrations often involve three arbitrators, each distinguished in his or her field. Their hourly fees quickly mount. Every time the three arbitrators work on the case-from initial preliminary hearings, to resolution of inevitable disputes, to attendance at the hearings themselves-the litigants pay. Of course, a judge is not paid by the hour and is not reimbursed for travel costs, nor is there a charge for the courtroom. Certain arbitration procedures and abusive procedural tactics can also actually increase the ultimate cost of resolving a case via arbitration. For example, because there is no procedure for filing dispositive motions, there is no assurance that threshold issues such as choice of law or statute of limitations or the propriety of expert testimony will be resolved before the hearing; the hearing itself may be prolonged as both parties present evidence about these matters. Since evidentiary rules are relaxed and there is only a limited right of appeal, it is common practice for arbitrators concerned about giving both sides a fair shake to allow the parties to present evidence a judge would likely have excluded (adding to the time and expense). And neither the Federal Arbitration Act, 9 U.S.C. 1, et. seq., nor the American Arbitration Association’s Commercial Arbitration Rules contain provisions contemplating the use of prehearing dismissal motions. In a complex commercial case in the courts, dispositive motions streamline the issues for trial. By agreeing to arbitration, the parties abandon a procedure that could reduce the costs of the case as well as the time it takes to reach a final resolution. Objections seldom sustained The AAA commercial arbitration rules explicitly state: “Conformity to legal rules of evidence shall not be necessary.” AAA Commercial Arbitration Rule R-31. Indeed, the AAA’s Guide for Commercial Arbitrators instructs: “Courtroom rules of evidence do not apply in arbitration . . . .One guiding principle must be kept in mind: everything that could further an understanding of the case should be heard. Arbitration awards can be subject to attack when arbitrators refuse to hear material testimony or accept relevant evidence.” Arbitrators are also free to accept testimony in the form of affidavits. AAA Commercial Arbitration Rule R-32. This does not afford the opposing party the ability to cross-examine the witness. Even classic inadmissible evidence, such as hearsay, has been allowed in arbitration. See, e.g., Coldwell Banker New England v. Bruno, 1991 WL 789758, at 2 (R.I. Super. Ct.). This “everything-comes-in” approach can be inefficient, especially in the expert context, where the courts often exercise a gatekeeping function before expert testimony can be heard. In an arbitration setting, the opposite is usually true. Michael D. Young, a mediator and arbitrator with the dispute resolution service JAMS who has conducted numerous mediations and arbitrations in more than 30 states and abroad, has said, “There is a little more willingness on the part of courts not to allow certain witnesses to testify in applying the Daubert standards in not wanting an expert witness to mislead a jury. Since we can evaluate the expert, there is less willingness to bar an expert from testifying.” See interview in Metropolitan Corporate Counsel, August 2003, available at www.jamsadr.com. In a large commercial case, in contrast, the Daubert or state court equivalent gatekeeping standards often prove invaluable. See Daubert v. Merrell Dow Pharm., 509 U.S. 579 (1993). If an expert is stricken, he or she will not testify at trial, and there is no need for the opposing party to present a rebuttal expert witness, which reduces the length of the hearing and the costs for both parties. Limited discovery In most arbitration cases, if the parties’ agreement does not provide for discovery, only a limited exchange of documents is permitted. AAA Commercial Arbitration Rule R-21. The parties also identify their witnesses and the exhibits they intend to offer at trial a few days before the hearing. AAA Commercial Arbitration Rule R-21. In a complex arbitration, the ability to conduct discovery is slightly greater, as there are procedures that give the arbitrator(s) discretion to order, among other things, the identification of experts “and expected testimony as may be appropriate,” the exchange of documents, exhibits and information “if the arbitrators consider such production to be consistent with the goal of achieving a just, speedy and cost-effective resolution” of the case, and, “upon good cause shown and consistent with the expedited nature of arbitration” depositions of “such persons who may possess information determined by the arbitrator(s) to be necessary to determination of the matter.” AAA Commercial Arbitration Rules L-3 and L-4. In a complex commercial case, forgoing the right to conduct discovery by agreeing to arbitrate can have serious, substantive implications. If a party lacks the proof it needs to make its case, it may not be able to obtain it once in arbitration. While discovery is sometimes allowed in large cases, the client should not have to “show cause” to obtain information that ultimately may help resolve the case, avoid undue surprise and streamline the trial. That’s all, folks By agreeing to arbitrate a dispute, the client is also giving up its fundamental right to appeal a ruling in favor of finality. See Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 149 (1968) (“[arbitrators] have completely free rein to decide the law as well as the facts and are not subject to appellate review”); Lattimer-Stevens Co. v. United Steelworkers, 913 F.2d 1166, 1169 (6th Cir. 1990) (arbitration presents “one of the narrowest standards of judicial review in all of American Jurisprudence”). In a complex commercial case, there are many reasons why this is unappealing. Most importantly, sometimes a decision-maker just gets it wrong. Last year, thousands of appellate decisions were entered reversing lower court decisions and jury verdicts. There is also at least a perception that, as a general matter, in trying to be fair, arbitrators “often reach a ‘split the baby’ compromise that skirts the tough decisions of real justice.” See Robert B. Kershaw, “Mandatory Binding Arbitration-Goliath’s New Offense,” 36 Md. B.J. 28, 30 (2003). Some speculate that arbitrators ” ‘split the baby’ in order to appease parties who may hire or refer arbitrators in the future.” Amy J. Schmitz, “ Ending a Mud Bowl: Defining Arbitration’s Finality Through Functional Analysis ,” 37 Ga. L. Rev. 123, 187 n.305 (2002). With cases involving multimillion-dollar awards and determinations that have an impact on how the client conducts business, many businesses would prefer to make an informed decision about whether to appeal, rather than waive that right at the outset by agreeing to arbitration. Arbitration is a useful tool in some settings, such as high-volume, routine cases or specialized hearings (labor and employment, construction, NASD) where industry expertise is helpful. Arbitration is not as desirable when the things the client sacrifices-broad discovery, dispositive motion practice, appellate review-are critically important. In choosing arbitration, counsel should factor into the analysis common misperceptions about arbitration–that it is necessarily faster and less expensive. It may well not be either. In short, the decision to insert a standard arbitration provision into a client’s next commercial agreement should be deliberate and measured. Steven E. Bizar and Paul D. Weiner are shareholders in the Philadelphia office of Pittsburgh’s Buchanan Ingersoll. Bizar handles complex business disputes in federal and state courts and before arbitration panels throughout the country. Weiner focuses on litigating complex commercial matters that include trade secret cases and patent and copyright disputes.

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