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Seeking to minimize the cost of dispute resolution, in-house counsel typically include arbitration clauses in contracts that they negotiate. Arbitration, however, often turns out to be as difficult and expensive as other forms of dispute resolution. Even with arbitration’s use of abbreviated pleadings and limited discovery and participants’ narrow rights of appeal, a 2003 study by the American Bar Association Section of Litigation Task Force on ADR Effectiveness found that only 56 percent of litigation attorneys surveyed believed that arbitration was more cost-effective than litigation. So if arbitration is supposed to save money, why doesn’t it work? Should in-house counsel consider a different approach to dispute resolution? The primary reason for inefficiency in arbitration is forum-shopping — looking for a court to address issues initially submitted to arbitration. Whether to obtain a jury trial, greater discovery, or rights of appeal, to publicize allegations through court filings, or simply to delay the process, companies, at the outset of arbitration, often fight to have cases litigated. So, for example, companies against which claims have been asserted may argue that arbitration has been waived, that conditions for arbitration have not been satisfied, or that the arbitration clause can’t be applied to the parties or dispute at hand. In other instances, they may contend that the entire agreement, including the arbitration clause, is void due to a forgery or lack of authority by the person who executed the agreement. These arguments usually lead to time-consuming disputes, replete with motion practice and discovery, not only about the merits of the defense but also about who should decide the merits — courts or arbitrators. TIME AND MONEY As a result, arbitrations often have litigation aspects, which is just what companies were seeking to avoid. What is intended to be a streamlined process can turn into a very costly, multiforum proceeding before arbitrators and judges. Because a person who is denied a motion to compel arbitration has an immediate right of appeal under the Federal Arbitration Act, years of delay and expense may result before the merits of a dispute are even broached. The consensual nature of the arbitration process also makes it prone to delay. Appointing a panel of agreed-upon neutrals, for example, can take months. Finding dates convenient to the parties, their counsel, and the arbitrators frequently results in hearing dates spread over long periods of time. There are large costs to such discontinuity: Examination preparation must often be duplicated, and ground already covered at one hearing must often be retread at another. To avoid these inefficiencies, in-house counsel should consider negotiating for streamlined litigation procedures instead. With the exception of forum-selection, choice-of-law, and jury-waiver clauses, provisions that streamline litigation are rarely considered an option. But they should be. A few examples will illustrate the substantial time and cost savings that can result from modifying litigation procedures. Consider electronic discovery, one of the most costly aspects of complex litigation. In large cases, parties can spend more than a million dollars downloading and reviewing every electronic document on the hard drive of every witness in the case, including their Word documents, PDF files, Excel files, and photographs. This occasionally yields unexpected and important evidence. In the vast majority of cases, though, important documents do not sit in isolation on a person’s hard drive. Rather, they are circulated to others within an organization either on paper or as an e-mail attachment. Thus paper and e-mail discovery tends to capture the universe of important materials. In that case, a modified litigation clause could easily limit electronic discovery to e-mails and their attachments. Another major source of delay and expense in litigation is routine motion practice focused not on the merits of the case but on the litigation process itself, such as motions about the forum, the parties, scheduling, discovery, counsel’s behavior, and the like. Requiring the nonprevailing party by agreement to pay the legal fees associated with such motion practice would help to rein in costly “litigation about the litigation.” Most fee-shifting clauses are triggered only at the conclusion of a case and are based upon which party prevails. Such clauses are apt to have minimal effect on the contract parties’ litigation behavior because the vast majority of commercial cases are never judicially determined and the fee-shifting clauses are never used. By contrast, a clause that requires fees to be paid immediately by the losing party in connection with specified types of motions might actually deter litigation that is not based on the merits. There is virtually no limit to the aspects of litigation that can be modified by contract. Depending upon the preferences of both sides and the circumstances of the transaction, in-house counsel negotiating a contract might consider provisions that permit service of process by mail, waive motions to dismiss, limit the number of depositions and document requests, waive or limit interrogatories and requests for admission, stipulate that expert draft reports cannot be discovered, and provide that inadvertent disclosures of privileged materials are not waivers. To be sure, there are types of disputes where arbitration may always be the preferred course, as when the parties desire confidentiality or, in the international context, where a domestic court judgment may not be enforceable abroad. But, where such concerns are not at play, a modified litigation clause could avoid the delays inherent in the arbitration process and enable in-house counsel to create a dispute-resolution process that truly saves its corporate client time and money.
Eric Fishman is based in the New York office of Pillsbury Winthrop Shaw Pittman.

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