ADR

Editor’s note: This article describes a hypothetical situation.

Bob knows arbitration does not always save time compared to litigation and that it does not always cost less than litigation. Plus, it may not always be confidential, which is one of its supposed attractions.

In Bob’s view, however, arbitration offers an unbeatable advantage: Bob can select the person who, as arbitrator, will act as judge, jury and appellate court. Because the arbitrator wields so much power, Bob diligently makes sure his chosen arbitrators have the background, experience and expertise to adjudicate his cases. He calls it his “voir dire” of arbitrators.

At continuing legal education presentations, Bob highlights his “program” that, he claims, matches appropriate arbitrators with specific types of cases and issues. Bob tells CLE attendees he relies on certain arbitrators when a dispute involves software issues; he goes to other arbitrators when a dispute presents financial or accounting issues; and he seeks yet other arbitrators when he represents an individual against a large company with lots of resources. Bob even identifies the names of these “go-to” arbitrators to his close friends.

Bob recently used his “program” to pick Roger as the sole arbitrator in a breach-of-contract dispute that an arbitration provider was administering. Bob knew Roger is a stickler for contract formalities and that he unhesitatingly enforces contracts as written. Roger is not a big fan of parol evidence — and parol evidence would be devastating to Bob’s client’s position.

Then a roadblock: Roger could not serve as the arbitrator. Reason: conflict of interest. Before Bob knew what was going on, the arbitration provider appointed a substitute arbitrator. No more Roger. Perhaps no more disdain for parol evidence. So much for Bob’s arbitrator-selection “program.”

“If Roger cannot serve as arbitrator, there is no reason to go to arbitration. We could wind up with an arbitrator who wants to hear all the evidence.” That is what Bob told his client.

Choosing Roger was an “integral part” of the agreement to arbitrate, and not a mere “ancillary concern.” That is what Bob told the court in his petition to terminate the arbitration so the parties could go to court.

“Denied.” That is what the court said, several weeks later, in response to Bob’s petition to terminate the arbitration. No reasoning, no opinion, no explanation.

Did Bob do anything wrong? Could he have avoided arbitration before an arbitrator other than Roger and, instead, gone to court when Roger was tossed?

A court will stop an arbitration proceeding if the parties’ choice of the arbitrator was an “integral” part of the arbitration agreement and the chosen arbitrator is unable to serve. Therefore, Bob said the right things in his petition to terminate the arbitration.

However, Bob did not back up his words with proof. In determining whether the parties’ choice of the arbitrator is an “integral” part of the arbitration agreement, the court will not consider what the lawyers say months or even years after the parties entered into the arbitration agreement. The court will look to the intent of the parties, as manifested in their arbitration agreement.

Unexpressed intentions do not count. Outward expressions do. As one court said in Meskill v. GGNSC Stillwater Greeley, 2012 U.S. Dist. LEXIS 72798, (D. Minn. May 25, 2012): “The court’s analysis begins, as it must, with the text of the arbitration agreement. After all, arbitration is simply a creature of contract … and hence the ultimate goal when deciding whether to enforce an arbitration agreement is to divine the parties’ intent.”

The best evidence showing that the choice of the arbitrator was “integral”? “At a minimum, for the selection of an arbitrator to be deemed ‘integral,’ the arbitration clause must include an ‘express statement’ designating a specific arbitrator.” (See Stewart v. GGNSC-Canonsburg, 9 A.3d 215, 219 (Pa. Super. 2010) (citing Reddam v. KPMG, 457 F.3d 1054, 1060 (9th Cir. 2006)).)

Another way to demonstrate that the selection of an arbitrator is “integral”: State in the arbitration agreement that the selection of the specified arbitrator is “an integral part of the arbitration agreement and that the agreement shall fail if he or she cannot serve.”

Did Bob follow these principles? Not even close. The arbitration agreement he drafted did not identify Roger as the arbitrator, let alone the sole and exclusive arbitrator. Bob and his adversary chose Roger only after their respective clients had signed the arbitration agreement. Under the agreement, anyone could be the arbitrator.

Plus, the arbitration agreement said nothing about the importance of the chosen arbitrator. Anyone reading the agreement would conclude that Roger had nothing to do with the agreement. So Bob’s legal argument in his petition — that the agreement “must fail” because the parties’ choice of Roger was “essential” — missed the mark.

Do parties considering arbitration conclude that only one person is a suitable arbitrator? Usually not. Could someone other than Roger have stepped in and satisfied Bob’s “program” requirements? Probably.

Parties typically can find other arbitrators who fit the bill. In drafting an arbitration agreement, therefore, they should not do what Bob is sure to do when he next drafts an arbitration agreement — say that the arbitration agreement “fails” if the sole chosen arbitrator cannot or will not serve.

Keeping in mind that “the best is the enemy of the good,” the parties should try to identify potential arbitrators. The parties may not always end up with their first choice, but they should be able to get an acceptable arbitrator. One possible solution: identify a discrete number of potential arbitrators. If none is available, the arbitration agreement terminates.

Other more realistic solutions:

• Identify the desired qualities of the potential arbitrators by stating whether he or she should (a) be a lawyer, a certified public accountant, an architect, an engineer, an appraiser or other professional; (b) have training, expertise, knowledge or experience in the factual or legal issues in dispute; and/or (c) have experience and training in arbitration or other types of alternative dispute resolution.

• Narrow the list of potential arbitrators by specifying whether the professional — if the parties agree that a professional should be the arbitrator — must (a) have been actively practicing his or her profession for a minimum number of years; (b) have practiced his or her profession in a particular jurisdiction or area; and/or (c) be on the board or panel of a specified professional or other organization.

• Identify a group or organization to which the arbitrator must belong.

It all comes down to advance planning. Waiting until someone makes the decision for you is too late. Just ask Bob. •

Charles F. Forer is a member in the Philadelphia office of Eckert Seamans Cherin & Mellott, where he practices all types of alternative dispute resolution, both as a neutral and as counsel to parties engaged in ADR. He is a former co-chair of both the Philadelphia Bar Association’s alternative dispute resolution committee and the fee disputes committee. Contact him at 215-851-8406 or cforer@eckertseamans.com.