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In Search of the Efficient Arbitration

In Search of the Efficient Arbitration

 

A frequent complaint about arbitration is that it is not as cost-effective as the parties hoped it would be.  In fact, 69% of corporate counsel, outside counsel, arbitrators, and company executives surveyed believe arbitration fails at least half of the time to meet its goal of providing speed, efficiency, and economy.[1]  What makes arbitration costly?  Many things, but this article will focus on discovery, motion practice, and multiple-arbitrator panels.

The parties to arbitration have complete control over the environment in which they will arbitrate their dispute—they set their own parameters when they enter into the agreement which requires arbitration.  The arbitrator is bound to preside over the arbitration as described in your arbitration agreement.  If you desire to have your dispute heard in a private, confidential setting in a short period of time, then craft your agreement to require that.

If you want to save money and time in arbitration, limit discovery.  One study suggests that document discovery accounts for 90% of the cost of active discovery matters.[2]  Since some say that over 90% of all information generated by U.S. businesses is digital, it is not surprising that document discovery can account for the most time and money.  Especially considering that roughly 1000 documents are reviewed for every document used as an exhibit at trial or arbitration,[3] discovery can give a scarce return on investment.

Consider, then, limiting the amount of discovery that you allow, including limiting discovery of Electronically Stored Information (“ESI”), the taking of depositions, and other expensive discovery tactics.  Most litigators are cautious by nature and will want to understand everything that they could possibly be facing at the arbitration before walking into the arbitration.  Agreeing not to take discovery seems tantamount to committing malpractice when compared to the amount of litigation allowed in most court systems. Prior to the last couple of decades, much litigation was conducted without extensive discovery.  We have just become so used to the present system that we cannot imagine preparing a litigated matter without open discovery.  But clients and counsel must either decide to operate in an efficient arbitration system designed to provide a result with speed, efficiency, and economy, or they should become comfortable with the cost of federal-style litigation within arbitration.

Some counsel, once they read a well-crafted arbitration agreement which limits the time and scope of allowable discovery, will beg the arbitrator for discovery, complaining that failing to provide for discovery will deprive the client of due process.  Often, counsel will together ask the arbitrator to change the scope of allowable discovery.  Since some litigants have successfully argued that failure to allow discovery is grounds for vacating an arbitrator’s award, arbitrators can be reluctant to push back on such a request.

Motion practice within arbitration can created protracted scorched earth litigation just as it can in our courts.  Carefully craft your arbitration clause such that motion practice is not allowed, or is limited.  Some posit that no dispositive motions should be allowed in arbitration, as limited discovery is allowed and the arbitration hearing should be heard within months of the filing of the notice and the arbitrator can hear all matters at that time.  Consider allowing motions to be made by letters not to exceed 3 pages, excluding exhibits.  Some agreements suggest the party must first submit a one-page letter to the arbitrator with an offer of proof of the argument and evidence the party wishes to present in motion form.  The party opposing the matter will have a similar opportunity in opposition. The arbitrator will then determine if the circumstances support the need for the motion, after which the parties are given an opportunity to brief the matter.

Multiple arbitrator panels seem like a good idea.  If the dispute is a bet-the-company matter, having three seasoned arbitrators seems to go a long way to guarantee the correct result.  One arbitrator might be swayed by emotion or a clever argument but it will be tougher to sway three arbitrators from the correct result under the law and facts presented.  Not every dispute justifies the expense of multiple arbitrator panels, however.  How does a company protect itself by ensuring a multiple arbitrator panel when circumstances require, but not for more minor matters in which the expense simply can’t be justified?  First, your arbitration agreement may graduate the number of arbitrators.  For instance, it may call for one arbitrator for matters under $5,000,000 (or whatever your company’s threshold is), and three arbitrators for claims in excess of that amount.  Second, the agreement may employ the American Arbitration Association’s Supplemental Rules allowing for a Streamlined Three-Arbitrator Panel Option (regardless of whether the American Arbitration Association is administering the claim).  These supplemental rules allow the agreement to call for 3 arbitrators, but for the parties to opt out of the same once the claim is filed and instead have the matter heard by one arbitrator.

Companies (and their attorneys) that desire to make the arbitration more efficient and economical have the ability to do so if they craft a better agreement and stick to it.

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[1] Protocols for Expeditious, Cost-effective Commercial Arbitration, The College of Commercial Arbitrators, Stipanowich, Thomas J., Editor (2010).

[2] Admin. Office of the U.S. Courts, Judicial Conference Adopts Rule Changes, Confronts Projected Budget Shortfalls, The Third Branch, Oct 1, 1999.

[3] Litigation Cost Survey of Major Companies, available here

About the Author

Jay Young is a Las Vegas, Nevada attorney. His practice focuses on business law, business litigation, and acting as an Arbitrator and Mediator. Peers have named him an AV-Rated Lawyer, Best Lawyers, a Top 100 Super Lawyers in the Mountain States multiple years, and to the Legal Elite and Top Lawyers lists for many years. Mr. Young has been appointed a part time Judge, a Special Master to the Clark County, Nevada Business Court, as an arbitrator by the Nevada Supreme Court. He has been appointed as an arbitrator or mediator of well over 250 legal disputes from business disputes to personal injury matters. He has been named Best Lawyers for Arbitration. Mr. Young is a respected author of ten books, including A Litigator’s Guide to Federal Evidentiary Objections, A Litigator’s Guide to the Federal Rules of Evidence, and the Federal Court Civil Litigation Checklist.
Mr. Young can be reached at 702.667.4868 or at jay@h2law.com.