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Many of the complaints that I hear from litigators about arbitration could be resolved if the arbitration clause which forced the parties into litigation were written better. Arbitrations are, of course, a creature of contract. Therefore, the parties’ arbitration agreement is often the beginning and end of the arbitrator’s authority. The arbitrator is bound to give effect to the contractual rights and expectations of the parties “in accordance with the terms of the agreement.” In fact, although the Federal Arbitration Act presumes that arbitration awards will be confirmed except upon a few narrow circumstances, the arbitrator who acts beyond the scope of the authority found in the parties’ arbitration clause risks having the award vacated. So, if you want the arbitrator to behave differently, write a better arbitration agreement. If you are not the person drafting the clause, consider persuading your client to allow you to alter the clause to better address your needs as a litigator. This approach may save the client from future difficulties. The following are ten items that you should consider when drafting your client’s arbitration agreement.
- Scope of the Arbitration
A well-drafted arbitration clause will define exactly which disputes are subject to mandatory arbitration. If the clause is too narrowly drafted, one party might try to litigate certain issues in Court, and others in the arbitration, reducing the value and effectiveness of the agreement. Conversely, if the clause is too broad, some courts will presume that all issues should be resolved in the arbitration, and it will be very difficult for a party to convince a Court otherwise.
- Mediation Before Arbitration
Like an early settlement conference or early neutral evaluation required by many courts in business and employment disputes, some parties require mediation of their differences prior to arbitration. Some practitioners find these types of clauses set a construct for negotiations without either party having to look weak by being the first to suggest mediation or settlement. On the other hand, mandatory mediation can sometimes increase costs and delay the inevitable. If desired, the agreement should determine the method for selecting the mediator, how the mediator’s fee is to be paid (whether by one party or as a shared expense), a deadline for holding the mediation after the demand, etc. If no method is specified, but the parties have chosen a specific institution to administer the arbitration, then the default selection rules of that institution will apply.
- Payment of Arbitrator, Administrative, and Attorney Fees
A well-crafted agreement will declare who will pay the costs of the arbitrator and/or administrative costs. The parties should determine if each is responsible for one half of the arbitrator’s fees or if the prevailing party is entitled to an award against the losing party for the cost of the arbitration. They should also agree whether each side will bear its own attorney fees, whether the prevailing party is entitled to an award of its actual or reasonable attorney fees, or whether the arbitrator is tasked with allocating all costs and fees between the parties.
An especially thorny issue presents itself when one party to an arbitration pays the arbitrator’s fees and administrative costs and another party fails to do so. The arbitration agreement might allow the complying party to pay the other party’s portion, but add the same to or give credit against any eventual award. Alternatively, the agreement may allow for the termination of the arbitration, or may declare that such a failure constitutes a waiver by the non-compliant party to present evidence or cross-examine witnesses at the arbitration. As a default judgment is typically discouraged in arbitration, the compliant party should still be required to present its evidence and legal argument, and the arbitrator will still be required to determine the matter on the merits.
- Number and Qualification of Arbitrators
I have seen many arbitration clauses which call for a three arbitrator panel. Some argue that such a panel ensures a better result, as majority of three respected neutrals must agree on any result, mitigating the chance of a ruling adverse to the evidence. But three-arbitrator panels are very expensive, and many parties live to regret including such a requirement when the amount in controversy is not sufficient to justify the cost. For this reason, some drafters allow for a single arbitrator unless the claim is over a threshold amount where the extra expense may be more justifiable. Regardless of the number of arbitrators required, the agreement should determine the method for selecting the arbitrators. If no method is specified, but the parties have chosen a specific institution to administer the arbitration, then the default selection rules of that institution will apply.
Did you know that you can specify the qualifications of the arbitrator? If you need someone with a minimum level of technical knowledge, specify that in the agreement and it will be required. If you desire someone who is a retired federal judge or has at least 20 years experience litigating in a particular area of law, you could require that as well. If the dispute is international in nature, consider adding a language requirement (“the arbitration will be conducted in the Spanish language”).
- Duration of the Arbitration
Give consideration to whether the types of arbitrations in which your client may be involved might benefit from limiting or expanding the duration of the arbitration. Think both in terms of having the arbitration completed within a certain number of days of the filing of the claim, as well as limiting the amount of time for presentation by each party at the arbitration itself. For instance, an agreement might provide that the arbitration award must be made within 90 days of the filing of the claim and that the arbitration must be completed in one calendar day, with each side limited to 4 hours of presentation time on a chess clock. In other circumstances, such a limitation might be wholly inappropriate.
- Venue & Governing Law
A well-crafted arbitration clause should determine where the arbitration will take place. In the absence of such a clause, if the parties cannot agree on a location, one will be determined by the arbitrator. You should choose a location which makes sense for the convenience and expense of the parties and/or witnesses, as well as the availability of a qualified arbitrator. Careful consideration should be given to what procedural and substantive law will apply to the arbitration. If you agree to arbitrate through a service such as AAA or JAMS, you may consider using their procedural rules and the substantive law of the forum state.
- Discovery and Motion Practice
An overarching consideration for most arbitrators is the desire to provide the litigants with an efficient process, with the aim of saving time and money over litigating in a court. Therefore, if the parties fail to designate the scope of allowable discovery in their arbitration agreement, the arbitrator may be guided by institutional procedural rules or personal ethos to limit discovery. Careful consideration should be given to the amount and type of discovery you want to allow in your arbitrations. Consider designating the types of document exchanges which must take place, the treatment of electronically stored information, the number and location of depositions, and whether interrogatories and/or requests for production of documents or other discovery methods will be allowed. The parties should also consider whether motion practice should be allowed in the arbitration, or whether allowing it will unnecessarily add to the cost of the arbitration.
- Arbitration Submitted on Documents
In certain circumstances, the parties may deem it advantageous that matters be submitted to arbitration, but heard without live testimony or oral argument. Written submission arbitrations are considered by some to be a considerable advantage where one anticipates small-dollar value claims or where the desire is to obtain a speedy result.
- Limitation and Type of Award
Parties may determine by contract whether the arbitrator has authority to award consequential or punitive damages, and may determine whether the arbitrator has authority to grant equitable or injunctive relief. The agreement should also determine the type of award (standard, reasoned, or with findings of fact and conclusions of law) the parties desire from the arbitrator.
A standard award in arbitration does not explain the award. It simply designates the prevailing party and delineates the resulting award, then allocates costs and fees as appropriate. A reasoned award contains a summary of the issues, questions, claims, and defenses, as well as the arbitrator’s reason for making his or her award. A reasoned award could require the arbitrator to give a simple explanation of his or her reasoning in one to two sentences, or it might require formal findings of fact and conclusions of law. The parties should specify whether they expect findings of fact and conclusions of law. In most commercial cases, reasoned awards must be agreed to between the parties before the arbitrator is appointed. In most construction cases, a breakdown of the reasoned award is required, and a written explanation of the award should be requested before the conclusion of the preliminary management hearing. In most employment cases, arbitrators must provide the reasons for their award in writing unless the parties agree otherwise. Finally, although most arbitrations are not subject to appeal, the parties may agree to allow an appeal and designate the procedures for the same. It is obviously going to be harder for a party to successfully appeal the award if no reasoned opinion is given.
Although a recognized benefit of arbitration, confidentiality is not always guaranteed. Most arbitrations through a recognized service will require adherence to rules requiring confidentiality. A private arbitration held outside one of these services may not always impose confidentiality on the parties. The parties should therefore specify whether they desire confidentiality.
Many of the fears clients and litigation attorneys have regarding arbitration can be obviated or mitigated if careful attention is paid when the contract is being drafted. Consider these ten steps the next time you are drafting a contract with an arbitration clause.
*This article was originally published in the Cummunique magazine, the official publication of the Clark County Bar Association. See https://www.clarkcountybar.org/communique/april-2016/#write-better-arbitration-agreement.
Jay Young is a partner in the Las Vegas, Nevada office of the national firm Howard & Howard. His practice focuses on business litigation and serving as an arbitrator and mediator. He is an AV-Rated attorney and is listed in the Top 100 attorneys in the mountain states by Super Lawyers.
 Federal Arbitration Act, 9 U.S.C. § 1 et seq. (hereinafter “FAA”) § 2 (agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract”); Rent–A–Center, West, Inc. v. Jackson, 561 U.S. 63, 130 S. Ct. 2772, 2776, 177 L.Ed.2d 403 (2010); Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1208 (9th Cir. 1998).
 Together with applicable arbitration rules and caselaw.
 AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740, 1745-46, 179 L. Ed. 2d 742 (2011) (“In line with these principles, courts must place arbitration agreements on an equal footing with other contracts, Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443, 126 S. Ct. 1204, 163 L.Ed.2d 1038 (2006), and enforce them according to their terms, Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989).”); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S. Ct. 3346, 3354, 87 L. Ed. 2d 444 (1985).
 FAA § 4; see also Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 682, 130 S. Ct. 1758, 1774, 176 L. Ed. 2d 605 (2010).
 FAA § 10.
 “It is only when [an] arbitrator strays from interpretation and application of the agreement and effectively ‘dispense[s] his own brand of industrial justice’ that his decision may be unenforceable.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671, 130 S. Ct. 1758, 1767, 176 L. Ed. 2d 605 (2010). FAA § 19(4)(a) allows an award to be vacated “where the arbitrators exceeded their powers.” See also Uniform Arbitration Act § 12(a)(3); Revised Uniform Arbitration Act § 20(a)(4). NRS 38.241(1)(d) dictates that a court shall vacate an arbitration award if the arbitrator exceeded his powers. Health Plan of Nevada, Inc. v. Rainbow Med., LLC, 120 Nev. 689, 697, 100 P.3d 172, 178 (2004).
 Common administrators include, for example, the American Arbitration Association (“AAA”) (https://www.adr.org/aaa) or JAMS (http://www.jamsadr.com/clauses/). For arbitrations abroad, well known administrators include the London Court of International Arbitration (http://www.lcia.org/), the International Court of Arbitration (http://www.iccwbo.org/about-icc/organization/dispute-resolution-services/icc-international-court-of-arbitration/), and International Centre for Settlement of Investment Disputes (https://icsid.worldbank.org/apps/ICSIDWEB/Pages/default.aspx). Note that many of these administrators have sample agreement clauses for copying and pasting into your agreement, and regarding some or all of the topics covered in this article.
Jay Young is a Las Vegas, Nevada arbitrator and mediator with a successful neutrals practice. His mediator, arbitrator, and ADR training include: 36 hour ADR certification in 1994. 40 hour mediator training. Appointed by the Nevada Supreme Court as a Nevada Supreme Court Settlement Judge. Appointed by the Nevada Supreme Court as an Arbitrator (2003-Present) in the 8th Judicial District Court (Las Vegas, Clark County, Nevada). Judge Pro Tem (2011-present). Appointed Special Master to the Business Court, 8th Judicial District Court (Las Vegas, Clark County, Nevada). Arbitrator and Mediator for American Arbitration Association (Complex Commercial Litigation Arbitration and Mediation National Panel Member); Better Business Bureau Arbitrator. Arbitrated and/or mediated over 250 disputes. Training courses include: Supreme Court of Nevada: “Impasse Prevention & Communication”; Supreme Court of Nevada: “Implied Bias”; Supreme Court of Nevada: “Breaking Impasse”; Supreme Court of Nevada: “Ethics, Comprehensive Review”; AAA Arbitrator Subpoenas: Are They Worth the Paper They’re Printed On?, 2015; AAA Roundtable – Las Vegas, 2015; AAA Essential Mediation Skills for the New Mediator, 2015; AAA Fundamentals of Effective Mediation Advocacy, 2015; AAA Confronting Arbitrability & Jurisdiction in Arbitration, 2015; AAA Award Writing, 2014; AAA Arbitration Fundamentals and Best Practices for New AAA Arbitrators, 2013; AAA “Arbitrator’s Role, Authority, and Responsibility”; AAA “Arbitrator’s Ethics, Practice Standards and Disclosures”; AAA “Preparing for and Conducting a Preliminary Hearing”; AAA: “Managing Issues Involving Self-Represented Parties”; AAA: “Managing Evidentiary Hearing Issues”; AAA: “Managing Panel Dynamics”; AAA: “Preparing for and Writing the Award”; AAA: “Managing Post-Hearing Issues”; Better Business Bureau, Arbitrator Training, 2006; “Succeeding In Mediation,” AAA, 2003; “Mediation and Arbitration Advocacy”; AAA, 2002, “Cutting Edge Negotiation Strategies for Lawyers”; Negotiation Strategy Institute, 2002; “Arbitrator Training,” Supreme Court of Nevada, State Bar of Nevada, 2000; “Arbitration 101”, Clark County Bar Association, 1994.