Institutional ADR Today: The Comprehensive, Cost-Effective Alternative

Monday, August 1, 2011 - 01:00

The Editor interviews William K. Slate,II, President of the American Arbitration Association.

Editor: Please provide us with some background about the American Arbitration Association (AAA) and your role. Why is the AAA, as a not-for-profit, unique in its leadership position versus for-profits in the same field?

Slate: AAA was established in 1926 by business people who were seeking an alternative to court delays, expensive litigation and overly lengthy disputes. The labor management community quickly saw the benefits of arbitration and embraced it as well. Since then we have administered millions of arbitrations, educated the world about ADR, and helped launch innumerable arbitration and ADR centers across the globe. We introduced mediation to communities in the '70s and to businesses in the early '80s. AAA is written by name into eight federal statutes, 15 federal regulations and over 340 state statutes as an alternative to courts and litigation.

I have been honored to be the president and CEO for the past 18 years, during which time we have strengthened our global presence with the establishment of the International Center for Dispute Resolution (ICDR), expanding first to Ireland, followed by Mexico, Singapore and Bahrain. I am an attorney with an MBA from the Wharton School, and in addition to dedicating years to handing my practice, teaching at a law school and acting as a court executive, I was privileged to be appointed to lead the only congressionally mandated study of problems facing the federal courts in our nation's history.

As to the "uniqueness" of AAA being the leader in the field, I think it unusual in any discipline populated by for-profit and not-for-profit entities to find that the not-for-profit is the U.S. and international leader based upon market share. In a recent study (the first of its kind in my knowledge) undertaken by OC&C consultants, AAA was identified as servicing 33 percent of the U.S. ADR marketplace and 30 percent of the international ADR market, significantly ahead of all other providers. Although these are just numbers, we feel that not-for-profit leadership in the field of dispute resolution feels "right" to us. Apparently many others agree.

Editor: What is the marketplace for ADR? Globally, how many arbitrations and mediations occur annually?

Slate: It is the case that arbitration and mediation, some voices to the contrary notwithstanding, continue to grow in some areas and hold their own in others, even during these problematic economic times. Indeed, at the present time we have seen international arbitration/mediation cases continue to grow year over year, not only at ICDR but also among other major international institutions. Domestically, a potpourri of financial caseloads have remained robust, including those in the banking, energy, and healthcare provider areas, among others that continue apace.

As to the total number of arbitrations and mediations, no one knows! Principally, because of the confidential nature of the process, virtually no aggregate data exists. We are completely transparent as to the numbers, having previously reported for 2010 that we administered or assisted in over 140,000 cases. Again, for us these represent a slight preponderance of mediations and conciliations over arbitrations. And, while corporate counsel remain enthusiastic about mediation, we see to date no diminishment in arbitration clauses, and we frequently see step-clauses that begin with negotiation followed by mediation and backed up by final and binding arbitration.

Editor: Your November 2010 keynote address at the Orlando Neutrals Conference was a call to action - an "all hands on deck" alert - to control the cost and delay challenges facing arbitration. What specific action did you recommend, including ways to reduce e-discovery costs?

Slate : The issues reposing in your question are to our view the most formidable challenges facing arbitration today, both domestically and internationally - namely, the often-expressed belief by parties and advocates that the arbitral process increasingly takes too much time and that the costs associated with arbitrations are increasingly excessive. It is of small consequence that these twin towers of sharp criticism may be attributed to multiple sources, including counsel, experts, arbitrators, arbitral institutions and the arbitration process itself. Parties see the cost of the process as a whole altogether! It is regrettable that the concerns expressed are often the result of anecdotes, which should not be confused with empirical evidence. Nonetheless, such concerns must be taken seriously even if they are presently statistical outliers, since they may suggest the emergence of trends. Whether it is true or not in every case, it has become "accepted wisdom."

We are about nine months into a 15-month exploration with staff, arbitrators and advocates to identify needed reforms, best practices, prospective guidelines and rules, and supportive education and training. Broadly stated, it is a search for the most effective ways to address time and cost issues. To date we have been enormously gratified by many contributions from all participants in the process, and we anticipate significant changes to be announced by year's end.

The issue of e-discovery is very much an ongoing matter, even though we addressed that subject recently in a document entitled "ICDR Guidelines for Arbitrators Concerning Exchanges of Information." The compelling operative language in that document concerning e-discovery declares that "requests for documents maintained in electronic form should be narrowly focused and structured to make searching for them as economical as possible. The Tribunal may direct testing or other means of focusing and limiting any search."

Lastly and somewhat parenthetically, I would note that time and cost concerns become even more significant if one closely reads the Supreme Court's opinion in the recently decided case of AT&T vs. Concepcion. There, the Court attempted to buttress its substantive opinion (in fact both the majority and the dissenting opinions) by invoking the argument that arbitration is or is supposed to be economical and swift. In doing so they excerpted numbers about time and cost from the amicus curiae brief that we had submitted in the Stolt-Nielsen vs. Animal Feeds case. So here we have not only concern expressed by users of the arbitral process but also the Supreme Court of the United States saying arbitration should be swift and economical.

Editor: What is the impact of technology on arbitration? Please discuss AAA's strategic relationship with Cybersettle and how it benefits corporations (such as GE).

Slate: Moving forward in this instantaneous, Google-based, iPad world, we will feel the effects of technology in discrete ways that one cannot yet describe, but which one knows are just over the horizon. Neither we nor corporate law departments nor law firms can risk going down the path of newspapers and the music industry, who woke up one day and realized technology had passed them by. As one Wall Street Journal writer noted recently in discussing the competitive world of international business, "today's dawdlers are tomorrow's roadkill."

We, I observe immodestly, have been at the forefront in exploring how greater use of technology can benefit users of ADR services. Recall that we were the first ADR organization to have a domain on what was then called the World Wide Web. In 1996 we launched a pilot online dispute resolution process (again, the first ever) called Virtual Magistrate with the National Center for Automated Information Research and the Cyberspace Law Institute. We were also selected by ICANN to provide services for certain internal organizational disputes.

We already see that available technologies are lessening the felt need for traditional face-to-face hearings (which can be costly with today's high travel costs); we are relying on tools such as video streaming in lieu of traveling to a hearing destination. On the education and training side of our mission, increasingly we are delivering curricula through the use of webinars and other forms of education-based technology.

As to our strategic partnership with CyberSettle, which owns a patented online, double-blind bid process, we experience the competence and capacities of another entity to complement our own abilities. Such strategic relationships are an important part of our present and our future.

An example of how this plays out is a highly innovative program involving GE in Italy, in which GE, ICDR and CyberSettle teamed up to address any supplier disputes by offering first the online CyberSettle option followed by documents-only arbitration, with ICDR as necessary. Both the process and the rules are delivered in Italian.

Finally, we are in the midst of system-wide technology enhancements that will make us easier to engage. We are investing millions of dollars to facilitate the entire ADR process online and to keep us fully compatible with corporate users and the courts. Among these improvements is a dynamic - quite thrilling - interactive website full of information, clauses, rules and guides and news, all to be rolled out before year's end.

Unrelated to all of the above but important to the ADR process is the realization that critical analysis of dispute resolution processes will require bodies of metrics and data consistent with the new global expectation that analysis/ trends of key results should be available at the speed of technology. We are working on it!

Editor: Please discuss the current regulatory environment and any pending legislation, both domestically and internationally. What is the impact of the AT&T Mobility case?

 

Slate : The United States Supreme Court held in AT&T Mobility v. Concepcion that California state law, which largely invalidated class action waivers in consumer and employment agreements, was preempted by the Federal Arbitration Act (FAA). As a result, the class action waiver contained in AT&T's consumer arbitration agreement was held to be enforceable. The Supreme Court's majority decision stated that requiring class arbitration interfered with the goals of the FAA and that the fundamental attributes of arbitration are to provide a streamlined dispute resolution process that provides expeditious results. As a result of AT&T Mobility , a greater number of organizations are considering whether to include arbitration agreements in their contracts and also whether those arbitration agreements should include express class action waivers.

Regarding arbitration-related legislation, the most notable development is the recent introduction of the Arbitration Fairness Act of 2011 (AFA), which would make pre-dispute arbitration agreements involving consumer, employment and "civil rights" disputes unenforceable. The AFA is similar to other bills that have been introduced in prior years that have not passed, and at the moment it is the commonly held understanding that the AFA is unlikely to pass this year. However, the AT&T Mobility decision has put the spotlight on consumer and employment arbitration and has motivated some proponents of the AFA to push for passage.

In addition, under the Dodd-Frank Act, the Consumer Financial Protection Bureau has been tasked with studying the use of arbitration agreements in connection with consumer financial products and services. The bureau will also have the authority to regulate the use of arbitration to resolve disputes arising out of those types of agreements; however, the bureau does not have the authority to regulate consumer or employment arbitration agreements generally.

Although these legislative and regulatory issues are currently being considered, it should be emphasized that they do not impact or apply to commercial and international business-to-business disputes. Courts and legislatures continue to be highly supportive of arbitration to resolve those types of disputes.

In the area of international arbitration, I would note a movement by nation states in model bilateral investment treaty (BIT) documents to recalibrate the extent of an arbitrator's discretion; and in Europe, there is emerging on several arbitration fronts what one writer described as the "EU legal order colliding with the world of arbitration."

Editor: Is mediation gaining in popularity for corporate disputes? Why?

Slate: Indeed it is! While few studies have been published in these regards, we commissioned one such inquiry by an internationally recognized firm, OC&C, which found tremendous growth, especially in the corporate sector, for mediation. Eighty percent of chief legal officers surveyed found mediation to be less costly than litigation.

As an institution we unquestionably support more mediation cases annually than does any other entity in the world. Each year we provide support services to thousands of New York State No-Fault conciliation cases (last year, over 67,000 such cases were filed). We also offer mediators and support services every dayin commercial business-to-business disputes, labor-management disputes and employment disputes, and we increasingly offer services through court-ordered programs such as the State of Florida's Residential Mortgage Foreclosure Mediation Program.

Because disaster relief programs are regularly on our services agenda, we have designed specially tailored programs in response to a number of natural disasters, such as one developed in the states of Louisiana and Mississippi in the aftermath of Hurricane Katrina, in which we provided mediation services to over 18,000 homeowners.

In the international arena, we are clearly the largest provider of international mediation services both ab initio and as a part of a program that converts planned arbitrations to mediations. For several years now, we have seen approximately eight percent of all international cases filed as arbitrations electing to first try mediation with about an 88 percent success rate.

The proverbial bottom line is that we annually oversee more mediations and conciliations than arbitrations. Recall also that we are a founder of the International Mediation Institute (IMI) located in The Hague, which through its online list of mediators offers trained and experienced international mediators to the world.

In all of these areas we anticipate growth in the days ahead. We are strategically well placed, with a superb panel of mediators and a plan for increased use of technology services for both mediators and parties to avail in facilitating the entire mediation process. Mediation will continue its growth trajectory, especially among corporate counsel, and we are nurturing and deeply engaged in that ascent.

Editor: Please discuss AAA's International Centre for Dispute Resolution (ICDR). Tell us about ICDR's nation-state-building efforts.

Slate: ICDR handled 888 international arbitrations and mediations in 2010, continuing its pattern of growth for a number of years running and representing the largest caseload in the world for comparable international institutions. Parties in any given year hail from approximately 80 different countries, and cases represent a very broad range of industries and subject matter. The panel of arbitrators and mediators is truly international, with two-thirds of the individuals from jurisdictions outside the U.S. Cases range from claims of tens of thousands of dollars to multiple billions. In June of this year alone, we had 80 new international cases filed - up 25 percent over the previous June - with one of those cases asserting claims in excess of US$1 billion.

The profile and activity of ICDR has been one of innovation and process improvement. In drafting its guidelines for document production, ICDR reflected the consensus of the international legal and business community to keep tight controls on discovery-like processes, while still affording appropriate information for case presentation. The application process for arbitrators includes review by panels of outside advisors who also evaluate the expertise and likely acceptability of the applicant arbitrators. ICDR has engaged in several activities that might be described as "institution building," providing consulting advice, training and support - even building structures and processes that support courts, governments and other institutions in Kosovo, among other venues - all the while drawing on ICDR's unique wellspring of experience and adaptability.

Editor: To what extent are ICDR Rules - such as Article 37 procedures for granting emergency pre-arbitration relief - helping ADR become a comprehensive alternative to the court system?

Slate: ICDR Article 37 was the first set of international arbitration rules that provided for rapid response to requests for emergency relief prior to the appointment of an arbitrator. The Article provides that an emergency arbitrator is appointed within 24 hours of the request. Within 48 hours of appointment, the arbitrator has a conference with the parties, usually by teleconference. All of the 16 filed cases concluded to date have been successfully completed within three weeks, some faster. The process is carefully balanced with respect to notice to the responding party and the authority of the emergency arbitrator vis à vis the later sitting panel of arbitrators. It has been so successful that a number of other prominent institutions are now implementing similar procedures.

In reality, courts around the world are inconsistent in their handling of requests for interim or emergency relief. Article 37 was implemented to provide a fuller range of necessary services attorneys and business people seek when engaging in cross-border dispute resolution. As arbitration is in many respects a partner with court systems, Article 37 fills in some international gaps and provides consistency of access.

Editor: Please talk about U.S. government-inspired outsourcing of legal matters to arbitration and mediation proceedings. Do the courts support these initiatives?

Slate: Courts and legislative bodies are availing ADR services in a range of interesting ways, some of them inspired by economic necessities. The Federal Centers for Medicare and Medicaid Services use AAA for disputes involving states and the Department of Health and Human Services. The Supreme Court of Florida issued a statewide administrative order for the mediation of residential mortgage foreclosures. Of course one such program that received wide exposure was the Auto Dealer Arbitration Program enacted by Congress in 2010. Involving 2,700 auto dealerships, the program named AAA in the legislation and required a six-month disposition timeframe - which was met in every case.

Having earned the confidence of federal and state governments in "lessening the burdens of government," we have been asked to administer such matters that would otherwise go before government agencies or courts. I would also note parenthetically that in view of our ongoing relationship with courts and public policymakers, we have weighed in on significant legal cases addressing pivotal issues of the arbitral process. In recent years we have filed eight amicus curiae briefs (six before the Supreme Court of the United States) addressing issues about which we have either experience or informed views to assist the high court's considerations. In most all of these matters, the American Arbitration Association is not directly involved in any way; however, as a leader in the field, we feel obliged to let our informed views be known to public policy decision makers.

I think it inevitable that governments will increasingly outsource disputes to private providers, especially entities such as the Association, whom they trust after years of experience working together.

Editor: Compare ad hoc arbitration with arbitration managed by the AAA. What are the key issues, particularly with respect to cost, oversight and enforceability?

Slate: There are significant qualitative differences between so-called ad hoc ADR services and those of an institution.

Let us begin with the reality that in an ad hoc arbitration, one essentially gives up the option of having both mediation and arbitration available. Most neutrals' strong suit is one or the other, and typically one person does not serve as both mediator and arbitrator (a practice discouraged in the West unless all parties consent). So that possibility is essentially off the table.

Also, when parties turn to institutions like the AAA, they get the expertise of an entire institution, as opposed to one neutral in an ad hoc arrangement. The parties also have access to multiple sets of rules and procedures (26 different subject-matter sets at the Association), with the added value of getting guidance from the experts who developed them. The AAA is constantly attending to the currency of its rules: reference recent amendments to the construction, commercial, and international rules, and new rules for non-binding ADR services and healthcare disputes.

In addition, AAA neutrals are bound by codes of ethics in the delivery of institutional services. AAA staff also serves as an appropriate intervener when awkward issues arise involving matters such as conflicts of interest, process and remuneration. There is an interesting question respecting the enforcement of awards: ad hoc as opposed to institutional. A recent study by the Global Center for Dispute Resolution Research convened 52 of the world's most experienced international arbitrators. It was their shared opinion by a wide majority that institutional awards had a "greater likelihood of enforcement" than those rendered ad hoc.

Lastly, with respect to the issue of cost, an institution will guarantee that administrative fees are charged for administrative services, whereas it is sometimes difficult for a neutral who is handling administration to avoid charging neutral-level fees for administrative services. Additionally, institutions routinely review the costs charged and follow up on cost-related issues raised by the parties, thus averting disputes and clarifying appropriate costs.

In sum, I think a quite compelling case exists on multiple fronts for the preferred use of institutional ADR services.

Please email the interviewee at slatew@adr.org with questions about this interview.