Experts Discuss Arbitration Versus Litigation - A Roundtable

Monday, August 1, 2011 - 01:00

The Editor invited the following spokespersons on behalf of ADR to provide their organization's view in regard to our questions: Hon. William A. Dreier , Member, Norris, McLaughlin & Marcus, P.A.; Jon Resnick , Worldwide Vice President of Field Operations and Marketing at Applied Discovery; and Lee A. Rosengard and Kevin R. Casey , Partners, Stradley Ronon Stevens & Young, LLP.

Editor: What are your thoughts about mounting criticism that arbitration is becoming as costly and time-consuming as full-scale litigation?

Dreier: The ideal arbitration is one where there is (1) an impartial arbitrator familiar with the field of the dispute (or a fast learner), (2) controlled, documentary discovery, with limited, if any, depositions and interrogatories, (3) few, if any, experts, (4) limited motion practice, (5) an arbitrator who will limit the hearing proofs to relevant material, but non-cumulative evidence and, finally, (6) a fair and prompt decision.

Where arbitration gets out of hand, fault lies on both sides of the process: counsel and arbitrator. A properly drafted arbitration clause should require the above six principles to be applied. At the initial scheduling conference, the arbitrator should place discovery limitations under his/her active control. Expert reports can be ordered to serve as direct testimony, and other realistic limitations can be built into the case. Stipulations can take the place of cumulative proof, and post-hearing briefing can be limited to the arbitrator's concerns. Attorneys often fight some of these limitations, and only a sharply defined arbitration clause can override their demands - and arbitrators should stand their ground.

Arbitration still provides the sole adjudicative forum in which the parties can choose their "judge." The threat of endless appeals after the award is absent.Hearing dates, even in complex cases, are measured in months, not years, and are set to meet collective schedules, not imposed on all by a court. Evidence rules are relaxed. Even with some unneeded discovery or delay, the system works, and it is getting better!

Resnick: Years ago, the expansion of discovery in federal and state civil litigation caused parties to flee to arbitration, with its streamlined procedural rules and shorter time to resolution. Many counsel considered arbitration as a cost-effective, speedier alternative to the specter of collecting, reviewing and producing millions of hard-copy documents. However, as a result of the unwillingness of parties to risk limiting discovery, parties have begun to import the rules and practices associated with traditional discovery into the arbitration arena.

Additionally, the volume of electronically stored information (ESI) and ESI's importance in disputes have continued to grow. These increases mean parties must, regardless of their venue, search through more information to locate relevant evidence. In one sense, then, complaints about rising discovery costs associated with arbitration are valid; however, this growth is offset by technological advances that reduce the cost of searching vast amounts of electronic information as opposed to manually sifting through hard copies.

It should be noted that the debate about the rising costs of arbitration neglects one main factor driving costs, which is also present in the judicial forum: parties have the ability to negotiate the scope of discovery. Rule 26(f) of the Federal Rules of Civil Procedure requires parties to meet early to discuss the production of ESI. Similarly, in arbitration, parties can set the rules to require similar discussions about discovery; some arbitration organizations already require parties to identify and narrow the scope of discovery early in the process.

In our view, clear communication is often the key to curtailing the costs associated with discovery. No matter the venue, parties will need to produce ESI as part of discovery. But the discovery process is not the true gremlin here. Parties that fail to approach eDiscovery promptly at the beginning of a matter are often the true source of rising costs.

Rosengard/Casey: One downside of the developing tendency of arbitrations to morph into litigation is the proliferation of motion practice in arbitrations. Increasingly, parties confront arbitrators with motions to dismiss and for summary judgment. But arbitrators are taught early in their training that one of the strongest arguments a disappointed party can make in seeking to overturn an arbitral award is that the party did not receive a full and fair opportunity to present its case. Short-circuiting the hearing process by granting dispositive motions provides the losing side with ammunition to overturn the award. Because arbitration is supposed to be final and binding, court decisions on this score undercut one of the prime motivators in choosing arbitration at the contract-drafting stage.

Current best practices guide arbitrators to impose on the participants at the first pre-hearing conference the requirement that before any party files a dispositive motion, it submit a one-page document to the arbitrator stating the relief it plans to seek and the factual and legal basis for the proposed motion. After the other party submits a short response, the arbitrator holds a conference, often by phone. In that call, the participants discuss the basis and need for the proposed motion, the open and relevant factual issues, and the very real possibility that the requested relief might give the losing party grounds for an appeal. This conference often satisfies what is typically the real goal of the party proposing to file the motion: an early opportunity to educate the arbitrator about the strength of its case. The conference also gives the arbitrator an organizational framework to consider as he or she hears the evidence at the hearing. This process serves the interests of the parties and the arbitrator in not having an award overturned.

Editor: Under what circumstances should parties seek (or avoid) arbitration to resolve their disputes? What are some tools to assist with this assessment?

Dreier: You may avoid arbitration (1) if you need binding legal precedent; (2) if there is a non-jury judge from whom you expect a favorable ruling, unlikely to be appealed; (3) if you need a jury for an emotional appeal which may not move an arbitrator; (4) if extended discovery, delay and appeals will help you put off a "day of reckoning." Other than in these cases, arbitration should be speedier, less costly and just as effective to vindicate your rights.