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Parties Must Shape Arbitration Process in Big, Complex Cases

Parties Must Shape Arbitration Process in Big, Complex Cases

Source: Los Angeles Daily Journal (Focus)
Date: October 9, 2002

Those who choose arbitration because it is a low-cost and speedy alternative to traditional litigation surely will be disappointed if the hearing in their matter is unduly lengthy or delayed over months or years.

As with every other aspect of arbitration, parties have the ability to shape and control the process to suit their needs. This does not just mean selecting the administering institution, the venue, the neutral, the law that will apply and the remedies that may be awarded. It also means controlling the process itself so that the parties will achieve the goals of efficiency and economy. Simply put, parties to a contractual arbitration get the process that they deserve.

Party control begins with the selection of the administering institution. Institutional rules, such as the JAMS Comprehensive Arbitration Rules and Procedures, are the beginning point in assuring an effective process. Those rules give counsel many tools.

For example, an administrative conference can be scheduled immediately after the commencement of the arbitration. JAMS Rule 6. Counsel can consult with the case manager about the filing of pleadings, the number and selection of the arbitrator(s), the location and timing of the hearing and other pertinent matters. See also American Arbitration Association Commercial Arbitration Rule R-10.

Counsel may wish to address with the case manager any unique aspects of their matter that bear on the selection of a suitable arbitrator or arbitrators. The parties frequently address the arbitrator's substantive expertise in administrative conferences, but the issue of the arbitrator's process skills is frequently overlooked.

Can potential arbitrators with experience in large, complex arbitrations and appropriate substantive skills be identified? What specific recommendations might the case manager have? Are the parties able to identify one or more mutually acceptable candidates who are thought to have the necessary skills? Would the parties be interested in jointly interviewing a few possible candidates? Should the parties choose a panel of three or a sole arbitrator?

In addition to substantive and process skills, the arbitrator(s) must be available to the parties, in the time frame that the parties determine, for sufficient time to assure the efficient scheduling and completion of the matter. Particularly with a tripartite panel, scheduling difficulties alone can undermine efficiency.

Consecutive hearing days sufficient to complete the entire matter (or a particular phase of the hearing) will reduce preparation time and attorney fees more than any other factor. Truncated hearings will have the opposite effect. If this is an important issue, the parties should have the arbitrator's commitment to be available as needed.

Another case management tool is the preliminary conference, the purpose of which is "to [clarify] the issues and claims, to schedule ... the hearings and to [address] any other preliminary matters" that will expedite the arbitration proceedings." JAMS Rule 16; see also American Arbitration Association Rule R-22.

Skilled arbitrators will use the preliminary hearing to identify issues that may need to be addressed before the hearing can begin. These include disputes about whether all proper parties are part of the arbitration, whether there is an issue of arbitrability of a particular dispute or whether the arbitrator is limited in the remedies that may be awarded, such as punitive damages or equitable relief. It may be necessary to devise a process to determine these preliminary issues, with or without hearing, before the commencement of the evidentiary hearing.

The arbitrator also should raise the issue of discovery and the voluntary exchange of information. The clause or applicable rules may permit some discovery, or the parties may wish to agree on mutual, formal or informal discovery. The arbitrator should assist the parties in formulating an appropriate discovery plan.

While the parties are free to agree on any mutual discovery plan, the experienced arbitrator likely will remind overzealous counsel that the arbitration process probably was chosen by the parties to achieve efficiency and economy in the event of a dispute. Unlimited discovery likely will frustrate any chance of achieving that goal.

In most cases, the voluntary exchange of documents by the parties, perhaps one or two key depositions and subpoenas of documents from third parties will suffice. Interrogatories, requests for admission and excessive depositions quickly will escalate costs and may not be necessary.

The parties also should consider whether some issues could be resolved without the need of an evidentiary hearing. Arbitrators may determine issues without an oral hearing in certain circumstances, notwithstanding provisions of the California and Federal Arbitration Acts that suggest that the failure to conduct an oral hearing may be a ground for vacatur of the award. Code of Civil Procedure Section 1286.2 (e); 9 U.S.C. Section 10(a) (3) (vacation of award for refusal to hear evidence pertinent and material to controversy); Schlessinger v. Rosenfield, Meyer & Susman, 40 Cal. App. 4th 1096 (1995).

Note, however, that, if discovery is limited, which it will be in most arbitrations, it is unlikely that a dispositive motion would be appropriate (Schlessinger).

The most important task at the preliminary hearing is the establishment of the hearing process itself. Many cases lend themselves to bifurcation of issues. Particularly in complex business disputes, the determination of liability in Phase I will make the damage phase much more efficient. This is particularly true where equitable relief is requested or where a range of remedies may be possible.

For example, the arbitration of a partnership dispute might be structured to determine all liability claims and counterclaims (Phase I), claims of entitlement to dissolution based on the findings in Phase I (Phase II) and the mechanism for winding up and dissolving the partnership and disposing of the assets among the parties (Phase III). The parties can avoid delays by scheduling all three phases at the inception so that all parties and the arbitrator have reserved time for the hearings.

An important aspect of hearing preparation is the orderly exchange of information before the hearing. Parties should be ordered to exchange documents intended to be offered during the hearing (other than purely for impeachment) and to identify all nonrebuttal witnesses, percipient and expert, who are expected to testify. JAMS Rules 20, 21; American Arbitration Association Rule R-23; see also Code of Civil Procedure Section 1282.2(a) (2).

Witness designations should include experts, and the parties should exchange expert reports that they intend to offer during the hearing. Where expert testimony is absolutely crucial, the parties may be able to agree on a formal expert disclosure process (e.g., Code of Civil Procedure Section 2034) perhaps including depositions. (Although not common in domestic arbitrations, the appointment of a neutral expert by the arbitrators is addressed in preliminary phases of most international arbitrations.)

If testimony will be offered other than through a live witness at the hearing (telephonic or by affidavit, for example), then that should be disclosed in advance, so that objections might be considered in advance of the hearing. The parties also should address the need for interpreters.

It is helpful to have a joint exhibit list and exhibit books prepared by the parties in advance of the hearing and to require any objections to be recorded on the joint exhibit list itself. The documentary evidence then may be admitted at the commencement of the hearing without the need for any foundational testimony, except as specifically required by either party. (In international arbitrations, the parties should address the need for translation of documents and the issue of certified translations before the hearing commences.)

The parties should agree and schedule whether briefs will be submitted before or after the hearing (or both) at the time that the hearing is set. Other logistics (such as the need for electronic or other displays during the hearing, the need for a site visit, the intent to employ a court reporter, etc.) should be addressed, as well.

The parties also should address the subject of the form of the award at a preliminary stage. The parties ought to know whether the arbitrator will be stating reasons for the award and whether findings and conclusions will be prepared. Compare JAMS Rule 24(g) with American Arbitration Association Rule R-42.

A note about non-administered arbitration: As the discussion above demonstrates, much of the arbitration process is directed by institutional arbitration rules. Where the arbitration is non-administered or "ad hoc," the clause rarely specifies what rules, if any, shall be followed.

There are two widely respected sets of rules designed for a non-administered arbitration. The first is the UNCITRAL (U.N. Commission on International Trade Law) Rules, which are disseminated by the United Nations. Despite their title, they may be used in domestic and international disputes.

The other set of rules for non-administered arbitrations is the CPR Rules for Non-Administered Arbitration of Commercial Disputes. These rules are really a hybrid because the CPR Legal Program will assist the parties in selecting arbitrators and then will leave the administration of the process to the parties and the arbitrator. Either set of rules will provide appropriate guidance to counsel and the arbitrator where no institutional rules govern.

The skill necessary to decide disputed questions of fact and law in an arbitration is different from the skill necessary to effectively manage large, complex cases in arbitration. Poor process skills can undermine the effectiveness of the most erudite decision on the merits. Too often, the parties only look at the former skill in selecting an arbitrator and ignore the skill required to shape the process to make it work as it was intended.


Richard Chernick is an arbitrator and mediator and is Managing Director of the JAMS arbitration practice. He is a co-author of The Rutter Group's "California Practice Guide - Alternative Dispute Resolution."

Copyright 2002 Daily Journal Corp. Reprinted with permission.