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What Providers Can Do to Promote Efficiency

What Providers Can Do to Promote Efficiency

Source: National Law Journal
Date: November 22, 2010

Richard Chernick, Esq. Zela ''Zee'' G. Claiborne, Esq.
NLJ.COM Daily Updates at By RichaRd cheRnick and Zela claiBoRne T he growth of commercial arbitra- tion during the past three decades is principally attributable to the U.S. Supreme Court’s broad embrace of the arbitration process and its rejection of legal doctrines that try to limit the effective use of arbitration. Arbitration was further transformed during the 1980s and 1990s by a series of decisions that have made it more accessible and its enforcement more predictable. This development in turn has encouraged businesses to consider arbitration for many of their larger and more impor- tant disputes and has encouraged indi- vidual neutrals and providers to pro- mote arbitration as an effective alterna- tive to the court system. Popularity has not been without drawbacks. As counsel have become more sophisticated in dispute process design, arbitrations now often have many elements of a complicated court trial, and the complexity of manag- ing and conducting arbitrations has increased. Detailed pleadings, broad- based discovery, requests for provi- sional relief, dispositive motions and application of rules of evidence are more common, as are requests for reviews of arbitration orders and awards. One only has to see the number of process issues included in the 2000 revision of the Uni form Arbitration Act, www.law.upenn.edu/ bll/archives/ulc/uarba/arbitrat1213. pdf, to see this dynamic change. This trend also explains why there are so many more decided cases addressing arbitration issues. One consequence of these changes has been increased expense and delay. Many traditional users of arbitration have realized that they cannot have their cake and eat it, too. The more processes parties employ, the longer and the more expensive the arbitration. It is even possible that it will take as much or more time than equivalent court liti- gation. In these circumstances, when there is no effective right to appeal arbi- tral awards, the litigation choice may become preferable. In order to preserve the benefits of arbitration, it is necessary to address the processes that drive expense and delay, such as discovery and motion november 22, 2010 A special report What providers can do to promote efficiency Topping the list is adopting rules limiting arbitration time, extensive discovery and motion practice. the national law journal/ WWW.nlj.com istockphoto/jgroup Rules can limit discovery requests to relevant documents reasonably limited in subject matter and time.practice. Each of the stakeholders in the arbitration process (inside counsel, outside counsel, arbitrators and pro- vider organizations) has a role to play in addressing solutions that restore vitality and efficiency to the arbitra- tion process. The focus here will be on the opportunities provider organiza- tions have to restore effectiveness to the process. In the past, many providers have suggested dispute-resolution clauses that outline a stepped process intended to promote efficiency. In general, the process begins with required negotia- tions among company executives, fol- lowed by mediation and then by arbi- tration. Virtually all providers encour- age the use of mediation to settle the case or at least to pare down the issues to be arbitrated. Rule Revisions As criticism of costly arbitration has grown stronger, some providers are also responding by offering more than one kind of arbitration procedure and revising their rules with the goal of helping parties design a process to fit the case. The American Arbitration Association has fast-track rules for small-dollar cases as well as rules for large cases that give arbitrators the power to control the process. CPR Institute offers an economical litigation agreement and rules aimed at provid- ing an efficient process. And JAMS has a new optional expedited procedure available for even the largest cases, which provides for an arbitration to be completed within 150 days. The College of Commercial Arbitrators, a select group of arbitrators working through various providers, has promul- gated “Protocols for Expeditious, Cost- Effective Commercial Arbitration,” a document available on its Web site, www.thecca.net, that will be useful to attorneys drafting arbitration clauses or handling arbitrations as well as to providers and arbitrators. There is also the issue of discovery. As arbitration has evolved, so has dis- covery. Discovery is often the most expensive part of any arbitration, espe- cially now that so much of it involves electronically stored information. In the early days, arbitration discovery was limited to a broad exchange of rel- evant and nonprivileged documents as well as information about the witness- es expected to testify. Now, counsel often serve elaborate requests for volu- minous documents and seek numerous depositions. For arbitration to be truly cost-effective as well as efficient, it is in everyone’s best interest to rein in costs by establishing a discovery plan that is proportional to the complexity of the dispute. Providers can assist by encouraging the use of rules that limit requests for documents to those that are material and reasonably limited in subject mat- ter and time. Those limitations should apply to electronic discovery as well and should provide that electronic docu- ments are to be produced in searchable format easily utilized by the parties. Furthermore, when a party requests voluminous documents, arbitrators should be empowered to deny the request or shift production costs to the requesting party. Although counsel sometimes seek to serve requests for admission or inter- rogatories, written discovery is not favored in arbitration both because it often fails to elicit significant informa- tion and because it can be very expen- sive. Also, although some depositions may save hearing time by preparing counsel for efficient witness exami- nation during the hearings, providers would do well to empower arbitrators to limit the number and duration of depositions. Furthermore, when the reports (or proposed direct testimony) of expert witnesses are produced to the opposing side in advance of the hear- ings, expert depositions should not be necessary unless the parties agree or the arbitrators exercise their discretion to order them. Providers may also adopt rules that limit the use of time-consuming motions. Motions in limine and dis- positive motions can be wasteful in arbitration, particularly when there has been little discovery. One of the grounds for vacating an arbitration award is the arbitrators’ refusal to hear relevant evidence (9 U.S.C. 10(a)(3)). Motions should be limited to those that focus on clear issues of law, and arbitrators should be empowered to deny requests to bring motions that involve issues of fact or are unlikely to resolve significant matters before the hearings. Even if providers set forth all of the above in their rules, none of these techniques for making arbitration eco- nomical will work unless the arbi- trators are experienced, decisive and willing to make the necessary rulings promptly. Arbitrators must be trained to be managerial and handle mat- ters efficiently. That includes setting a schedule for discovery and hear- ings during the preliminary confer- ence and ensuring that the case stays on track. Continuances are extremely expensive. When discovery disputes arise, arbitrators should be available by phone or e-mail—not ex parte of course—to make decisions promptly and on short notice. During the hear- ings, arbitrators must move the case along, dealing effectively with cumu- lative evidence and avoiding games- manship. At the end of the hearings, arbitrators should be expected to pro- vide for prompt briefing (or, in appro- priate cases, no post-hearing briefs) and a timely award. By adopting these suggestions and designing others, providers can assist in returning arbitration to its intended purpose: a cost-effective, efficient alternative to litigation. This must be an industrywide effort, with all stake- holders—outside counsel, inside coun- sel, arbitrators and providers—playing a role. Richard Chernick is managing director of the arbitration practice at JAMS, The Resolution Experts, and was the found- ing president of the College of Commercial Arbitrators. He can be reached at rcher- nick@jamsadr.com. Zela Claiborne is a member of the JAMS arbitration panel and a fellow of the College of Commercial Arbitrators. She can be reached at zclai- borne@jamsadr.com. Reprinted with permission from the November 22, 2010 edition of THE NA TIONAL LA W JOURNAL © 2010 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com. #005-11-10-11 the national law journal/ WWW.nlj.com ? november 22, 2010 ADR

The growth of commercial arbitration

during the past three decades

is principally attributable to the

U.S. Supreme Court's broad embrace of

the arbitration process and its rejection

of legal doctrines that try to limit the

effective use of arbitration. Arbitration

was further transformed during the

1980s and 1990s by a series of decisions

that have made it more accessible and

its enforcement more predictable. This

development in turn has encouraged

businesses to consider arbitration for

many of their larger and more important

disputes and has encouraged individual

neutrals and providers to promote

arbitration as an effective alternative

to the court system.

Popularity has not been without

drawbacks. As counsel have become

more sophisticated in dispute process

design, arbitrations now often have

many elements of a complicated court

trial, and the complexity of managing

and conducting arbitrations has

increased. Detailed pleadings, broadbased

discovery, requests for provisional

relief, dispositive motions

and application of rules of evidence

are more common, as are requests

for reviews of arbitration orders and

awards. One only has to see the

number of process issues included

in the 2000 revision of the Uniform

Arbitration Act, www.law.upenn.edu/

bll/archives/ulc/uarba/arbitrat1213.

pdf, to see this dynamic change. This

trend also explains why there are so

many more decided cases addressing

arbitration issues.

One consequence of these changes

has been increased expense and delay.

Many traditional users of arbitration

have realized that they cannot have

their cake and eat it, too. The more

processes parties employ, the longer and

the more expensive the arbitration. It is

even possible that it will take as much

or more time than equivalent court litigation.

In these circumstances, when

there is no effective right to appeal arbitral

awards, the litigation choice may

become preferable.

In order to preserve the benefits of

arbitration, it is necessary to address

the processes that drive expense and

delay, such as discovery and motion

practice. Each of the stakeholders in

the arbitration process (inside counsel,

outside counsel, arbitrators and provider

organizations) has a role to play

in addressing solutions that restore

vitality and efficiency to the arbitration

process. The focus here will be on

the opportunities provider organizations

have to restore effectiveness to

the process.

In the past, many providers have

suggested dispute-resolution clauses

that outline a stepped process intended

to promote efficiency. In general, the

process begins with required negotiations

among company executives, followed

by mediation and then by arbitration.

Virtually all providers encourage

the use of mediation to settle the

case or at least to pare down the issues

to be arbitrated.

Rule revisions

As criticism of costly arbitration has

grown stronger, some providers are

also responding by offering more than

one kind of arbitration procedure and

revising their rules with the goal of

helping parties design a process to fit

the case. The American Arbitration

Association has fast-track rules for

small-dollar cases as well as rules for

large cases that give arbitrators the

power to control the process. CPR

Institute offers an economical litigation

agreement and rules aimed at providing

an efficient process. And JAMS has

a new optional expedited procedure

available for even the largest cases,

which provides for an arbitration to

be completed within 150 days. The

College of Commercial Arbitrators,

a select group of arbitrators working

through various providers, has promulgated

"Protocols for Expeditious, Cost-

Effective Commercial Arbitration," a

document available on its Web site,

www.thecca.net, that will be useful to

attorneys drafting arbitration clauses

or handling arbitrations as well as to

providers and arbitrators.

There is also the issue of discovery.

As arbitration has evolved, so has discovery.

Discovery is often the most

expensive part of any arbitration, especially

now that so much of it involves

electronically stored information. In

the early days, arbitration discovery

was limited to a broad exchange of relevant

and nonprivileged documents as

well as information about the witnesses

expected to testify. Now, counsel

often serve elaborate requests for voluminous

documents and seek numerous

depositions. For arbitration to be truly

cost-effective as well as efficient, it is

in everyone's best interest to rein in

costs by establishing a discovery plan

that is proportional to the complexity

of the dispute.

Providers can assist by encouraging

the use of rules that limit requests for

documents to those that are material

and reasonably limited in subject matter

and time. Those limitations should

apply to electronic discovery as well and

should provide that electronic documents

are to be produced in searchable

format easily utilized by the parties.

Furthermore, when a party requests

voluminous documents, arbitrators

should be empowered to deny the

request or shift production costs to the

requesting party.

Although counsel sometimes seek to

serve requests for admission or interrogatories,

written discovery is not

favored in arbitration both because it

often fails to elicit significant information

and because it can be very expensive.

Also, although some depositions

may save hearing time by preparing

counsel for efficient witness examination

during the hearings, providers

would do well to empower arbitrators

to limit the number and duration of

depositions. Furthermore, when the

reports (or proposed direct testimony)

of expert witnesses are produced to the

opposing side in advance of the hearings,

expert depositions should not be

necessary unless the parties agree or the

arbitrators exercise their discretion to

order them.

Providers may also adopt rules

that limit the use of time-consuming

motions. Motions in limine and dispositive

motions can be wasteful in

arbitration, particularly when there

has been little discovery. One of the

grounds for vacating an arbitration

award is the arbitrators' refusal to hear

relevant evidence (9 U.S.C. 10(a)(3)).

Motions should be limited to those

that focus on clear issues of law, and

arbitrators should be empowered to

deny requests to bring motions that

involve issues of fact or are unlikely

to resolve significant matters before

the hearings.

Even if providers set forth all of the

above in their rules, none of these

techniques for making arbitration economical

will work unless the arbitrators

are experienced, decisive and

willing to make the necessary rulings

promptly. Arbitrators must be trained

to be managerial and handle matters

efficiently. That includes setting

a schedule for discovery and hearings

during the preliminary conference

and ensuring that the case stays

on track. Continuances are extremely

expensive. When discovery disputes

arise, arbitrators should be available

by phone or e-mail—not ex parte of

course—to make decisions promptly

and on short notice. During the hearings,

arbitrators must move the case

along, dealing effectively with cumulative

evidence and avoiding gamesmanship.

At the end of the hearings,

arbitrators should be expected to provide

for prompt briefing (or, in appropriate

cases, no post-hearing briefs)

and a timely award.

By adopting these suggestions and

designing others, providers can assist

in returning arbitration to its intended

purpose: a cost-effective, efficient

alternative to litigation. This must be

an industrywide effort, with all stakeholders—

outside counsel, inside counsel,

arbitrators and providers—playing

a role.