Ensuring That Arbitration Is Both Cost Effective and Speedy
Copyright © 2020 by Judge Shira A. Scheindlin (Ret.) and Deborah Hylton, FCIArb
This article is based on a panel discussion titled “Cost, Speed, Effectiveness and Enforceability” held on March 22, 2021, sponsored by The Chartered Institute of Arbitrators. The Panel was moderated by Dr. Katherine Simpson, FCIArb of 33 Bedford Row Chambers and Simpson Dispute Resolution, and the panelists were Judge Shira A. Scheindlin (Ret.) of Stroock & Stroock & Levan LLP, Deborah Hylton, FCIArb of Hylton ADR Services, LLC and Carmen Martinez-Mendoza of Escuela Libre de Derecho.
Arbitration is intended to be faster and less expensive than litigation in court, and many counsel and clients agree to arbitration clauses believing in that premise. Unfortunately, that is not always the case. Why is arbitration sometimes slower and more costly than it should be? We believe the answer lies, in large part, in counsels’ insistence on mimicking their courtroom litigation experience, despite the fact that arbitration proceedings are intended to be different. Arbitral rules differ greatly from federal and state rules of civil procedure, and offer flexibility for the parties and counsel, with the help of the arbitrator, to design a process that suits each proceeding. Arbitral proceedings should reflect the fact that they are not subject to the rules and procedures that govern the formality of court proceedings.
We first explore some industry statistics that confirm our panel’s assessment of the issues of speed and expense in arbitration proceedings and a few industry-wide expert recommendations before turning to our panel’s particular recommendations.
The Heart of the Problem
Implicit in the term “alternative” dispute resolution is an expectation that arbitration is different from litigation. In 2009, the College of Commercial Arbitrators (CCA) convened a national summit of corporate legal departments, law firms, institutional provider organizations and arbitrators to explore complaints that arbitration has become as slow and expensive as litigation. The summit findings concluded that commercial arbitration has in fact become too much like litigation, too often falling short of the intended advantages of speed, economy and efficiency. Summit participants recommended actions for improvement by the four major types of participants in the arbitration—business users, counsel, arbitrators, and arbitration provider institutions. Consensus findings were published by the CCA in 2010 in Protocols for Expeditious, Cost-Effective Commercial Arbitration.
In the most recent survey of its arbitrators by the American Arbitration Association, arbitrators identified the following items as the biggest drivers of time and expense: discovery (39%); motion practice (36%); difficult/uncooperative parties (27%); postponements (20%); and difficult/uncooperative representatives (15.2%).
The three most common suggestions from the survey to improve efficiency are:
Limit discovery.
Agree to and strictly enforce a scheduling order.
Foster cooperation among the counsel.
Informed by these and other industry studies as well as our own experiences, our panel identified the following methods for improving efficiency in arbitration.
Arbitration Clause
Arbitration is inherently a creature of contract. Whether drafting an arbitration clause in a contract or crafting their own agreement to arbitrate outside of the original contract, the parties can design the terms of the arbitration. Addressing key issues of the process in the arbitration clause is a unique opportunity to adopt time- and expense-saving processes without compromising effectiveness. For example, parties can decide whether they want a single arbitrator or a three-person panel of arbitrators (interestingly a study of AAA cases with a value of over one million dollars revealed that approximately 68% were decided by a sole arbitrator) whether to accept or vary the arbitral rules regarding limited discovery or information sharing; determine the manner in which the arbitrator(s) will be selected; whether the award can be appealed; whether and how to discuss settlement prior to a hearing; whether the hearing will be held virtually or in person (either by consent or ordered by the arbitrator); whether to request an expedited proceeding; and what type of award the arbitrator(s) should issue. These are just examples. Creative lawyers (or parties) can add other terms on which the parties agree when crafting an arbitration clause. Major ADR provider institutions offer a range of well-conceived arbitration clauses designed to optimize efficiency.
Discovery
In our experience, the most common culprit in defeating the goals of speed and efficiency in arbitration is discovery. Counsel need to embrace the provisions of most arbitral rules, which focus on limiting the exchange of information in favor of efficiency, and free their mind from the broad discovery permitted in federal court and most state courts. Voluntary disclosure of key documents is a great start. Counsel should make every attempt to agree in every arbitration to an early and voluntary exchange of those documents. And these days it is a truism that all discovery is e-discovery. Given that reality, counsel should discuss ESI – including collection, search and review. And eliminating the very costly privilege- logging process would also result in the saving of time and money. Most interrogatories are a waste of time and can be eliminated altogether without any harm to thorough hearing preparation.
Depositions warrant particular attention in arbitration. Are they really needed at all? Many arbitrators now require witness statements in lieu of direct testimony. If these are exchanged sufficiently in advance of the hearing, depositions may not be necessary. But if counsel insists on depositions, the arbitrator should be thoughtful in allowing the lowest possible number per side. And while we are on the topic of depositions, we also encourage counsel not to depose experts if detailed expert reports are prepared and exchanged. That should be sufficient to prepare a probing cross-examination!
Postponements
Another cause of increased cost and delay is the overuse of postponements or consent adjournments. The parties often seek delays in a carefully negotiated schedule for no reason other than the required work was not timely completed. There are good reasons for adjournment – like health or family issues or settlement negotiations – but mere “busyness” is not a good reason. Counsel and parties should strive to stick to the schedule, as the longer the process drags out, the costlier it becomes. On the other hand, failure by one party to provide required information may cause the other party to legitimately request an adjournment. Fairness may require that such a request be granted, despite the delay it will cause.
Motion Practice
A final culprit responsible for increased cost and delay is motion practice. We have found that counsel often make motions – or seek permission to make motions – that can’t be won and are designed to “educate” the arbitrator. That is really not necessary in arbitration where the parties have carefully selected the arbitrator based on her skill and experience. Motion practice should be limited to a truly case dispositive issue like a statute of limitations or jurisdictional issue, or a necessary pre-hearing decision on choice of law or absence of a necessary party. Reflexive use of motions to dismiss and summary judgment should be discouraged, and the arbitrator should make this clear. Worse yet are motions related to discovery. Formal motions in this area should not be necessary. Rather, an exchange of letters and a status conference should be sufficient to resolve discovery disputes.
Arbitrator Responsibilities
Clearly, the arbitrator plays a key role in controlling costs and achieving speed of resolution. An arbitrator is not a passive participant. She must take control of the process from the outset at the initial preliminary hearing or pre-hearing conference required by the governing rules. Arbitral rules generally require that the conference outline the roadmap for all aspects of the proceeding promptly after the arbitrator is appointed. We have found the following techniques to be effective. The arbitrator should prepare and circulate an agenda prior to the initial conference. That agenda should insist that the parties meet and confer prior to the conference and reach agreement on as many issues as possible – such as the scope of discovery, motion practice, and pre- and post-hearing submissions. The parties should also sketch out the fastest schedule they can reasonably design to bring the case to resolution. After the conference, as contemplated by most arbitral rules, the arbitrator should issue a written order summarizing all of the decisions reached at the conference. At the conference, the arbitrator(s) should discuss the process for raising discovery disputes – perhaps suggesting that a single panel member should decide all discovery disputes, and should address all other potential motions. The hearing date(s) should be set at the outset and regular status conferences may be scheduled, depending on the nature of the case, so that the arbitrators can manage the progress of the case and not let any deadlines slip away, absent good cause. Finally, an arbitrator should let counsel know that she is always available if needed – all they need to do is ask for a conference.
Expedited Proceedings
In considering efficiency and speed, it is useful to briefly describe the option of expedited proceedings. Both the AAA and CPR have developed rules for expedited proceedings. These are often used when the amount in dispute is small or when the parties seek a very quick resolution. Because expedited proceedings have an inherent tradeoff in the scope of arbitration in exchange for speed to decision, voluntary submission to expedited proceeding rules should be made with full awareness of this tradeoff.
The AAA rules, for example, require that a preliminary hearing be held within fourteen days of the arbitrator appointment, a hearing must be held thirty days after the appointment of the arbitrator and an award must be issued fourteen days after the close of the hearing. CPR has a similar rule for both administered and non-administered expedited hearings. The rules may prescribe, or the parties may elect, to decide a case based solely on the basis of documents and written submissions, waiving the need for a hearing.
Enforceability of Awards
We turn, finally, to a brief discussion of the enforceability of awards. One of the great benefits of arbitration, particular in the international arena, is that under the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”), all state signatories agree to enforce the award issued by a duly constituted tribunal. The same is not always true of decisions issued by national courts. The all-but-certain enforceability under the New York Convention is a definite advantage of arbitration over court proceedings.
Conclusion
Arbitration should be speedy, effective and less costly than litigation. While this is undoubtedly the goal, and is often the case, it is important that we all understand the pitfalls that sometimes cause us to fall short of the goal. We hope that the arbitrator, counsel and the parties, will do all they can to make sure these goals are met.
Reprinted with permission from the April 26, 2021 issue of The AmLaw Litigation Daily. © 2021. ALM Media Properties, LLC. Further duplication without permission of ALM Media Properties, LLC is prohibited.All rights reserved.