As an increasing number of disputes are litigated through binding arbitration, its traditional theoretical advantages over the court system—principally lower cost and speedier resolution—seem to be realized in practice with diminishing frequency.
In light of this apparent evolution, this seems a good time to examine some of the oft-cited benefits of binding arbitration, notably the ability of parties to choose a neutral, limit discovery, participate in an informal and efficient hearing and wind up with a nonappealable arbitrator's decision. My own recent experience in this area also has led to some suggestions on ways to optimize arbitration and achieve prompt and economical resolution of disputes.
NEUTRAL SELECTION
Arbitration advantage: Binding arbitration allows the parties to select the best neutral for their case.
Practical observations: While arbitrator selection is usually handled by the parties, each will not necessarily get their first, second or third choice, nor even perhaps the best neutral for the job. In many instances, either one party rejects multiple neutrals proposed by the other or the desired arbitrator has a conflict or simply is too busy to handle the matter in the necessary timeframe. Further, under certain circumstances, such as when parties are deadlocked or one refuses to participate in the selection process, the arbitration service or the court may unilaterally appoint an arbitrator. Moreover, these difficulties can cause lengthy delays.
Optimizing tips: Certain measures can be taken to achieve selection of the best possible neutral in a timely manner. First, consider carefully what style of arbitrator is best for your case (e.g., one who has a reputation to "split the baby" if your case is weak or one who is not afraid to make tough decisions if your case is strong) and whether any neutral proposed by the other side meets that criteria. If so, seriously consider selecting one of the proposed names on your opponent's list.
Second, expand the candidate pool by not predetermining that the neutral must have a particular professional pedigree, e.g., a retired judge. Instead, be flexible and consider all options. Engaging a practicing lawyer with recent relevant substantive experience can often be more advantageous than using a well-respected retired judge who has little or no experience in that subject area.
Third, if your opponent unreasonably delays in selecting a neutral, avail yourself of the arbitration services' procedures or the court system, as appropriate, for compelling appointment.
DISCOVERY
Arbitration advantage: Discovery typically is limited, significantly reducing an otherwise substantial time commitment and expense.
Practical observations: While discovery certainly can be truncated in arbitration, that is not always the case. If an arbitration provision does not contain discovery guidelines or specify that the arbitration is subject to the procedural rules of a particular arbitration service, California Code of Civil Procedure §1283.05 dictates that discovery be conducted as if the matter were pending in superior court.
Even in cases when discovery is circumscribed by agreement or rules, the process can still be burdensome. For example, I recently litigated a case in which the arbitrator restricted each side to three depositions. But the discovery period lasted several months, in large part because three of the six depositions took multiple sessions to complete and one deposition required out-of-state travel. Document discovery, and in particular electronic discovery, also remains a cumbersome and time-consuming process, whether conducted in a court or as part of an arbitration proceeding.
Optimizing tips: To minimize discovery burdens, include appropriate language limiting written, electronic and deposition discovery in the arbitration provision. Even if it is too late to change the arbitration agreement, other measures are available to curtail discovery. For example, most arbitration service rules, including those issued by AAA and JAMS, give arbitrators broad discretion to regulate discovery.
Therefore, request at the outset of the case that the arbitrator issue a discovery order specifying not only the number of depositions that may be taken but also a time limit for each, as well as a maximum number of document requests and a firm discovery deadline. Also, ask the arbitrator to set guidelines for electronic discovery and specify how the related cost will be allocated.
Even in cases where discovery procedure defaults to the Code of Civil Procedure, §1283.05(e) states that "depositions for discovery shall not be taken unless leave to do so is first granted by the arbitrator." Thus, if excessive deposition discovery is a concern, prevail upon the arbitrator to set appropriate boundaries.
Finally, when an opposing party makes unreasonable or burdensome discovery requests, take the issue to the arbitrator immediately. Most arbitrators handle discovery disputes via informal letter briefing and telephone hearings, enabling such matters to be handled swiftly and economically.
HEARINGS
Arbitration advantage: The arbitration hearing is informal and the rules of evidence are not strictly enforced. This allows for streamlined and alternate forms of evidence presentation, thus leading to faster and more efficient hearings.
Practical observations: Perhaps because many arbitrators are retired state or federal judges, it seems as if most counsel and neutrals alike conduct arbitration hearings as if they were bench trials. Opening statements and closing arguments are given, the rules of evidence are followed with respect to admissibility of documentary evidence and witness testimony and live testimony is the preferred method of presentation.
In addition, the effort required to prepare for the arbitration hearing is equivalent to that for a bench trial. Exhibits and witness lists must be exchanged, witnesses must be prepared and motions in limine are common. If pre-hearing discovery is limited, some counsel conduct "discovery by cross-examination" of adverse witnesses, which prolongs the hearing.
Finally, arbitrators tend to be lenient in granting requests for additional hearing days. This stands in contrast to judges who typically force parties to comply with their original estimates in court trials. I recently participated in a hearing that was supposed to last only five days but was extended to eight days, which ultimately were spread over three separate weeks, each more than one month apart.
Optimizing tips: The level of formality of the hearing typically is a matter of the arbitrator's personal preference. Counsel should determine the arbitrator's tendencies before the hearing commences and be prepared to lay the foundation for documents; make and respond to objections during witness examinations, particularly with respect to hearsay; and make offers of proof for key pieces of evidence. However, even if the arbitrator maintains a formal hearing room, preparation and presentation can be streamlined if counsel stipulate to the admissibility of certain facts and exhibits.
Also, the arbitrator likely will entertain alternate forms of evidence, such as testimony by deposition transcript or video or direct expert testimony by affidavit with live cross-examination, if the request is made jointly. Even if such stipulations cannot be reached by the parties, these requests should still be made because arbitrators possess wide discretion concerning hearing procedures, including presentation of evidence in alternate forms, as long as good cause is shown.
DECISIONS
Arbitration advantage: Arbitration awards typically cannot be appealed. This eliminates costly and time-consuming post-decision litigation.
Practical observations: While most arbitration awards are not appealable, it is not necessarily true that the matter will proceed to final resolution in a timely matter once the arbitrator's decision is issued. Code of Civil Procedure §1285 et seq. provides a mechanism for the prevailing party to confirm and enforce the award and for the losing party to challenge it, via a petition to the superior court. While such petitions are less time consuming and costly than appeals, this procedure can cause substantial delays and increase the cost of the proceedings.
Optimizing tips: Consider drafting into the arbitration provision a deadline for the arbitrator to render the decision, a waiver by both parties of the right to challenge the award and a time limit within which the losing party must make payment or otherwise abide by the decision.
If the arbitration agreement does not so provide, then attempt to obtain such stipulation prior to the hearing. However, never waive the prevailing party's ability to obtain court confirmation of the award and convert it to a judgment under C.C.P. §1285-1287.4. Even though that procedure can be time consuming, it is often the most effective way to enforce the decision if the losing party delays or refuses to comply.
Despite my own recent observations that binding arbitration appears to be morphing into a more conventional quasi-court proceeding, its flexible and informal nature renders it an effective dispute resolution alternative to the court system under the right circumstances. To achieve maximum results, be creative, proactive and willing to prevail upon the arbitrator's broad discretionary powers to tailor the process to fit your needs.
In light of this apparent evolution, this seems a good time to examine some of the oft-cited benefits of binding arbitration, notably the ability of parties to choose a neutral, limit discovery, participate in an informal and efficient hearing and wind up with a nonappealable arbitrator's decision. My own recent experience in this area also has led to some suggestions on ways to optimize arbitration and achieve prompt and economical resolution of disputes.
NEUTRAL SELECTION
Arbitration advantage: Binding arbitration allows the parties to select the best neutral for their case.
Practical observations: While arbitrator selection is usually handled by the parties, each will not necessarily get their first, second or third choice, nor even perhaps the best neutral for the job. In many instances, either one party rejects multiple neutrals proposed by the other or the desired arbitrator has a conflict or simply is too busy to handle the matter in the necessary timeframe. Further, under certain circumstances, such as when parties are deadlocked or one refuses to participate in the selection process, the arbitration service or the court may unilaterally appoint an arbitrator. Moreover, these difficulties can cause lengthy delays.
Optimizing tips: Certain measures can be taken to achieve selection of the best possible neutral in a timely manner. First, consider carefully what style of arbitrator is best for your case (e.g., one who has a reputation to "split the baby" if your case is weak or one who is not afraid to make tough decisions if your case is strong) and whether any neutral proposed by the other side meets that criteria. If so, seriously consider selecting one of the proposed names on your opponent's list.
Second, expand the candidate pool by not predetermining that the neutral must have a particular professional pedigree, e.g., a retired judge. Instead, be flexible and consider all options. Engaging a practicing lawyer with recent relevant substantive experience can often be more advantageous than using a well-respected retired judge who has little or no experience in that subject area.
Third, if your opponent unreasonably delays in selecting a neutral, avail yourself of the arbitration services' procedures or the court system, as appropriate, for compelling appointment.
DISCOVERY
Arbitration advantage: Discovery typically is limited, significantly reducing an otherwise substantial time commitment and expense.
Practical observations: While discovery certainly can be truncated in arbitration, that is not always the case. If an arbitration provision does not contain discovery guidelines or specify that the arbitration is subject to the procedural rules of a particular arbitration service, California Code of Civil Procedure §1283.05 dictates that discovery be conducted as if the matter were pending in superior court.
Even in cases when discovery is circumscribed by agreement or rules, the process can still be burdensome. For example, I recently litigated a case in which the arbitrator restricted each side to three depositions. But the discovery period lasted several months, in large part because three of the six depositions took multiple sessions to complete and one deposition required out-of-state travel. Document discovery, and in particular electronic discovery, also remains a cumbersome and time-consuming process, whether conducted in a court or as part of an arbitration proceeding.
Optimizing tips: To minimize discovery burdens, include appropriate language limiting written, electronic and deposition discovery in the arbitration provision. Even if it is too late to change the arbitration agreement, other measures are available to curtail discovery. For example, most arbitration service rules, including those issued by AAA and JAMS, give arbitrators broad discretion to regulate discovery.
Therefore, request at the outset of the case that the arbitrator issue a discovery order specifying not only the number of depositions that may be taken but also a time limit for each, as well as a maximum number of document requests and a firm discovery deadline. Also, ask the arbitrator to set guidelines for electronic discovery and specify how the related cost will be allocated.
Even in cases where discovery procedure defaults to the Code of Civil Procedure, §1283.05(e) states that "depositions for discovery shall not be taken unless leave to do so is first granted by the arbitrator." Thus, if excessive deposition discovery is a concern, prevail upon the arbitrator to set appropriate boundaries.
Finally, when an opposing party makes unreasonable or burdensome discovery requests, take the issue to the arbitrator immediately. Most arbitrators handle discovery disputes via informal letter briefing and telephone hearings, enabling such matters to be handled swiftly and economically.
HEARINGS
Arbitration advantage: The arbitration hearing is informal and the rules of evidence are not strictly enforced. This allows for streamlined and alternate forms of evidence presentation, thus leading to faster and more efficient hearings.
Practical observations: Perhaps because many arbitrators are retired state or federal judges, it seems as if most counsel and neutrals alike conduct arbitration hearings as if they were bench trials. Opening statements and closing arguments are given, the rules of evidence are followed with respect to admissibility of documentary evidence and witness testimony and live testimony is the preferred method of presentation.
In addition, the effort required to prepare for the arbitration hearing is equivalent to that for a bench trial. Exhibits and witness lists must be exchanged, witnesses must be prepared and motions in limine are common. If pre-hearing discovery is limited, some counsel conduct "discovery by cross-examination" of adverse witnesses, which prolongs the hearing.
Finally, arbitrators tend to be lenient in granting requests for additional hearing days. This stands in contrast to judges who typically force parties to comply with their original estimates in court trials. I recently participated in a hearing that was supposed to last only five days but was extended to eight days, which ultimately were spread over three separate weeks, each more than one month apart.
Optimizing tips: The level of formality of the hearing typically is a matter of the arbitrator's personal preference. Counsel should determine the arbitrator's tendencies before the hearing commences and be prepared to lay the foundation for documents; make and respond to objections during witness examinations, particularly with respect to hearsay; and make offers of proof for key pieces of evidence. However, even if the arbitrator maintains a formal hearing room, preparation and presentation can be streamlined if counsel stipulate to the admissibility of certain facts and exhibits.
Also, the arbitrator likely will entertain alternate forms of evidence, such as testimony by deposition transcript or video or direct expert testimony by affidavit with live cross-examination, if the request is made jointly. Even if such stipulations cannot be reached by the parties, these requests should still be made because arbitrators possess wide discretion concerning hearing procedures, including presentation of evidence in alternate forms, as long as good cause is shown.
DECISIONS
Arbitration advantage: Arbitration awards typically cannot be appealed. This eliminates costly and time-consuming post-decision litigation.
Practical observations: While most arbitration awards are not appealable, it is not necessarily true that the matter will proceed to final resolution in a timely matter once the arbitrator's decision is issued. Code of Civil Procedure §1285 et seq. provides a mechanism for the prevailing party to confirm and enforce the award and for the losing party to challenge it, via a petition to the superior court. While such petitions are less time consuming and costly than appeals, this procedure can cause substantial delays and increase the cost of the proceedings.
Optimizing tips: Consider drafting into the arbitration provision a deadline for the arbitrator to render the decision, a waiver by both parties of the right to challenge the award and a time limit within which the losing party must make payment or otherwise abide by the decision.
If the arbitration agreement does not so provide, then attempt to obtain such stipulation prior to the hearing. However, never waive the prevailing party's ability to obtain court confirmation of the award and convert it to a judgment under C.C.P. §1285-1287.4. Even though that procedure can be time consuming, it is often the most effective way to enforce the decision if the losing party delays or refuses to comply.
Despite my own recent observations that binding arbitration appears to be morphing into a more conventional quasi-court proceeding, its flexible and informal nature renders it an effective dispute resolution alternative to the court system under the right circumstances. To achieve maximum results, be creative, proactive and willing to prevail upon the arbitrator's broad discretionary powers to tailor the process to fit your needs.