Preparing a Case for Arbitration
It Doesn’t Have to Be a Trial by Fire
Jose de la Fuente
A new case comes in your door.
The client has a contract dispute, and has come to your office to represent him in the
ensuing litigation, which he wants to start right away. But
there’s a catch; the contract at issue has a clause specifying that any dispute between the
parties will be submitted to binding arbitration. So, come trial time, your team won’t be setting up shop at the courthouse.
But where will
you be? What should you bring?
Will there be coffee?
From the perspective of pre-trial litigation and
preparation, arbitration is
a trial. Only it’s not. Arbitration is a
method of alternative dispute resolution in which the disputing parties submit their dispute to a
third party neutral, who issues a binding decision, much like a judge would in a trial to the bench.
Arbitration is most often a creature of contract, specified within a contract between two
parties as the sole method for resolution of a dispute arising out of the parties’ relationship.1
If you haven’t been involved with an arbitration, you probably will be soon; arbitration is
currently experiencing a “boom,” as more people and entities are making an agreement to
arbitrate disputes a standard part of their contracts. Whether
you know it or not, you are probably a party to agreements with an arbitration clause; for example,
many consumer contracts and brokerage account agreements (relating to stocks, mutual funds, and the
like) require that any disputes related to those agreements be submitted to arbitration.
Arbitration is much like a district court trial in that
there is often some pre-trial discovery (although usually not nearly as much as in traditional
litigation), and at trial, the parties put on witnesses and evidence before a neutral or panel of
neutrals who will act as the finder of fact and will issue a final award on the case.
However, the arbitration process usually is more streamlined, proceeds to final hearing more
quickly than traditional litigation, and the final hearing is typically somewhat shorter than a
traditional trial.
When a contractual arbitration case comes through your
door, your first step should be to examine the arbitration clause in the contract to determine the
rules and forum for the arbitration. Unfortunately, you
will find that there is no standard “one size fits all” arbitration template that will apply in
every case, and no single article that you read (even this one) can prepare you for every possible
type of arbitration. This article gives only a general
overview of what you might expect and need to plan for in an arbitration matter.
As arbitration is most often a creature of contract, the
parties can agree to whatever requirements they wish. The
first challenge when handling an arbitration case is determining what rules and procedures govern.
For example, many contractual arbitration clauses specify that the dispute must be submitted
to a recognized private entity, such as the American Arbitration Association (“AAA”), or
Judicial Arbitration and Mediation Services (“JAMS). If
that is the case, many of those entities have rules governing the process of arbitration, from
submission to final award.2 Additionally, arbitration entities
sometimes have specialized rules for arbitration of particular subject matter, such as cases
involving the construction industry, so be sure to confirm which particular set of rules applies to
your dispute.
Sometimes, the clause simply says that the parties shall
submit to binding arbitration, and provides no further detail.
In those cases, the process of arbitration may be governed by an arbitration statute, such as
the Texas Arbitration Act (Tex. Civ. Prac. & Rem. Code §§ 171.001-171.098) or the Federal
Arbitration Act (9 U.S.C. §§ 1-307).
Additionally, the parties may agree to certain other
procedures outside of the specific set of rules that govern their dispute.
For example, as many arbitration rules are all but silent on the subject of discovery,
parties sometimes agree to conduct discovery in the arbitration pursuant to State or Federal Rules
of Civil Procedure. Additionally, the Rules of Evidence
may or may not apply, depending on the applicable rules, and the parties will sometimes address that
issue in their contractual arbitration clause.
The case will most likely begin with the filing of an
Arbitration Demand, which in most cases will closely resemble a district court Petition or
Complaint, as it will set forth the parties, the nature of the dispute, the remedy sought, and other
related information.3
The Demand is typically served on the opposing party and on any governing body, such as the
AAA, and it sets the arbitration process in motion. From
that point, the parties will either select or be assigned (depending on the applicable rules and/or
their agreement) an arbitrator or panel of arbitrators. While there is no standard set of qualifications for an arbitrator, arbitrators
are most often legal professionals, such as attorneys and retired judges, or specialists in a
particular field, such as construction or healthcare. Additionally,
many arbitration agreements actually specify the required qualifications of the arbitrators to be
selected in the case.
Once you have determined what rules and procedures will
be in place for your particular arbitration, your next step is to prepare an arbitration
plan/timetable. The actual schedule may be set by the
rules and procedures elected by the parties, the ruling of the arbitrator, or the subsequent
agreement of the parties. Again, there is no universal
schedule, set of deadlines, or timetable. The final
hearing could be scheduled to occur ninety days after the Demand is filed or a year after the Demand
is filed, although in most cases, the case will be set on a significantly faster track than would
apply in litigation before a court. Intervening
deadlines also may vary significantly; the parties may have agreed to a full discovery schedule
pursuant to State or Federal Rules of Civil Procedure, or they may simply be subject to the limited
procedures in the chosen arbitration rules, such as AAA rule R-21, which allows the arbitrator to
direct the production of documents and other information and to require the parties to identify the
witnesses that they will call at hearing, or the arbitration may be subject to the procedures
specified in the governing statute, such as Tex. Civ. Prac. & Rem. Code §§ 171.050 and
171.051, which allow the arbitrator to authorize depositions and issue subpoenas.
Importantly, the applicable rules and statutes are typically written so as to allow
the arbitrator to schedule and enforce certain discovery and pre-trial procedures, but they do not
require it. This is in keeping with the concept that
arbitration is to be a more flexible, informal process. As
a practical matter, even if the arbitrator sets a formal schedule of discovery and similar matters,
he often will not be patient with an overly technical approach to the rules and schedule, reminding
the parties that arbitration is an informal process. Each
arbitration is different, and each arbitrator will take a different approach, so be sure to try to
get an understanding of the process and the arbitrator’s expectations early on in the case.
The arbitration schedule, the operative
rules, and the timetable may all be discussed and
established at a preliminary hearing with the arbitrator, which typically occurs soon after the
arbitrator has been selected/assigned to the dispute. See, e.g., AAA Rule R-20.
This hearing may be conducted in person or by telephone, and if at all possible, you should
sit in on the hearing in order to take part in or at least listen to any discussion of scheduling or
logistical matters that may impact your involvement with the case.
The preliminary hearing is the ideal opportunity to get any questions answered. The arbitrator will often listen to any concerns that the parties may have and
will usually try to establish the ground rules at this time, so it is a good practice to discuss any
questions (e.g., will the Rules of Evidence apply?
What discovery will take place? How much time
will be allotted for the final hearing?) with your trial team before the preliminary conference.
Once the arbitration schedule is set, the case should be
prepared like any other litigation, subject to any limitations to the discovery process that may
apply. Depositions, written discovery, and document discovery, to the extent that these
mechanisms apply to your arbitration, will likely need to be handled similarly to the manner in
which you would handle a court case. There may even be
“pre-trial” motions, such as motions to compel or motions for summary judgment. Again, your particular arbitration may look a whole lot like traditional
litigation, or it may be so informal as to not allow for any of the normal pre-trial litigation
mechanisms. These potentially broad variations make it
critical that you understand and have a firm grasp on the applicable rules and procedures in place
for your arbitration early in the process.
Finally, once you have negotiated the discovery,
pre-trial motions, and any other procedural bumps on the way, you will have the final arbitration
hearing. Yet again, the final hearing may look almost
identical to a district court trial, or it may seem as informal as a mediation where the mediator
actually issues a binding ruling; it all depends on the rules and procedures in place for your
arbitration. However, it is common for a final
arbitration hearing to include opening and closing statements, testimony and cross-examination of
witnesses, and submission of exhibits. Depending on
your role on the trial team, you should prepare for these elements of the final hearing as you would
for trial.
The final arbitration hearing will often take place at
the arbitrator’s office, the office of one of the parties, or some other neutral location, such as
a hotel conference room. Just as you might do for a
courtroom trial, you should find out the location of the final hearing beforehand and, if possible,
tour the room to help plan your organization of trial materials and any electronic presentation
equipment that you may need. The hearing may last for
hours or weeks, depending on the case. The issue of the
hearing’s length is often addressed in a preliminary conference with the arbitrator, so it is
rarely a surprise. This is a good question to raise
with your trial team before any of the preliminary conferences with the arbitrator.
So, when you’re headed to arbitration, you may need to
be ready for a “trial” in almost every sense of the word. Or,
you may have to be ready for something completely different. The
key to success is knowing what to expect well before you reach that point.
And when you’re at the final hearing, there probably will be coffee available.
Maybe even good hotel coffee. But enjoy it in
moderation; mid-morning caffeine jitters aren’t very helpful at trial – or arbitration.
Jose de la Fuente is a partner in the Schaffer Law Firm, P.C., practicing
in Austin, Texas. He has handled cases in a broad variety of forums on issues as diverse as
commercial contract matters, personal injury, and racial discrimination. He also has significant
experience with many ADR mechanisms, including arbitration. He always appreciates the assistance of
every member of his trial team, and he has been known to drink the occasional cup of coffee.
1.
Additionally, in a very small class of cases, such as some labor cases involving public
employees, arbitration is required by some state statutes. See,
e.g., Iowa Code § 20.17 (1999).
2.
Rules for the AAA can be found at its website, http://www.adr.org/index2.1.jsp.
The most common set of applicable rules is titled “Commercial Arbitration Rules and
Mediation Procedures (Including Procedures for Large, Complex Commercial Disputes).” Rules for JAMS arbitrations can be found at its website, http://www.jams-endispute.com.
The most common set of applicable rules is titled “JAMS Comprehensive Arbitration Rules and
Procedures.” Most other private entities have rules
that are either available online or by mail upon request.
3.
Many disputes that are subject to arbitration actually begin their life in litigation, when
one party files a lawsuit. In any lawsuit in which a
breach of contract is involved, your office should obtain a copy of the contract as soon as possible
so that it can be reviewed to determine whether there is an arbitration clause that would apply to
the dispute. If the dispute is subject to arbitration,
both the Texas Arbitration Act and the Federal Arbitration Act have provisions allowing a party to
ask the court to compel arbitration and stay the litigation (Tex. Civ. Prac. & Rem. Code §§
171.021, 171.024, and 171.025; 9 U.S.C. §§ 3 and 4). Once the court has compelled arbitration and stayed the litigation, the
arbitration generally should proceed as if it had been initiated without a lawsuit being filed.
|
