Category: Arbitration

In any commercial case, the goal of the arbitration is a swift and expeditious resolution of the litigation with a savings of time and money. At a minimum, while not always as swift as we would like, one would hope that it will afford a faster and more efficient process than that provided by the court system.

Typically, there are three forms the arbitration may take. The parties may agree to a single arbitrator which generally provides for the most expeditious process as you are dealing with the schedule of a single neutral as opposed to multiple hearing officers. However, some attorneys would prefer not to put their proverbial eggs in one basket when it comes to the decision making process. The other two forms are tri-panel arbitrations, with the difference being the manner in which the arbitrators are selected. The tri-panel arbitration, again due to the number of neutrals involved, is less expeditious, but with respect to the decision making process, many attorneys feel that it is far better to have several cooks stirring the pot before a just dinner is served.

I have talked about these different forms of arbitration with many attorneys involved in commercial litigation around the country and have, in fact, served as a neutral many times in each type of arbitration. Based on my discussions, there does not appear to be a prevailing view as to which is better, nor do I have a preference. One comment that I have heard that may have some merit is the concern that a single arbitrator may be more inclined to attempt to reach a compromise in making a decision. However, a tri-panel arbitration, as appropriate, may be inclined to grant more drastic relief. While I have not experienced this myself, it is something to consider.

One form of the tri-panel is where all three arbitrators are agreed upon jointly by both parties. The other form of the tri-panel, and in my opinion the most vexing, is the tri-panel“party” arbitration which the author has also participated in. Simply put, each side selects its own neutral and then the two party arbitrators are charged with the responsibility of picking the final panel member, sometimes referred to as the umpire, who is presumed to be neutral.

At the outset, it would be wise for any party contemplating the prospect of a “party”arbitration to review The Code of Ethics for Arbitrators in Commercial Disputes. It would be recommended for any party engaging in a “party” arbitration to review Canon III B (2), (3), & (4); Canon IX A., B., C; and most importantly Canon X. While subject to many of the rules that apply to non-party neutrals, the party arbitrator may have a predisposition in favor of the appointing party and may consult with the appointing party, inter alia, with regard to the selection of the third neutral or umpire.

The “party” arbitration may be required pursuant to a specific term in the commercial agreement between the parties. For the purposes of this article, we will assume that there was no such provision in the contract and the parties have agreed to this process after the fact. In the absence of such a provision, the parties are free to craft the procedures that will be followed. A critical consideration is agreeing at the outset to the time limits within which the parties will operate.

First, once this forum is agreed to, how long will each party have to designate a party arbitrator? Once the neutrals are chosen, how long will each neutral have to designate their proposals for the umpire? What happens if the parties cannot agree? Will a striking process be employed to strike proposed umpires? For example, each side may be required to propose three. Thereafter, each side must strike two of the potential arbitrators. Finally, how will one of the two umpires be eliminated? Will a third party be selected to make the decision? Will the selection be decided by coin toss? Or as in one case that I know, the parties agreed to use the Dow Jones performance on a particular date as the manner in which the umpire will be selected. There is also the option of having the two party arbitrators agree to appoint the umpire without consulting the appointing parties. There are some arbitration administrators that incorporate this type of provision into their rules. However, the same problems may very well arise if the party arbitrators cannot agree on an umpire. Further, the appointing parties may not be willing to waive the right to consult regarding the umpire’s appointment.

Finally, will the parties agree to a default provision in the event one party fails to cooperate with the process? The party arbitrator appointed by the non-compliant party under the Code of Ethics, must not do anything to delay the process. The default provision would give the non-defaulting party the right to proceed with the appointment of the other neutral and the umpire. The fascinating part about this process is the point at which the party arbitrators cannot agree to the appointment of the third arbitrator. If the umpire is selected from a list provided by your adversary, they may have at least communicated with the prospective umpire to determine their availability. At this juncture, the umpire who is designated by a neutral now knows who selected them. Based upon the foregoing, there should be some agreement that there will be no communication between the third neutral and either party regarding their selection.

From my own experience, the coordination of the schedules of multiple arbitrators in any tri-party arbitration is difficult. From the view of this panel member, there are very real benefits having a third party administer an already complicated process.

(By: Hon. John P. DiBlasi, J.S.C. (Rtd.) & Jacqueline I. Silvey, Esq., NAM General Counsel)

When parties enter into a commercial contract that contains an arbitration provision, they are usually in the honeymoon stage of the business relationship. An agreement which specifies arbitration as the sole form of dispute resolution is much like a prenuptial agreement. In the event that a ‘divorce’ occurs, the provision which supplies the greatest detail ensures a lesser likelihood of a delay of the resolution process, especially at a time when acrimony between the parties is likely.

Arbitrators have a unique perspective of what happens when commercial agreements are not drafted with sufficient specificity to assure that the ADR process moves forward in an expeditious manner to resolve disputes arising out of the agreement. When things go wrong, neutrals are charged with managing the nuts and bolts of the dispute resolution process and assisting counsel in expeditiously moving the proceeding forward. The best practice is to be proactive. While no one can envision all of the contingencies arising out of disputes that may emerge from complex commercial agreements prior to the arbitration, a clear framework regarding the procedures to be followed is essential.

Most arbitration provisions should contain a ‘time is of the essence’ requirement. Unless the preliminary procedures are sufficiently delineated, the process of getting to the arbitration itself can be significantly delayed. At the outset, there should be, at a minimum, a catch-all provision prescribing the time within which the arbitration process should be completed. The practical problem is creating sufficient procedural rules to be followed to ensure that this, and other aspects of the arbitration provision, can be realistically accomplished. The alternative of moving for enforcement in the courts defeats the entire purpose of avoiding litigation. The question that will challenge counsel is how much is enough and how much is too much? The general suggestion would be that the greater the detail, the better. Counsel drafting the agreement should attempt to envision issues arising out of a party engaging in dilatory conduct designed to delay, if not defeat, the arbitration process, and what remedies are available to compel the delaying party to proceed with the arbitration.

Many commercial agreements contain a provision that the process is to be governed by the Federal Arbitration Act, Title 9, U.S. Code, Section 1-14 (FAA). This is particularly important as the FAA has been interpreted as a substantive law governing all contracts arising out of Interstate Commerce. However, at the same time, counsel must be mindful of the fact that this does not automatically vest jurisdiction in the federal courts for the purposes of enforcing the arbitration agreement. In order to establish federal jurisdiction, the controversy must meet the requirements of Title 28, USC Part IV. In essence, the claim must involve a federal question, diversity or admiralty. If there is no such basis under Title 28, the rights granted under the FAA must be enforced in a state court. Counsel, planning to rely on the use of the federal courts to enforce and safeguard the rights and responsibilities of the parties pursuant to the arbitration agreement, must be sure that the agreement meets the jurisdictional requirements, supra.

In addition to the above, a provision as to the State Laws which will govern any dispute that arises under the contract, as well as consent to jurisdiction to a Federal and State court, should be agreed to. The arbitration clause should also contain a provision that state laws will apply to the extent they are not consistent with the FAA. Consideration must be given as to which state laws and court would best serve the parties to the agreement. This may involve a question of logistics. Another consideration may be which state court would most expeditiously handle such a request and, depending upon the complexity of the matter, the expertise of the bench.

One of the great advantages of selecting an ADR provider in the contract is that the parties may prospectively avoid many of the issues that may otherwise arise out of an arbitration agreement that lacks sufficient specificity as to all terms. In the absence of specific contract language, the ADR provider’s rules most often set forth not only the procedural mechanism and the time frame for the arbitration proceeding, but also governing law and/or evidentiary rules if the contract is silent as to those matters.

It is critically important that the parties review the rules of the selected ADR firm prior to referencing them in the arbitration clause. Consideration must be given as to whether they are sufficient to address the particular issues that may arise from the commercial agreement. For instance, it is important that the provider’s rules prescribe remedies that are available to ensure the enforcement of rights under the arbitration agreement in the event one party fails to proceed. It may be wise to again specifically incorporate the enforcement provisions of the FAA and/or appropriate state law. Further, there is nothing to stop the parties from supplementing the provider’s rules with additional terms at the time of the making of the original agreement. It is best to be proactive and guard against the possibility of a recalcitrant party.

Having addressed these initial points, the next items to be considered include the type of arbitration process and the selection of the arbitrator(s). This will be the subject of the next article in the series.

(By: Hon. John P. DiBlasi, J.S.C. (Rtd.) & Jacqueline I. Silvey, Esq., NAM General Counsel)

John Wooden, one of the most successful coaches in basketball history, always focused his teams on the basics. The first lesson he taught them was how to properly tie their shoes. Truly, a lack of understanding the basics often “trips” you up!

More and more cases are being submitted to arbitration as a result of pre-dispute contractual clauses. In other words, at the time of entering into the contract, it is wise to make sure the contract contains a clause that provides for arbitration in the event of a future dispute. These clauses are found in all types of agreements and in a myriad of contract forms involving construction, consumer financing, employment, insurance, rendering of professional services, sale of goods, and others. Sometimes, the clause is very basic and simply provides for arbitration in the event of a dispute. However, a better practice (which is becoming more typical) is for the clause to be detailed and to specify a variety of terms. One example is a provision as to whether the arbitration will be conducted by a single arbitrator or by a tri- panel, or if it will be an arbitration where each party chooses a “party arbitrator” who thenselects a third neutral arbitrator. Other issues addressed may include, inter alia, the selection of the ADR provider to administer the process; a roster of arbitrators; applicable law to govern the proceeding such as the Federal Arbitration Act (FAA) and/or the laws of a particular state; specific rules to be followed during the arbitration process such as those pertaining to discovery; and the location where the arbitration hearing is to be held.

Probably the most basic provision is the designation of the ADR provider who will administer the arbitration process. The provider can, among other things, provide the rules of procedure to govern the proceeding, the facilities for same, handle scheduling, provide formal notice at various stages of the proceeding, and provide a roster of potential neutrals who may serve as the arbitrator(s). While some choose to have the parties self-administer the process, it would seem that the preferred method is to have an experienced ADR provider in place to coordinate and ensure administratively that the process moves expeditiously and seamlessly. But, assuming a provider is designated, what happens if the provider specified is unable or unwilling to administer the case? The first step would be to approach the other party and try to agree on a new provider. However, difficulties often arise in this regard because, while the claimant is anxious to resolve the dispute and obtain their affirmative relief, the respondent is often not as motivated and a delay of the process is in their interest.

Assuming the arbitration clause is governed by the Federal Arbitration Act, it would seem that judicial intervention by motion may be sought under the provisions thereof to resolvethis issue. But isn‟t the point of the provision to simplify matters and stay out of court? Another possible alternative to force the issue is to approach a new ADR provider, explain the circumstances and request that the new provider administer the process. Hopefully, at this point the other side will become cooperative, as the onus may possibly be shifted to them to seek judicial intervention challenging this procedure. However, it is hard to imagine an argument that could be made to the court where there is an arbitration provision that one party is seeking to comply with and the other to delay. The logical net result will be the appointment of a new administrator. If the defendant/respondent does not raise an objection to the new provider and proceeds with the arbitration process, an argument can be made that he/she waived the objection and thus, consented to the jurisdiction of the new ADR provider.

If you follow Coach Wooden’s tact of learning how to “tie your shoelaces” properly, you may avoid a trip and fall which will potentially land you in the courtroom—defeating the entire purpose of the arbitration process to provide a more expeditious means of resolving contractual disputes.

During my fifteen years as a Judge, I have heard the testimony of hundreds of witnesses in all types of proceedings. As a trial attorney in private practice, I prepared a great number of witnesses to testify. Even with the best preparation, my father, who was a great trial lawyer, would say he would die a thousand deaths when he heard his witness deviate from everything that had been pored over in terms of prospective testimony. The witness would become a different person or come up with some new fact (either invented or true) that came as a complete shock.

We, as attorneys, so often believe that it is our performance in the courtroom, or the arbitration setting, that dictates results. Certainly there is merit to that belief. There is nothing like experience and sharply honed skills as an advocate. One can see that such skill will, to a degree, affect the outcome before a jury, judge or arbitrator.

I rarely talked to jurors after trying a case as a trial attorney. My sense was that most often I was getting a filtered version of what went on in the jury room or that I was being told what I wanted to hear. As a Judge, however, I would often speak to jurors after the trial, if given the opportunity. My take away was that, as lawyers, we were more functionaries in the system. In the end, the jury made their decisions based on their perception of the witnesses and, more importantly, whether they liked your client or not. Yes, I know the power of a great opening statement or closing argument and everything that falls in between. However, at the end of the day, it all comes down to the performance and likeability of your witnesses. The jurors could love or hate a particular lawyer, but the most often cited reason I have heard for the basis of a decision is the testimony of the witnesses.

Preparing the Witness

In an arbitration, your “Jury” (the arbitrator) is far tougher and less forgiving than a group of lay people. The arbitrator or panel can apply the concept of Falsus in Uno (false in one – false in all). This allows the fact finder to reject testimony in its entirety based upon a falsehood or accept so much as he/she deems to be credible and reject the rest. Witness preparation becomes all the more critical in front of the “professional” juror who knows all of the jury charges on credibility and will apply them.

Given all this, I have found that all too often witnesses at arbitrations are often not as well prepared as they would be at a jury trial. Over time, I have become convinced that this has become a function of the informal nature of the arbitration forum versus that of the traditional courtroom setting. The rules of evidence and procedure are relaxed in an arbitration. However, just because the forum does not have the formality of the courtroom setting doesn’t mean that an advocate should conduct themselves any differently. In fact, the issue of credibility may be even more critical given that it will be judged by an experienced neutral who is familiar with all facets of the law.

For those who prepare witnesses on a regular basis, this article may be simplistic. However, what I have learned, over my career, is that there is nothing like getting back to the basics and breaking down what you’re doing. Coach John Wooden, who won more NCAA championships than any other college coach, always preached that preparation begins with tying your shoes properly. So let’s talk about the basics to make sure our shoes don’t come off at the trial.

Preparing Yourself

So where to begin? My law school dean and professor used to say after asking a question “anyone with a grasp for the obvious.” Before you prepare any witness to testify in any forum, you first better prepare yourself. That starts with thoroughly reviewing your case file. Do you understand all of the facts surrounding the case from the point of view of both sides? Is it at your fingertips? Have you reviewed the applicable law? If it is a jury trial, what is your request for charge going to be? Are you going to ask to submit proposed findings of fact and conclusions of law if this is an arbitration? What is the theory of your case? This all begins with a thorough review of the pleadings.

All too often, I have seen attorneys who have wasted time proving admitted facts or have failed to realize that they have to prove those that are denied. What affirmative defenses have been asserted? Sometimes its boilerplate and other times not. One of the worst experiences that I had as a judge was to have to dismiss a legal malpractice action that was based upon the failure to timely file the action within the statute of limitations. The affirmative defense sat there like a time bomb waiting to go off and, in the days prior to jury selection, the ability to serve and file the complaint nunc pro tunc expired permanently, thereby barring the action.

Scrutinize all of the discovery demands and responses. Have you disclosed what you have been required to? Is there any possibility of preclusion against you? What has your adversary disclosed? Are there any motions in limine to be made based upon a complete review of everything contained in the case file? Keep in mind that while the rules of evidence and procedure may be relaxed in an arbitration, an arbitrator or panel will not look kindly on any evidence that should have been the subject of a discovery response when it comes up for the first time during the hearing. If it is not precluded outright, it certainly will affect its weight.

The components of preparing the witness to appear and answer questions will be addressed in a future article.

Over the years, I have had the opportunity to preside over numerous commercial arbitrations of all types. I have done so as the sole arbitrator and also as a member of a tri-panel. The decision to use a single arbitrator versus a tri-panel is a critical one.

The decision as to the use of a single arbitrator or a tri-panel depends on, to a great extent, the type of case being presented. Having served as a Presiding Justice of the Commercial Division of the New York State Supreme Court, it is my belief that the majority of commercial cases are ill- suited for disposition by a jury due to the complexities involved. One of the significant advantages of arbitration over a trial is that the parties have the opportunity to select the trier of facts and the judge of the law. In a case that is not appropriate for a jury, this is a distinct advantage for both sides. Further, the goal of the arbitration is to save the greater associated with a trial. The parties have the opportunity to do research with respect to the prospective arbitrator/arbitrators and to do an extensive conflict check in advance. Concurrent with this part of the process is the determination as to whether a single arbitrator or a tri-panel would be more appropriate to decide the case. Both have their advantages and disadvantages. Two factors should be considered: efficiency and minimization of cost and single vs. collective judgment. Given the finality of the arbitrator’s(s’) decision, a careful decision should be made.

With respect to the first factor of cost and efficiency, it is easier for one arbitrator to streamline the process without the necessity of consulting with two other panel members who may agree or disagree with his/her opinion regarding discovery, motions, and scheduling. This saves significant time and money. With a tri-panel, while almost always collegial, different views concerning all of the foregoing issues may be presented which then, in turn, may cause delay. From my experience, accommodating the schedules of three arbitrators can be daunting and can delay the process. One option is for the parties to select a single member of the panel to deal with some or all of the foregoing issues and evidentiary rulings at trial, thereby creating a hybrid process.

There is also the issue of who will decide the case. From the single arbitrator’s perspective, as Mel Brooks would say, “It’s good to be king.” From the litigant’s perspective, it may or not be good to be a subject of the sovereign. The parties in this scenario are placing all of their proverbial eggs in one basket. It may also be difficult for a single arbitrator to make what may be perceived as a draconian decision by one side so there may be a tendency on the part of some arbitrators to do substantial justice by taking a middle of the road approach.

The perceived advantage of a tri-panel is that there is a greater likelihood of a more balanced approach to the decision-making process. With three well-vetted panel members, the opportunity to give and take during the deliberation process is an excellent way to ensure a fair result. To maximize the foregoing, the parties may opt to mutually agree to all three panel members or may each select one with a mutual consensus as to the third. While the perceived advantage in this process may be good in theory, sometimes this may not be the reality. Often tri-panels become juries where there is a disagreement among the members as to the disposition of the matter and therefore compromises are made. Much like the single arbitrator, the panel may render a decision that metes out substantial justice. Another aspect to consider is that a tri-panel may more easily deal with difficult situations since the decision is written as a group rather than as an individual. For instance, they may tend to render verdicts fully in favor of one party over the other. This may make the tri-panel a good choice for an all or nothing case.

In summary, deciding upon a single arbitrator vs. a tri-panel of arbitrators is an important consideration when resolving commercial cases. When making this decision, it is essential to look at the complexities of the case, timing, cost and profiles of the arbitrators to be selected. Although there is no right or wrong answer, this choice will most certainly affect the outcome of your case.

The purpose of placing an arbitration clause in a contract is to streamline the resolution of any disputes under the agreement. Alternative dispute resolution (ADR) avoids the time, cost and uncertainty of litigating in court when a dispute arises. In drafting an arbitration clause, the goal is make the clause itself clear and to the point. The last thing you want is to have disagreements over the interpretation of the arbitration provision itself. That would defeat the purpose of same with the result of litigating the meaning of the clause itself. This is a brief synopsis of some of the items that should be considered when drafting the arbitration clause. A general observation is that specificity is a must.

In the first instance the parties should decide the types of disputes that should be subject to arbitration. Do you want a provision that encompasses any and all disputes, or are there certain areas of disagreement that you want to retain the right to litigate in a court of law? There are no simple answers to these questions. In some circumstances, you may want to reserve your rights to litigate certain disputes in a court of law with the right to appeal any adverse decisions. For simple disputes under the agreement, consideration may be given to a streamlined ADR process where the amounts of potential damages are limited.

The parties should also consider whether, as a precondition to the exercise of the right to arbitrate, an attempt be made to mediate and resolve the dispute without the necessity of arbitration. This is a good idea as there is very little to lose and much to gain if the matter can be resolved without further effort. If the mediation clarifies the positions of the parties, that, in of itself, is valuable. Further, having the mediation clause in the agreement avoids the problem of a party believing that they will look weak if he/she suggests that the dispute be mediated at the outset.

A threshold question is what constitutes an attempt to resolve the dispute? Many agreements I have reviewed contain a general description of such. However, consideration should be given to outlining a formal mediation process with a neutral from a designated panel with a mutually agreed upon process that may very well be set forth in an ADR provider’s rules. The arbitration clause should contain very specific notice provisions with respect to the exercise of this right including time limits within which the mediation must be held; an agreement to use a roster of mediators from an ADR provider from which the parties may choose a neutral; a provision that would deal with the possibility that the parties may not be able to agree on a neutral; and a default provision which allows a party to proceed directly to arbitration if the other fails to cooperate.

With respect to the rules governing procedure and the law to be applied, care must be given in drafting the agreement selecting same. In a case involving interstate commerce, it would be wise to provide a stipulation to the effect that the Federal Arbitration Act (FAA) is to apply. A choice of law should be included and a consent to jurisdiction provision which will apply to the extent that it is not inconsistent with the FAA. Obviously, the choice of law is an extremely important decision and should be given careful consideration when drafting the arbitration clause. Specificity with respect to the location where the arbitration will be held should also be addressed. This is not something that should be left up to negotiation once the right to arbitrate is exercised. Again, disagreement over something as simple as location can lead to a delay in the process. While it is often impossible to foresee the best location for arbitration, consideration should be given to what would be most convenient for the parties and, more significantly, to any witnesses that may have to testify.

One of the critical issues is a decision by the parties as to whether the arbitration provision provides for a determination by a single arbitrator or tri-panel of arbitrators. If a tri-panel arbitration is provided for, a further decision is required as to whether all the panelists are mutually agreed upon by the parties to the arbitration, or whether it will be a tri-panel “party” arbitration where each party selects an arbitrator, and thereafter the party arbitrators select the umpire.

A sub-issue in the party arbitration is whether the parties will have input, via their party arbitrator, with respect to the selection of the umpire; or whether once selected, the party arbitrators will independently select the umpire.

Clearly the most efficient, least costly and most expeditious alternative is to provide for a single arbitrator. However, many parties are unwilling to put all of their eggs in one basket. While more expensive and logistically more difficult, many prefer a tri-panel. Some parties prefer a party arbitration as they are able to select one neutral that may be pre-disposed to their position and have the two party arbitrators select the umpire. As a general comment, the party arbitration can often result in more complications than the simple tri-panel. The selection process of the neutrals can become more unwieldy as the party arbitrators may have difficulty in agreeing on the umpire. Further, prior to making a decision as to whether to provide for a party arbitration, counsel should carefully review the Code of Ethics for Arbitrators in Commercial Arbitrations promulgated by the American Bar Association. There are separate specific provisions regulating the conduct of the party arbitrator which should be considered.

Another consideration is to set forth the discovery process with specific timelines and limitations. While the parties are always free to agree to a modification of this provision, it is important to have some basic framework in place.

The arbitration clause should specify the scope of the panel’s decision-making process. The right to award attorneys’ fees, pre and post judgment interest, interim relief, and the ability to award summary judgment are some of the items that should be considered. In addition, a provision regarding the sharing of costs of the arbitration should be included along with the right of a party to seek an award of same from the panel if a party refuses to pay same.

Careful thought should be given to the nature and scope of the default provision as applicable to the arbitration clause. One could engage in a lengthy discussion of what might be entailed, but clearly the provision(s) should be carefully tailored to the specific type of default with time, notice and remedies that may be pursued.

Finally who is going to administer the arbitration process? In the absence of a provision, the parties will have to self-administer the arbitration which again opens up numerous areas of potential disagreement. The better practice would be to select an independent ADR provider, such as NAM (National Arbitration and Mediation), to administer everything. The provider will aid in coordinating the entire procedure which would include the selection of the arbitrators, the scheduling and the billing. The parties of course, will need to agree to abide by the rules of the specific ADR provider to the extent that they are not inconsistent with the FAA and choice of law provisions discussed supra.

This is a thumbnail sketch and in no way a complete list of all the items to be considered in drafting an arbitration clause. However the singular goal is to be as specific as possible to avoid litigating the very provision itself and delaying the ADR process.