Is creeping legalism infecting arbitration?

Is creeping legalism infecting arbitration?

Phillips, Gerald F

As the use of arbitration to resolve commercial disputes has grown, some people complain that the process increasingly resembles litigation. Is this a common perception, and if so, what can be done about it? Gerald Phillips surveyed a group of experienced commercial arbitrators to see what they think about this provocative issue. Phillips summarizes the results and shares many of the arbitrators’ comments and suggestions.

It is often said that commercial arbitration is becoming protracted and costly and that it simulates court litigation. Some believe it is no longer an efficient process for resolving disputes. Indeed, some attorneys question why they should recommend arbitration when its benefits-an expedient and less expensive means of resolving disputes-are no longer attainable? Are these benefits being undermined by “creeping legalism,”1 “judicialization,” or “incremental formalism?” The author conducted a survey of leading arbitrators to ascertain their views on this provocative question. Unfortunately, many respondents seem to believe that arbitration is becoming more like litigation to one degree or another. However, most believed that arbitrators have the inherent power to keep arbitration on track and reverse the trend. They provided ideas for handling different aspects of the process and shared information about how they conduct arbitration proceedings.

The criticism that arbitration is losing its allure because it mimics litigation is due largely to the increasing role lawyers play in the process. Because arbitration is a consensual process crafted by the parties, generally through their attorneys, they are in the driver’s seat when it comes to the process that they get. If they seek continuances, file multiple motions, and seek extensive discovery, then the process will seem like a court proceeding. Arbitrators, whose role it is to manage the process, can encourage attorneys to curb their enthusiasm for litigation procedures, emphasize the need for efficiency, and issue rulings that will expedite the process while maintaining fairness. This is essential if arbitration is to remain a viable forum. However, in addition, attorneys need sound training in arbitration advocacy.

The Survey Results

A questionnaire was sent to 85 leading commercial arbitrators around the country. Fortythree returned the questionnaire. The participating arbitrators are affiliated with the American Arbitration Association, JAMS or the American Film Marketing Association. Most are members of the College of Commercial Arbitrators.

The respondents included some arbitrators who are former judges and 10 who have taught ADR at law schools. Based on the respondents’ replies, each had conducted an average of 50 commercial arbitrations during the last three years. The types of arbitrations were quite varied (among them disputes involving franchises, securities, labor, estates, employment, construction, real estate, insurance, partnerships, international transactions, technology, intellectual property, entertainment, fraud, joint ventures, banking, shareholder agreements, and health care), and the size of the disputes ranged from $35,000 to $450 million.

The pivotal question posed by the survey was whether the respondents “believe that arbitration is becoming too much like court litigation and thereby losing its promise of providing an expedited and cost-efficient means of resolving commercial disputes?” and if so, whether this is a noticeable trend. Forty-two respondents answered this question and 31 (72%) responded in the affirmative, with 11 saying “largely yes” and 20 saying it is true to “a moderate degree.”

The questionnaire provided room for comments. Those who commented showed a diversity of strong opinions about this issue. Most who said they perceived a trend toward “judicializing” arbitration said they were disturbed by it. One of the deans of arbitration (a former judge, now a full-time arbitrator) commented: “Arbitration is indeed trending most harmfully in the direction of the litigation model. The value of arbitration to business people is being undermined by these changes.” One admitted, “I don’t know whether this attracts or turns off those who use it.”

Some respondents were not disturbed by this “trend,” attributing use of litigation procedures to cases in which large amounts are in controversy, complex cases in which more lawyers are involved, and the occasional client who demands that every point be contested. A few respondents noted that some clients want the advantages of judicial procedures in an arbitral forum.

Some arbitrators distinguished between small cases and larger ones. They were especially concerned by “creeping legalism” in smaller cases. However, one arbitrator suggested that this was less a problem for small cases than for complex commercial cases where the parties had sophisticated counsel and where it was necessary to adequately prepare. He noted that “PI cases take a few hours; employment longer because of credibility (not legal) problems; medmalpractice 23 days.” But he said that in the large, complex business case, the presence of many litigators and deep-pocket clients tends to produce a more judicial-like procedure. Another arbitrator echoed this feeling. Other respondents justified the use of litigation techniques when the case involves large claims and complex issues. One said, “With an experienced and skilled tribunal, the court and the arbitral culture can be mixed to obtain very satisfactory results both in terms of justice and costs.”

A few noted that some parties want this kind of treatment in complex cases and choose arbitration over litigation for reasons other than speed and economy. One said, “Overall, I don’t see an alarming trend towards ‘judicialization’ of arbitration. In the cases I’ve seen where the parties wanted fullblown discovery, or a longer than normal hearing, or a detailed reasoned award, it has generally seemed to me that they had good reasons for what they wanted, whether their choices were wise or not. I also believe that arbitration should be a party-driven process to the extent possible.”

One arbitrator noted that the arbitration rules and court decisions permit more pre-hearing motion practice, so the result is that lawyers do it.

The survey, as one respondent pointed out, assumed that the primary benefits of arbitration are speed and economy. He had a wider view, stating, “I do not disagree that economy is a benefit of arbitration, but, in my view, the primary advantages are (1) the opportunity to escape ‘conveyor belt’ justice, as available in the courthouse, and (2) the opportunity to select their decision maker.” He added, “The informality and privacy of arbitration also make the process less intimidating to witnesses, and this tends to lead to better testimony and fairer results.”

Some respondents indicated that it was misguided to believe that the speed of arbitration is its primary benefit. They noted that even at its slowest, arbitration is faster than litigation. “In many cases the other advantages-pick your own judge, secrecy, set your own schedule, tailor your proceedings, a day certain-greatly outweigh the virtues of expedition and economy.”

One lone arbitrator took the position that the trend toward “creeping legalism” is not detrimental to arbitration: ” I don’t think it is hurting the use of arbitration; it is enhancing it. But I am aware of anecdotal evidence of harmful ‘over-judicialization’ in discrete cases.” Another said, “I try to operate on three principles: First, that the process belongs to the parties, not the arbitrator; second, that if I allow them full opportunity to prepare their case, my award is more likely to be right and not subject to being vacated on review; and third, that my role is to be available but not intrusive.”

Who Is at Fault?

Blame for “creeping legalism” was placed on both arbitrators and lawyers who serve as advocates. One respondent blamed arbitrators for hearings that go on too long “because [they are] best equipped to control the hearing process.” Another said that arbitrators are responsible to educate counsel and enforce reasonable rules.

One respondent said the cause of “creeping legalism” is “lack of insight by lawyers and arbitrators as to the real needs of the process in light of the interests of the parties.” Others complained that some arbitrators are not strong or assertive enough to push for speed and efficiency. One arbitrator attributed the problem to lack of arbitrator training, citing many retired judges who have become arbitrators who simply do in arbitration what they did in court. However, many respondents said that lawyers too “fall back on methods they know” and “have difficulty getting out of the litigation paradigm.”

A number of respondents seemed to believe that arbitrators could remedy the situation with “firm, reasoned control.” One stated that “a strong chair can control counsel who are litigation-crazed,” and many others echoed their confidence in arbitrators to control the process.

Arbitrators themselves acknowledge that some of their colleagues allow counsel to abuse the process. But they believe they can have a positive effect on the “judicialization” of arbitration because they have more than ample inherent authority to insure that the hearing process moves with appropriate expedition. They urge arbitrators to be more proactive and firm, and stress to counsel that a well-managed arbitration can produce a fair and efficient proceeding, which most likely led the parties to agree upon arbitration in the first place.

Reversing the Trend

The questionnaire was divided into three sections-pre-hearing, hearing and post-hearing- in order to identify where the proceedings get bogged down the most. There was general agreement that the pre-hearing part of the arbitration consumed most of the time and that discovery and filing motions are the predominant causes of delay. The consensus appears to be that extensive discovery takes too long and should be resisted and the practice of making motions should be discouraged.

The questionnaire asked arbitrators what they believed can be done to prevent arbitration from becoming a copy of litigation. Most arbitrators said that the cure is in their hands, and that they must control and better manage the process.

Pre-Hearing Phase

The preliminary conference. The respondents generally agreed that the preliminary conference is very useful, especially in complex cases, since it can serve to shorten the arbitration. It is of extreme importance, one arbitrator stated, that the arbitrator set a business-like tone in the beginning. “Counsel then will readily fall in line,” he said.

One respondent advised, “The preliminary conference should be scheduled immediately, and there the arbitrator should stress that it is the obligation of all participants to cooperate in tailoring all procedures to meet the needs of the case and the real interests of the parties.” Another arbitrator said, “I remind the parties of the purpose and virtues of arbitration and I push to expedite it.”

Many respondents said that arbitrators should proactively explore with the parties, before any discovery starts, the kind of arbitration the parties want and make rulings to preserve efficiency.

One respondent stated that in a major case the preliminary conference should be face to face. Two respondents said that arbitrators should ask the parties to attend the pre-hearing conference so that “costbenefit” can be frankly discussed with them and counsel. They hope that parties who foot the bill for discovery will influence their counsel to curtail some of the discovery. As to rules of evidence, they indicated that it was up to the arbitrator to make clear to the parties the arbitrator’s approach.

The respondents generally agreed that from the preliminary conference on, arbitrators must explain that the conduct of arbitration is different from court litigation and that counsel should adopt their skills to the arbitration forum. One expressed this unique thought, “Litigation in the courthouse is administered for the benefit of the courthouse to maximize utilization of the judges and courtrooms. Arbitration, on the other hand, should be administered as a service to the parties. Parties can and should be allowed to customize the process to suit the needs of their dispute. If the process is well-designed and if the choice of the decision maker is made wisely, speed and economy will be attained as night follows day.”

At a preliminary conference much can be accomplished, including setting the hearing date, limits on the scope and time for discovery, and a process for settling discovery disputes. With respect to scheduling, one respondent warned that arbitrators should not over-book their cases, so that the hearing date can be set without much delay. Another arbitrator said he issues “an agreed and aggressive schedule a.s.a.p. after the tribunal is formed and stick[s] to it.”

Discovery. Since some discovery is critical to resolving disputes, the issue turns on how much is enough. One respondent suggested that a typical discovery schedule would be between 90 and 150 days. Yet he also suggested that there should be a presumption against discovery. One arbitrator echoed this notion, saying, “I put a short leash on discovery.”

To persuade counsel to limit their discovery efforts, one respondent said that he warns counsel that lengthy discovery defeats the purpose of arbitration and merely substitutes an arbitrator for a judge. He explained, “I endeavor to talk them out of depositions by describing the criterion I employ, i.e. will a deposition be likely to result in an overall saving of time and expense,” He continued, “I ask the parties how long the hearing will take and I impress upon counsel the calendaring nightmare which results from wrong estimates.” Another respondent said that he establishes a discovery plan, adopts it as an order and enforces it if necessary. But one respondent cautioned, “The arbitrator should guide, not force, counsel to agree on such discovery as will help to produce an efficient merits hearing. The arbitrator should consider the views of counsel with respect to a long period for discovery [but] should reject requests for an extensive discovery period if he or she believes that it is not necessary.” Another arbitrator said that he is very circumspect about asserting himself contrary to what all counsel have agreed. “I often comment on the effect of protracted discovery on the duration and cost of the case, which has had positive effect,” he said. Yet another arbitrator tells counsel, “I expect [you] to work out [your] own schedule to which [you] must agree to adhere. I monitor the discovery by setting deadlines and reporting. I keep regular tabs as to what is happening and keep informed on the progress of discovery and resolve disputes. I set a date by which all prehearing matters must be concluded.”

Surprisingly, many respondents expressed the view that during the discovery stage, the arbitrator “must be available on 24-hour-notice to resolve areas of disagreement.”

One respondent took a somewhat different view of discovery. He said, “I believe that a positive development in arbitration has been the destruction of the myth that there is no discovery in arbitration, and acceptance of what I call overt discovery, limited, however, to its legitimate purpose-to facilitate proof and minimize surprise.” He noted that “discovery generally is available, but subject to management by the arbitrator” and said that “arbitrators should suggest means of shortening the process but should not attempt to override the parties agreed-to procedure.”

Pre-hear;ng motions. One respondent cautioned, “Don’t get talked into granting a motion just because one side urges you to.” Another noted, “I’m beginning to see more formal motions. Not a good trend.” One arbitrator addressed the procedure for motions. “I advise counsel that before any motions are made there should be a telephone conference at which time the dispute should be resolved and only if it cannot be handled by the arbitrator informally should a written motion be filed.” However, one respondent who acknowledged that too many motions were being made pointed out the need to be able to hear some motions. He said, “But we must tolerate that, being as bad as it is, because any effort to cut it back materially will inherently obstruct a just handling of legitimate and proper motions … even if they are losers.” Some arbitrators reported that they limit motions to “one bite of the apple.”

Pre-hearing briefs. Many respondents said they usually work out limitations with counsel on the length of pre-hearing briefs. “Unless there are complicated issues, pre-hearing briefs should be limited to 10 pages, not including exhibits. That should be adequate and limit the cost of the arbitration,” one respondent said

The Hearing Phase

One arbitrator pointed out that while arbitrators can suggest ways of expediting the hearing, quite often it is very important for the parties to have their proverbial “day in court” and tell their full story in their chosen way. To expedite the hearing, one arbitrator opens the proceeding by reminding the parties that the arbitrator is not a jury and doesn’t need to hear the evidence 10 times, and that he is knowledgeable in the area of the case.

Declarations. Many respondents said they require all direct testimony (especially the testimony of experts) to be in the form of written declarations given in advance to the arbitrator. However, others do not follow this procedure because they believe it increases expenses. Some respondents suggested that, ideally, direct testimony should be by declaration but they won’t order it. One respondent said, “Uniformly I take the direct testimony in the form of a declaration from all but perhaps one key witness per side. Unless counsel requests otherwise, they waive cross-examination. This works fine on lots of peripheral issues, particularly in many modest and small value arbitrations.”

Simultaneous witness examination. One respondent suggested a novel way to present expert testimony on a technical subject by experts: Under this approach, the arbitrator orders two experts to be called by the parties to testify at the same time, much like a presidential debate.2

Hearing schedule. One respondent said that it is helpful to establish a business-like schedule for the hearing days. “Once it is established that the hearing is all business and that it is a pleasant experience for all concerned, everything seems to move smoothly and well.” Some respondents ask the attorneys how many days they anticipate the hearing will consume and then they hold the attorneys to that schedule (with some flexibility).

Transcripts, Views on hearing transcripts varied, depending on the complexity of the case. One respondent said he usually orders a transcript in a $250,000 case lasting two or three days. However, one respondent observed that the trend to verbatim records leads to “statements for the record.” A number of respondents said that there should always be a written transcript if the parties want a reasoned opinion, because it is difficult to write a good award without one. Most respondents expressed the view that transcripts do not lengthen the hearing and may in fact expedite and shorten them by avoiding duplication. Some noted that it is generally necessary to have a transcript if there are to be post-hearing briefs.

Other suggestions that were made to expedite the hearing include the following: (1) Requesting the parties to submit jointly prepared binders of exhibits and stipulate that each exhibit will be deemed admitted into evidence without formal offer, foundation, or authentication. (2) Asking counsel for summaries of the witness’ testimony, rather than relying on the witness to answer counsel’s questions. However, some counsel do not want to give up the perceived advantage of coloring the evidence by use of questions. (3) Cutting examinations short when the point of the testimony has been made. (4) Discouraging examination of unnecessary witnesses. (5) Encouraging stipulations. (6) Requiring counsel to state the ground for objections during the merits hearing (e.g., objection, attorney-client privilege) so the arbitrator can rule quickly on the objection without hearing argument. The arbitrator who takes this approach said she allows argument after the ruling, if a party requests it, and will change the ruling if the argument is sound. In her experience, both sides almost always acquiesce in the ruling. (7) Encouraging counsel to agree to a time period for presentations at the hearing (say, 40 hours), which they can use as they wish. (8) Starting the hearing early, convening on the exact time set by the arbitrator, and requiring all parties to return on time after a break. (9) Asking counsel, “What do you expect to prove with further examination?” Finding out whether it is possible to stipulate to any facts or issues so the examination can be terminated or shortened. One respondent noted that this can be particularly helpful regarding peripheral issues. (10) Reminding the attorneys that arbitration is different from court litigation. “That helps a lot,” said one respondent. (11) Telling counsel what the arbitrator is interested in hearing.”

Post-Hearing Phase

In order to reduce the time spent on the post-hearing phase of the proceeding, some respondents do not allow post-hearing briefs, saying it is a “serious mistake” to allow them. Others discourage or limit them. Those who control post-hearing briefs set a 10-20 page limit, require a simultaneous exchange of briefs, and limit the reply to five-pages. One arbitrator said that if the arbitrator openly discusses the problem of post-hearing briefs prolonging the proceeding, the parties will agree to a limit with which they are comfortable.

As for the time spent preparing the award, one respondent said that the arbitrator should be conscientious in expediting the award and should set a short time period for the attorneys to serve their fee applications.

Conclusion

Whether arbitration proceedings are becoming more protracted because larger cases are being arbitrated or for other reasons, arbitrators must dedicate themselves to containing the proceedings while allowing the parties to have a full and fair process. If arbitration is to remain a practical alternative to litigation in court, arbitrators must be more proactive and “hands on” in their management. As one respondent noted, arbitrators must “take charge and not live in fear of an appeal to overrule their award.”

Lawyers who represent parties in arbitration must awaken to their responsibility to be arbitration advocates. They must learn the difference between arbitration and litigation and learn to employ the skills appropriate to the forum.

Ultimately, it is up to all the participants in arbitration to see that the proceedings are fairly and efficiently conducted. As an experienced arbitrator once said, “Proper management of the arbitral process is a responsibility to be shared by the parties, the tribunal, and the [arbitral] institution.”3 Indeed, one respondent suggested that by helping the parties to select “an arbitrator with deep experience in litigation and arbitration and a professional ethic that compels the arbitrator to strive for economy and quality,” the provider organization can contribute to an improved process.

Endnotes

1 “Creeping Legalism in Labor Arbitration, Arbitration J., vol. 13 (1958), p. 129. William P. Murphy, a former president of the National Academy of Arbitrators (NAA), referred to this “mournful dirge” as “galloping legalism.”

2 A procedure like this was discussed in Stanley P. Sklar, “Using the Tandem Witness Examination When Experts Collide,” ADR Currents, vol. 2, no. 1 (Winter 1996/1997), p. 14.

3 David Wagoner, “Managing International Arbitration,” Dispute Resolution J., vol. 54, no. 2, (May 1999), p. 23.

The author is a full-time mediator and

arbitrator. He is a founding

member of the College of Commercial Arbitrators and is an adjunct professor of

law at Pepperdine School of Law. He is the chair of the ADR Committee of the State Bar of California.

He also chairs the Entertainment and ADR Committee of the ABA Section of Dispute

Resolution. He serves on panels of the American Film Marketing Association and the

American Arbitration Association. Mr. Phillips welcomes comments from readers. He can be reached at gphillips@plllaw.com.

Copyright American Arbitration Association Feb-Apr 2003

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