Bar News - December 17, 2010
Business Law: Best Practices for Arbitration
By: John B. Garvey
Settlement through mediation or direct negotiation is usually the best way of controlling outcome and expense, but there are times when issues need to be decided by a third party. When this happens, arbitration is usually a cost-effective alternative to a bench trial or jury trial Ė particularly given the current stress on our state courts.
|John B. Garvey
Negotiate the Agreement
There are numerous paths to arbitration. When the arbitration process is provided for by contract, you are bound by those rules unless the parties agree otherwise. Insurance and commercial contracts often provide that disputes will be processed through the American Arbitration Association (AAA), but parties sometimes find this expensive and cumbersome. Lawyers, commercial parties and insurance companies often agree to set up their own arbitrations and pick arbitrators without going through AAA. The contract may call for a single arbitrator but the parties agree to three or it calls for three and the parties agree to one. The contract may provide that each party chooses one arbitrator, and the arbitrators choose a third arbitrator, but parties sometimes agree to choose all three arbitrators together. An existing arbitration contract is the basis for the arbitration, but parties are free to modify it. Be creative, based upon the particular case and what you are trying to accomplish.
When there is no pre-existing contract, parties must negotiate all terms of arbitration. If you represent the plaintiff and are offered arbitration in lieu of trial, ask for a written agreement that includes judgment interest and costs applied in the same manner as in court. If these are not specifically included, they are waived. You may decide to waive them, but should explain it to your client and get specific permission, in addition to getting permission to arbitrate. Remember that your client generally has a New Hampshire constitutional right to a civil jury trial in all disputes exceeding $1,500!
A negotiated arbitration contract may include any one of many variations of high/low agreements. This is where the parties agree to the range of outcome. For example, in an insured case, if the policy limit is $100,000, the parties could agree that the case will resolve in the range between $20,000 and $80,000. This means that the minimum outcome would be $20,000, even if the arbitrators find for the defendant or for less than $20,000. If the arbitrators awarded more than $80,000, the award would be reduced to $80,000. This type of agreement reduces the potential risk and reward for both sides.
Always reach agreement with the other party about whether the arbitrators will be told about policy limits, high/lows, etc. If the parties canít agree, select the panel and ask the panel to decide whether it wants to know. Arbitrators usually prefer not to know and are frustrated when one of the lawyers blurts it out at the arbitration or includes it in the submission without agreement from the opposition. In some cases, if the outcome is clearly "all or nothing" (e.g., $100,000 policy with $101,000 in medical bills but liability is contested), then the parties can ask the arbitrators to decide on liability only, without deliberating on damages.
Whatever terms you negotiate, try to make them clear. Put them in writing. You donít want to resolve a case by arbitration and then have to litigate the terms of the arbitration!
Choose Arbitrators Carefully
Using a single arbitrator is similar to having a bench trial. The arbitrator listens to the evidence and makes factual findings and legal rulings. But the arbitrator is usually selected by the parties. Each party usually suggests a few names and they choose someone that both (all) can agree upon. Find out as much as you can about potential arbitrators before you recommend them and before you agree to one suggested by an opponent. Call people who know the arbitrator. If possible, find someone who has arbitrated with the person and get feedback. Look for someone who is knowledgeable or at least conversant in the field, and who has a reputation for being fair and thoughtful.
Having three arbitrators is unlike either a bench or jury trial Ė three lawyers will make decisions on the law and the facts. Although a 2-1 decision is binding, absent an agreement to the contrary, arbitrators generally try hard to agree on all decisions that are communicated to the parties. This includes procedural rulings, evidentiary rulings, and the ultimate findings. If each party is selecting one arbitrator and leaving it to the two arbitrators to select a third "neutral" arbitrator, remember that you are delegating that decision to your selected arbitrator. Choose a person who is reasonable enough to work with others and who can influence the choice of a good "neutral." Try to pick someone you are comfortable with, who is experienced and has a good reputation. Donít try to pick someone who is known as being strongly pro-plaintiff or pro-defendant unless you know from experience that they are reasonable as arbitrators. (Some people who are considered pro-plaintiff or pro-defense prove to be very nuetral when they serve as arbitrators.) When someone is identified as being strongly pro-plaintiff or pro-defendant, there is a natural tendency for the other arbitrators to initially discount their views as being "advocacy." This is not always true, but itís best to avoid that dynamic.
As with all matters involving litigation, the most important aspect of selection is to understand the process, to have as much information as possible, and to make intentional choices. Actively participate in the selection of arbitrators Ė donít let it just happen.
Submit Materials Well in Advance
Arbitrations are abbreviated proceedings. The rules of evidence donít strictly apply, reports are often submitted in lieu of expert testimony, medical records are generally submitted with comprehensive summaries, and arguments are made in the arbitration submissions that usually arrive in advance of the hearing. Most lawyers dispense with opening statements at the hearing and move straight to the testimony. The arbitration submission is important for the arbitrator to fully understand the hearing. If the arbitrator receives an organized, paginated, well-documented presentation that sets the stage for the evidence at the hearing, it increases the chances that the arbitrator will understand and appreciate the significance of any particular testimony. But make sure the materials arrive in time to be read before the hearing! I have often received arbitration submissions on the night before the hearing or even at the hearing. This often means that I canít read the materials until after the hearing. Worse yet, I may feel the need to read medical records or business records while a witness is testifying, in order to understand what Iím hearing. That lessens the attention I can give to the witness. I know that other arbitrators have expressed the same concern.
Arbitrators Are Attorneys; Present Accordingly
Arbitrators are only human, but they usually have a lot of experience. If your presentation is unduly cumulative, disjointed and overly simplistic, it can detract from your effectiveness. Arbitrators like cases that are tried cleanly and efficiently. When in doubt, itís good to ask them their preference about how to handle a particular aspect of a presentation. You should run your own show, but include them when possible to show you are confident in your case and interested in making it as easy as possible for the arbitrators. In my experience, arbitrators struggle to be fair no matter what, but an organized presentation geared to a professional audience has positive consequences.
Choose Witnesses with Caution
Donít call a witness just because she is available. If you think the testimony is important and the witness will make a good impression, then produce her if possible. In the appropriate circumstances, donít overlook the possibility of submitting an affidavit. With experts, consider the pros and cons of live testimony in lieu of or in addition to a report. If the expert is critical to your case and isnít an expert who is well-known to the arbitrator(s), live testimony is usually a good idea. If your expert is an expert who frequently testifies in New Hampshire, it is likely that the arbitrators are familiar with her, and can glean the opinions from a written report.
Avoid Closing Arguments
If you have prepared properly, your best argument has already been carefully written, was submitted well in advance of the hearing and your client has been given a copy. The arbitrator has read it. The evidence has supported your argument. Why dilute it with another, less articulate argument at the hearing? If something has occurred at the hearing which you think needs to be addressed, then do so. However, make any closing brief and to the point. Again, remember that the arbitrators are experienced.
Arbitrations involve a unique forum. As with all matters involving litigation, it is important to understand what can and cannot be done, so that you can make conscious strategy decisions at each point along the way. Understanding the nature of the arbitration and controlling events to the extent possible will increase your chances of obtaining a good outcome for your client.
John Burwell Garvey is a professor at the University of New Hampshire School of Law, where he teaches and directs the Daniel Webster Scholar Honors Program. A former trial lawyer, he remains active as an arbitrator and mediator.