by Thomas J. Stipanowich
(Editor’s note: An earlier version of this posting was published in the Los Angeles and San Francisco Daily Journals.)
“Because of expense and delay, both civil bench trials and civil jury trials are disappearing.” So says a task force co-sponsored by—of all groups—the American College of Trial Lawyers. Litigation often costs so much and takes so long, they acknowledge, that parties nearly always settle or stop suing rather than go all the way to trial. While the great majority of disputes have always been resolved out of court, today even many parties with strong bona fide claims may be daunted by the time and money required to go to trial.
The primary culprit is American-style discovery, which accounts for as much as ninety percent of costs in litigation—leading some to conclude that the “look-under-every-rock” approach embodied in our discovery system is simply unworkable. The scope of discovery has metastasized with the revolution in electronic communications, producing “a nightmare and a morass.” All this leads the Trial Lawyers’ task force to call for a wide range of critical changes in the landscape of American litigation, including an end to the “one size fits all” approach of current federal and state procedural rules. In other words, it’s critical to fit the process to the problem.
Fitting the process to the problem—and avoiding the perceived pitfalls of litigation—is what leads many business users to adjudicate disputes out of court, in binding arbitration. One would expect the current dissatisfaction with the “one size fits all” model of court trial to provide fertile ground for the growth of arbitration—and to some extent that has happened.
Advocates of arbitration point out that arbitration awards are likely to prove much more “final” than court judgments, tending to substantially reduce post-hearing process time and costs. Because arbitration usually is triggered by a written agreement, businesses that choose arbitration over litigation have the opportunity to craft a process that proves vastly superior to litigation in many cases; parties are able to choose their decision maker(s) (including subject matter experts), procedures and venue. Parties may also identify the issues that will (and will not) be arbitrated, help set the timetable for the process, and take steps to ensure the confidentiality of proceedings and of documents disclosed during the process. For any or all of these reasons arbitration may be an appealing alternative to litigation regardless of the relative cost and length of arbitration. If business users regard speed, efficiency and economy as important goals in dispute resolution, as they frequently do, there are steps that can be taken to tailor a process to serve those goals. The same ends are sometimes achieved through the excellent management skills of arbitrators and/or the cooperative efforts of counsel.
It is therefore surprising to hear so many corporate counsel complain loudly about arbitration. Of the grievances most frequently expressed, complaints about the cost and length of arbitration top the list. Failed expectations for a cost-effective, expeditious process undermine arbitration’s vaunted advantages and turn off many business users. As one West Coast in-house lawyer with a major company recently reported,
“We really sell arbitration to our business clients [as a superior alternative to litigation]. Now they are accusing us of false advertising. . . . Literally all of the top general counsels from the largest corporations in the Bay Area were uniform in their frustration with arbitration and many have said . . . they’re not agreeing to it anymore.”
A similar calculus may lay behind the 2007 decision of the American Institute of Architects to delete from its widely used model construction industry contracts the long-standing provision calling for binding arbitration of disputes.
Recently, a national Summit on the Future of Business-to-Business Arbitration in Washington D.C. brought together nearly two hundred corporate counsel, lawyers, arbitrators and agents of leading arbitration institutions for a “town meeting” on the gap between expectations and experiences in commercial arbitration. The participants concluded that the blame for lengthy, costly arbitration must be shared by business users, in-house attorneys, the institutions that provide arbitration and other dispute resolution services, outside counsel and arbitrators.
Too-costly, too-lengthy arbitration begins with businesses that incorporate arbitration clauses in their contracts. Those who draft commercial contracts may be unable or unwilling to take advantage of the choices inherent in arbitration. They throw in, without discussion or reflection, a boilerplate arbitration or dispute resolution provision—frequently an omnibus, all-purpose scheme that leaves the parties and the arbitrators with a lot of discretion or wiggle room. When disputes arise, they “turn the keys over” to legal advocates who bring a “litigation mentality” to arbitration. Such lawyers insist on full-blown discovery, reflexively file motions and raise objections, raising costs and dragging out the process. Arbitrators may be reluctant to “ride herd” on such behavior, limit discovery, rule on those motions that hold promise for getting key elements of the case resolved, or act decisively on scheduling. All of these factors contribute to making arbitration a far cry from the speedy and efficient process of lore.
In order to address these shared problems, National Summit participants supported the idea of shared solutions and called upon all “stakeholders” in arbitration to play a role in addressing the problem. The resulting College of Commercial Arbitrators Protocols for Expeditious, Cost-Effective Commercial Arbitration—guidelines soon to be made public—will play a key role in changing the culture of commercial arbitration by speaking directly to business users, lawyers, arbitrators and providers of arbitration services.
Users: It’s your process. For businesses who use arbitration and their legal counsel, the clear message of the Protocols is that “the solution must begin with you.” If speed and economy are your priorities, plan your arbitration procedure accordingly. Consider arbitration in the context of a comprehensive strategy for resolving conflict—including the possibility of a negotiated resolution. (For some, this may mean providing “stages” for negotiation and mediation. Keep in mind that mediators, if they can’t help get a case settled, may be able to work with parties to tailor a more suitable process for arbitration). Eschew a “one size fits all” approach in favor of a more tailored process. Set an overall timetable—with a “fast-track” for some or all kinds of disputes. Give clear guidelines for the use and granting of motions. Above all, curtail discovery by establishing meaningful standards that base information exchange on proof of relevance and materiality, or other scope limits. Reinforce these initial choices with others made after disputes arise. Choose outside counsel with the will and incentives to act consistently with your priorities, and pick arbitrators with the skill, courage and time to manage a case efficiently and expeditiously.
Service providers, give users more help. To institutions that provide arbitration rules, appoint arbitrators, and perform other administrative services, the Protocols say: Business users depend on you to provide effective, reliable choices, including templates for speedy and less costly process—do it better! After years of over-reliance on a “one size fits all” approach to arbitration, you are putting a lot of effort into developing key tools for users, including expedited or streamlined rules, standards giving arbitrators meaningful authority to limit discovery, and guidelines for the handling of dispositive motions. However, you must go even further and actively support these options by collecting and sharing information about their successful application by business users in different kinds of disputes. “Success stories” are essential to overcoming the natural reluctance of many to try new approaches. You also need to improve the ability of arbitrators to effectively manage arbitration, with particular emphasis on the early stages of the process, including discovery and motion practice. Finally, you should provide users better guidance regarding key process choices and offer avenues for user complaints about arbitrators and case managers.
Outside counsel, align with your client. Litigators, say the Protocols, change your tune. Help your business clients make the most of special opportunities by appropriate dispute resolution approaches, including arbitration. Begin by sitting down with your client, assessing the best means of managing your client’s dispute in light of their goals, and committing yourself to the appropriate strategy. Working with opposing counsel to help your clients make the most of the special opportunities afforded by arbitration—a choice-based process that affords many opportunities for efficiency, fine-tuning and out-of-the-box thinking. Make the most of having sophisticated decision makers with pertinent experience rather than “blank slate” jurors.
Arbitrators, be more proactive and brave. Though likely to be much better equipped than the arbitrators of a generation ago, the Protocols advise, you must modify your approach in light of today’s more complex challenges. It is not enough to know how to run arbitration hearings; in most cases your key contributions will occur in the prehearing process, in actively—even aggressively—shaping the process, encouraging cooperation by the parties, tailoring and urging forward information exchange, and winnowing motions for the purpose of addressing those that hold real hope of getting key elements of the case resolved. In today’s environment, after all, the pre-hearing process is likely to be by far the longest and most expensive element of the arbitration (as in litigation). More often than not, furthermore, it will be the springboard to settlement of the case—obviating the need for hearings. It is no longer sufficient for arbitrators to postpone all decision making until the conclusion of a hearing on the merits—the circumstances demand a different approach, and the parties deserve better.
In late 2007, I shared many of the foregoing concerns in a keynote speech at the College of Commercial Arbitrators. Over the next three years, I worked with members of the College and other arbitration experts to organize a National Summit on the Future of Commercial Arbitration and write The Protocols for Expeditious, Cost-Effective Commercial Arbitration, now available online and in print. The Protocols are a clarion call for stakeholders in arbitration, beginning with business users, and they have already stimulated significant efforts by several leading providers of arbitration services. Those who claim to desire speed and economy in arbitration now have their best opportunity ever to realize their expectations. It is time to put them to their proof.
Thomas J. Stipanowich is the William H. Webster Chair in Dispute Resolution, a Professor of Law at Pepperdine School of Law, and Academic Director of the Straus Institute for Dispute Resolution. The Straus Institute was ranked number one among academic dispute resolution programs each of the last six years by U.S. NEWS & WORLD REPORT. He was co-author, with Ian Macneil and Richard Speidel, of the groundbreaking five-volume treatise FEDERAL ARBITRATION LAW: AGREEMENTS, AWARDS & REMEDIES UNDER THE FEDERAL ARBITRATION ACT, cited by the Supreme Court and many other federal and state courts, which was named Best New Legal Book by the Association of American Publishers. He also co-authored RESOLVING DISPUTES: THEORY, LAW AND PRACTICE, a law school course book supplemented by many practical exercises and illustrations on video. He is the author of many other much-cited publications on arbitration and dispute resolution, and has twice won the CPR Institute’s First Prize for Professional Articles. In 2008, he was given the D’Alemberte/Raven Award, the ABA Dispute Resolution Section’s highest honor, for contributions to the field. He is Editor-in-Chief of the new Protocols for Expeditious, Cost-Effective Commercial Arbitration.