Category Archives: Commercial Arbitration

Efficient Arbitration Part VI: Discovery Motions

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In this series of articles we have been considering ways to make arbitration more efficient and inexpensive, while maintaining a fair opportunity for both sides to present their case.  We first focused on discovery in general, noting that the flexibility of arbitration can help provide ways to obtain necessary information while avoiding the expense of court-like discovery.  We then dealt with issues of non-party discovery and then took up dispositive motions, other areas of possible unnecessary expense.  We now arrive at discovery motions.

Discovery motions in general

For the first part of my career as a civil litigator, discovery motions took up much time and effort.  After serving and negotiating over elaborate requests, the parties would often reach an impasse and move the discussion to the court house.  The parties would prepare elaborate briefs with citation to the rules and citation to somewhat similar cases to justify the request for information or to justify a refusal to provide it.  Since knowledge is power, the side seeking the information was convinced the other side was holding out, hiding key information that would be the key to the case.  The party opposing discovery was often convinced the other side was simply trying to spend it to death.  And so the fight carried on.

In many courts, magistrates and judges now take a different approach to the whole matter.  They first require a letter-brief or phone call to go over the issues and resolve them more informally.  This is not uniform, but is becoming more common around the country.

Arbitrators have always had this tool available and use it all the time.  Perhaps we should use it more and use some other available tools as well.

A holistic approach to discovery and motions

AAA Commercial Rules require the arbitrator to (as I have noted in a couple of these articles) “manage any necessary exchange of  information among the parties with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.”

I have found the best way to make discovery efficient is to take it up at the first conference.  And in some detail — not just generally.  The parties and arbitrator can discuss the sort of discovery the parties contemplate and then set a deadline for completing requests and answers.  Here is an example:

The parties shall serve their written requests for documents by November 1, 2015.  The parties shall provide their responses to those requests and responsive documents by December 2, 2015.

Setting the dates is generally preceded by a discussion of what type of discovery, if any, is necessary for each side.  We also discuss the time realistically needed to complete the request and response.

Anticipating that the parties may not completely agree on what it or the other party actually needs to “fairly present its claims and defenses,” I usually provide an informal process for resolving that. I build in a time for a party to obtain arbitrator input on the request, if a discussion with the other side doesn’t resolve the issue, by addressing what more it believes it needs in a letter to be provided by a set date.  The other side has a week or so to respond, and the first party may reply if necessary.

Some arbitrators prefer a brief conference call to use of letters.  But to assure that necessary information is available without breaking the bank, it can be important to allow each side an opportunity to present its position, albeit concisely, in writing.   Normally, the relatively short letters provide enough information to decide whether the discovery makes sense or not. But if not, a quick conference call can usually clear things up.

Importantly, the pretrial order should also make it clear that court-like discovery motions are not allowed, and this more informal procedure should be followed instead.

Planning and discussion – not motions

So really, there is no need for formal discovery motions in arbitration. Instead, discovery planning should set the basic contours and dates of information exchange.  This is then followed by an informed discussion about the extent of discovery that must be provided.  That way we can balance the cost of getting the information with the need for getting it.

This is all not to say that all these issues are easy or can be treated superficially.  Arbitrators are, for example, required to respect attorney-client privilege, which can involve some fairly complex issues in some cases.  And discovery of electronic information can become technically challenging. But this more informal process suffices for most discovery issues and provides the background needed to know whether there is a need to explore some very specific issues a little further if they arise.

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Efficient Arbitration, Part V: Dispositive Motions

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In earlier articles in this series we addressed the main thing that makes arbitration expensive: discovery.  We then suggested some strategies for balancing the need for information with the expense of getting it.

We are  now going to move on to another area of expense in arbitration: motions.

Motions in general

It seems as though civil litigation has become an endless series of motions.  First, comes a motion to dismiss, now more viable in light of heightened pleadings requirements imposed in Bell Atl. Corp. v.Twombly, 550 U.S. 544, 579 (2007) and cases following it.  Next comes a series of discovery motions.  These are likely to become even more common as the courts work through the new “proportionality” analysis put in place by recent amendments to the Federal Rules of Civil Procedure.  Then come the summary judgment motions, where the Court has a “trial on paper” to see whether all or part of the case can be knocked out or established.  These will be followed in many cases by Daubert motions where experts’ opinions and methods are challenged, possibly leading to a failure of an element of proof for one party or another.  Although that usually doesn’t happen.  Then come motions in limine followed by a trial, with other evidentiary and procedural motions during trial.  After a verdict, there will be more motions seeking to knock out the verdict or parts of it.

No wonder trials are so expensive.  Motions require lots of work by the lawyers and lots of effort by the court.

Motions in arbitration

It is, of course, tempting for lawyers who are accustomed to working in court to seek to bring all these motions in an arbitration, or at least as many as they can.  Every motion provides some promise of achieving a great advantage for the moving party, possibly knocking out all or part of the opponent’s claims, establishing all or part of the claims in its favor, or at least “educating the decision maker.”  But usually the dispute remains, and a hearing is needed

So it is tempting to “just say no” to motions.  They often do little to move things forward, take up quite a bit of time, and are very expensive.  Let’s just get to the merits, some say.

But what about those cases where the claimant just doesn’t have a claim or the respondent really has no defense?  They may be rare.  But it would be a tremendous waste to go through a lengthy hearing on the merits only to have the arbitrator conclude that the claim fails as a matter of law, is barred by a statute of limitations, or something of that sort.  So the possibility of some sort of motions in arbitration shouldn’t just be dismissed out of hand.

Dispositive complications

Certain types of motions appear problematic in arbitration.  Take a motion to dismiss for failure to state a claim.  The general standard under the Federal Rules of Civil Procedure is whether the complaint contains “enough facts to state a claim to relief that is plausible on its face” and contains facts with enough specificity to “raise a right to relief above the speculative level.”   Bell Atl. Corp. v.Twombly, 550 U.S. 544, 579, 555 (2007).  But arbitration demands aren’t subject to the same pleadings standards as complaints under the Federal Rules.  For example, an arbitration is commenced under AAA rules by the claimant filing a demand for arbitration which must contain names and addresses of the parties, a statement setting forth the nature of the claim including the relief sought and the amount involved.  AAA Commercial Rule 4(e).  There is no further pleading requirement and no other standard to measure the “pleading” against.

And, while arbitrators have the power to exclude irrelevant evidence, it is still one of the grounds for overturning the award that the arbitrator refused “ to hear evidence pertinent and material to the controversy . . .”  9 U.S.C. § 10.  A party who is foreclosed by a dismissal on the “pleadings” – whatever those would be in an arbitration – before there is even a hearing is likely to be convinced it was not afforded a reasonable opportunity to present evidence.

A motion for summary judgment raises similar concerns.  Again, Rule 56 of the Federal Rules of Civil Procedure provide some fairly detailed guidance on the evidence to be considered on a motion for summary judgment, what the standard for granting the motion is, and the like.  There are no such rules in arbitration,.  But the AAA Commercial rules do now explicitly allow for “dispositive motions.”  R-33.

Cost vs. Benefit

The key to all this, like many things in arbitration, is to do a careful cost/benefit analysis.  In fact, AAA Rule 33 requires the arbitrator to do that before he or she allows a dispositive motion.  The arbitrator may only allow a party to file a dispositive motion if it can first show “the motion is likely to succeed and dispose of or narrow issues in the case.”   Thus, the real issue is whether a party has or can develop facts to support a claim  or defense so there is any point in having a hearing.  A party could well support or oppose such a motion with affidavits and documents,  just as one would in court.

Of course, it may well be that a party has a reasonable basis to believe it can prove certain facts, but will need a chance to review the opposing parties’ documents or other information before doing so.  The arbitrator  must then “ manage any necessary exchange of information among the parties with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses,” as AAA Commercial Rule 22 requires.  Thus, before entertaining a motion to dismiss or for summary judgment of a claim or the whole case, the arbitrator must be sure the parties had adequate information available to fairly present claims and defenses.

Putting it all together, then, before entertaining a motion to dismiss the arbitrator needs the moving party to make a showing that such a motion could actually increase the efficiency of the proceedings.  Similarly, depending on the case, the arbitrator will need to be sure the party opposing the motion has had sufficient access to necessary information to address such a motion.  While there can be room for disagreement on these issues, requiring consideration of them before allowing a motion assures that expensive motions aren’t just filed willy nilly, unnecessarily increasing the expense of the arbitration.

Thus, a motion to dismiss based on an applicable statute of limitations,  particularly where there are no underlying factual disputes, could be a good candidate.   Similarly a motion to dismiss a claim because it is not recognized under applicable law is another good candidate.  Similarly, a motion based on undisputed facts that establish a right to relief, rare as that may be, could be a good candidate.  Motions that are likely to have underlying factual disputes won’t be good candidates.

The point is to “do the math.”  Does undertaking the expense of the proposed motion likely to add up to more efficiency or not?  If so, the motion should go forward.  If not, just move on to the hearing on the merits.

Generally, I have found that the possibility of a motion often comes up at the preliminary scheduling conference.  As often as not, both parties will recognize that it is a good idea to get a legal issue that could determine the outcome of the matter decided before spending time and money on the other aspects of the case.  The parties then can focus on exchanges of information and positions efficiently focused on the threshold issue, often saving time and money.

Next up; discovery motions

Efficient Arbitration, Part IV: Non-Party Discovery

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In the earlier articles in the series we addressed the main thing that makes arbitrations expensive: discovery.  As arbitration expanded over the years, many lawyers who were used to litigation-style discovery got involved. They demanded – and often got – litigation-style discovery with its attendant expense.  We have been exploring ways to get the parties the information they need to present their positions, but cut down on unnecessary expense and effort in getting it.  This includes limiting document discovery and e-discovery to the specific needs of the case and limiting depositions to those that are actually necessary.

So far we have been focusing on discovery between or among the parties to the arbitration.  We now take up non-party discovery.

There are a few things to keep in mind at the outset to help you plan any needed non-party discovery.  First, arbitrators have subpoena powers, but they are not the same as courts’ powers, and the power differs among jurisdictions.  Second, arbitrators can’t enforce subpoenas.  Courts must do that.  Third, because of the first and second things, some creativity may be necessary.

Arbitrator subpoena power in general

Most commercial arbitrations will be governed by the Federal Arbitration Act (“FAA”) because the issues typically involve interstate commerce.  The FAA preempts state law.

The FAA provides at 9 U.S.C. § 7 that arbitrators may “summon in writing” any person to “attend before them” as a witness and bring material documents.  The written summons is served in the same manner as a subpoena to appear and testify before a court.  So that is easy enough for arbitration hearings.  Arbitrators can issue subpoenas to require witnesses to appear and bring documents.

But what if they don’t appear?  The FAA also answers that in section 7.  The federal court in the district where the arbitration is being held can compel the attendance of the witness and can punish the witness for refusal to attend, just as if a court proceeding was involved.  Note the arbitrator can’t do that.  Arbitrators don’t have marshals, jails and the ability to charge fines.  But courts do.  The actual process to enforce the subpoena may be cumbersome, requiring a court filing and appearance.  But the power to subpoena is clear enough that witnesses will normally obey an arbitration subpoena.

Of course, not even a federal court can subpoena everybody anywhere.  Generally, a non-party witness can only be required to travel 100 miles, or within the state for a trial.  Fed. R. Civ. P. 45(c).  A witness outside that area isn’t subject to a subpoena issued by a court and also, presumably, not one issued by an arbitrator, either.

Discovery: documents

But what about discovery before the arbitration?  Different courts treat that differently.  For example, the Eighth Circuit has decided that the power of an arbitrator to issue a subpoena for testimony and documents implies the power to subpoena documents for review by a party prior to a hearing.  In the Matter of Arbitration Between Sec. Life Ins. Co. of Am. & Duncanson & Holt, 228 F.3d 865. 870-71 (8th Cir. 2000).

By contrast, the Third Circuit recognizes no such power. The only power explicitly stated in the FAA is to require a non-party to “attend before” the arbitrator and bring documents.  This, the court reasoned, does not allow a subpoena for pre-hearing document discovery.  Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3d Cir. 2004).  You will need to check the law of your jurisdiction to determine if a third-party document discovery subpoena is allowed.

But the courts in your jurisdiction may not have addressed the issue.  It will not be very efficient for you to take a trip to court and possibly an appeal to get it figured out in your jurisdiction.  This may affect you choice of location for the arbitration in your arbitration clause if you think that third-party document discovery is likely to be important.  Or you may be able to be a little more creative, as discussed below.

Discovery: depositions

The Eighth Circuit has ruled on documents but not witnesses.   An Eighth Circuit trial court, however, has concluded that arbitrators do not have to power to subpoena witnesses for discovery depositions.  The court reasoned that production of documents is less onerous and imposes a lesser burden than does a witness deposition.  ShlumbergerSema, Inc. v. Xcel Energy, Inc., 2004 WL 67647 (D. Minn. 2004).  Of course, in the Third Circuit, for example, a deposition subpoena likely isn’t any more available than document discovery since the subpoena has to be tied to an appearance before the arbitrator – not just discovery.  This issue is open in other jurisdictions. The bottom line is this: don’t count on non-party depositions in your next arbitration. You may be disappointed.

Other avenues

Interestingly, the Revised Uniform Arbitration Act does provides arbitrators the power to require prehearing depositions and documents production, at least in the Minnesota version.  See Minn. Stat. § 572B.17 (c) and (d).  So this might provide a route for non-party discovery depositions in jurisdictions that apply the act, although that may be preempted by the FAA. Recall that the FAA preempts state law on matter involving arbitration if the dispute involves interstate commerce, which most do.  You’ll have to check your state’s arbitration act and address the possible preemption issue.

Another possibility is for the arbitrator to hold a separate hearing to take the testimony of a non-party witness and review of subpoenaed documents.   The Second Circuit recognizes an arbitrator’s power to compel testimony and documents from a non-party at a preliminary hearing.  Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567 (2d Cir. 2005). Thus, so long as the arbitrator is there, the testimony could be taken and documents provided at a preliminary hearing set up for the purpose of obtaining that information.

But consider this.  This is an expensive way to proceed that would require you to convince the arbitrator that the information is vital and this is the only way to obtain it.  And you still have the problem of a witness beyond the arbitrator’s subpoena power.  It may be possible to convene the arbitration, with the parties’ permission, in a place where the witness is subject to jurisdiction if the information is that vital.

Another alternative is to take the deposition and get the documents by agreement of the parties and witness.  If everyone agrees, the deposition can go ahead.  You can make it less expensive by taking it over the phone or by Skype or satellite.  Counsel for the parties are likely to agree to the deposition if both sides have some non-party discovery they think is important. Non-parties may be willing to cooperate if the issues are discrete and the process is not burdensome.

Efficient?

This all suggests that you may or may not be able to force non-party discovery in an arbitration.  You will want to think long and hard whether the information is really needed and is worth the cost of obtaining it. That will be on the arbitrator’s mind.  To once again quote the AAA Commercial rules, the arbitrator must seek to achieve “an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.”

The bottom line is, if the information is vital to a claim or defense and a deposition or document demand on a non-party is the only way to get it, an arbitrator will likely try to find a way to help a party obtain it.  If, on the other hand, a party is simply “fishing,” it is unlikely to get much help from the arbitrator.

Up next

Litigation-like things that add to the expense of arbitration are not limited to discovery.  We will take up pre-hearing motions next.

Efficient Arbitration, Part III: Getting Control of Depositions

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In the last two articles in this series we noted that one of the main objections to arbitration is its cost.  Some folks are convinced that arbitration is just as expensive as litigation in court.  I have found that not to be true, but encounter that perception frequently.  I had a discussion about that with a lawyer just today, in fact.

The main thing that drives up the cost in arbitration – as in any adversary proceeding – is discovery.  So we began looking at ways used to reign in costs in arbitration starting with document discovery in general and electronically stored information in particular.

The next form of discovery that we will consider is depositions.

Do you need them at all?

Of course, the way to save costs would be to simply not allow depositions at all.  In fact, in some smaller matters, that is the default.  But, while arbitration matters usually don’t need the full range of discovery and cost we see in litigation, there shouldn’t be a “trial by ambush” either.  In fact, under AAA Commercial rules for example, the Arbitrator must “manage any necessary exchange of information among the parties with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.”  So if depositions are actually needed to obtain necessary information, they should be allowed.

When are depositions really needed?

The first question you will want to ask is whether depositions are needed at all.  If they are, you will want to ask how to take only as much time as needed for them.

Here is a way to think about that.  With the advent of e-mail and electronic document storage, there is often a record of day-by-day events for important matters in a case.  This is particularly true for the kinds of cases often the subject of arbitration.  The contracts and formal documents are likely to be stored electronically, of course.  And people really don’t talk on the phone or in person quite as much as they once did.  So there is often a record of the parties’ communications in e-mail exchanges and the like.  E-mails tend to be fairly informal and candid.  Thus, you often don’t need to rely on someone’s memory of what happened months or years ago at a meeting or in a call.  Key events are often reflected in real time in e-mail and attached documents.

This often means you can eliminate the depositions we often see in commercial cases these days that go like this:

Q:  Marked as deposition exhibit 278 is an e-mail that appears to be from you to Mr. George Johnson dated January 7th 2013. Did you write this e-mail?

A:  Yes.

Q:  And here you say, “You’re right.  The entire shipment was defective, and we are really sorry about that.” Did you write that?

A:  I guess so. There it is.

Q:  And when you wrote that, did you mean that entire shipment was defective, and your company was really sorry about that?

And on it goes.  It’s hard to see how this kind of deposition is particularly useful.  You have the e-mail admission, and that’s what you will be relying on at the hearing anyway.

And yet, there are times when depositions are needed to understand technical terms, the importance of a sequence of events or other matters.  You may also want to see what key facts are admitted and which are not.  Often in a commercial arbitration it is more often the inferences and conclusions to be drawn from underlying facts that is really in dispute.  But there are sometimes actually disputes as to what happened.  Sometimes even the authenticity of an e-mail is an issue.  But not very often.

This suggests that depositions be limited to matters where testimony can advance the inquiry.  But you can’t expect the arbitrator to micromanage every question or topic.  That would be too expensive.

So the way to think about your case is to see if there is important information that can be gained from a deposition and to be prepared to explain, at least in general terms, why that is so and why there isn’t a different way to get it.

There are then useful approaches to making sure that depositions are not just being taken for the sake of taking them.  As with document discovery, an arbitrator can be fairly helpful in “saving counsel from themselves” by requiring an efficient process that forces everyone to get to the point quickly.

Limiting depositions when needed

Here are four approaches to consider.  I have seen a number of them work very well.  First, is simply limiting the time for depositions.  Each party could be given, for examples, ten hours in which to take depositions.  They can call anyone they want during that time, but still have the time limit.  Then the arbitrator can build in an “escape valve,” so the parties can come back for more if they can show they need them.  They usually don’t come back because they have used their time very efficiently and gotten what they need.   I’ve seen this work very well in cases I have handled both as counsel in arbitration and as an arbitrator.

Second is deciding at or shortly after the scheduling conference who the limited number of deponents will be and the general time for each.  It may only need to be one or two for each side.  Again, this will tend to get everyone to the point.

Third is to make at least some use of 30(b)(6)-type depositions in the case.  The Federal Rules allow depositions on identified topics where a representative who has looked into the issues speaks for his or her company on pre-designated topics.  It may seem odd to import a fairly technical federal rules-type procedure into an arbitration.  But in the right kind of case, I have seen this work to speed things up while still getting the information a party needs to present its case or defense. This can be combined with limits on time or number to make sure things don’t get out of hand.

The fourth is to simply have counsel agree to interview a witness on some specific topics just to clarify key issues.  Of course, both counsel would be present and the interview would proceed in questions and answers.  But it may not be necessary to have a formal deposition with all its expense to allow counsel to understand some technical matters or specific things raised in some documents.  This alternative probably won’t serve the purpose in every case, but in some situations it may well be all you need.   You can even agree to record it to have a record for those few times where the exact answer might be critical.

Electronics are cheaper than cars and airplanes

One final thing.  For many matters, phone or Skype depositions or interviews can work very well. Again, you can record them if you feel a record is necessary.  That can save time and travel.  In fact, there probably isn’t much excuse for not using available technology for fairly routine matters that simply need clarification.

Third party depositions and subpoenas are another tricky and sometimes expensive area in arbitration.  We’ll take that up next.

Efficient Arbitration, Part II: Getting Control of Electronic Discovery

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In the last article on this topic, we identified cost as one of the major complaints about arbitration.  While arbitration is supposed to be faster and cheaper than litigation, the perception often is that it is not.  The culprit, as usual in legal disputes, is discovery.  If we are to maintain – or at this point perhaps re-establish – arbitration as a preferred alternative to litigation, we will need to deal with the cost of discovery.

One way to do that is to forego the sort of one-size-fits-all approach we have seen to discovery in court in favor of an approach thoughtfully balancing the need for information with the expense of getting it.  Arbitrators, who typically have a deep background in the sorts of issues presented in the arbitrations before them, are well suited to help the parties with the balance.

The last article in this series noted the general help provided by CPR’s document discovery protocol which presents different possible modes of general document discovery depending on the needs of the case.  We now take up discovery of electronically stored information, often called “ESI” for short.  This has the potential to be extraordinarily expensive if not handled properly.

The easy things to fix

Let’s start with the low hanging fruit. Not all cases require a great deal of electronic discovery.  More and more businesses simply have electronic versions of their files that are analogous to the paper files they used to keep. For many cases, the issue is no more complicated than simply looking in “the file” kept for the contract at issue and perhaps the related emails of those most involved.  But other cases may demand more.  And some counsel, used to federal court discovery, will demand a search of the opposing parties’ entire electronic storage system.  Dealing with electronic discovery at the initial scheduling conference will help determine how much of an issue this is likely to become in any given case and what level of expense makes sense to get the needed information.

At very least, if the case will involve electronic discovery  – and these days most cases will involve at least some – there needs to be some agreement on the format for electronic documents.  Some lawyers are used to producing documents in .pdf, others in native format, and others in .tif files, usually depending on their document management system, if any.  Before producing documents, counsel must discuss the format they want. Otherwise there will inevitably be a dispute about whether the documents should be produced in some other format and who should pay for it if they were produced in the “wrong” format.

Then there is the whole issue of metadata.  Metadata is data about data, including, who created it, when, where, in what form, what revisions were made, etc.  It is usually expensive to deal with and rarely critical.  It may be important to have it if the authenticity of an electronic document is in question.  But that is rare.  Normally, you will not want to require that extra effort be made to gather it for each document absent a showing it is needed for a specific purpose for specific documents.

Fitting the search to the need

Of course, the main issue is how to get information the parties need to prepare and present their cases without breaking the bank.  Again, CPR has a useful protocol that provides a way to think about this.

CPR posits different modes of electronic discovery.  The first is simply disclosure of copies of electronic information to be presented at the hearing, either printed out or in other usable form.  This would often be adequate for a routine matter.

The second mode includes disclosure in usable form of documents (a) from a specific, limited number of custodians, (b) provided from the time of signing the contract at issue to the date of filing the arbitration demand, (c) only from primary storage facilities with no need for disclosure from backup servers, tapes, PDAs, voicemails, etc., and (d) with no need to provide anything but reasonably accessible data.

The third mode would include the second mode, but with more custodians and a wider time period to fit the specifics of the case.  The mode would also allow require, upon a showing of special need and relevance, disclosure of deleted, fragmented or documents otherwise difficult to obtain by other than forensic means.

The final mode would be full discovery of electronic information relevant to any party’s claims or defenses, subject to limitations of reasonableness, duplication, and undue burden. This would be like federal court discovery in a large case.

Of course, these are just suggestions, but provide a good starting point for discussion and may even provide a basis for agreement between counsel for the parties.

Cost shifting

Another fairly simple approach to e-discovery sometimes proposed is to require the requesting party to pay the cost of responding.  Some arbitrators I know swear by this as the answer to overreaching demands requiring searching and production of electronic documents.  This seems like a simple solution, but may not always be as it may involve the arbitrator in determining whether the amounts charged are reasonable and the like.  For cases involving serious e-discovery disputes, however, this approach is worth considering.

Keeping a practical mind set

The key to all this is really a more sophisticated way of asking, “If I were this party, where would I go to find the important information regarding the dispute?”  In most cases, the starting point – and often the ending point – would be on the systems used by the people most involved in the contract and subsequent dispute for the time period of the dispute.  This normally would not require searching  all the company’s servers, PDAs, voicemails, and backup tapes or searching a whole system for key words, or using predictive coding .  Most disputes in arbitration are likely to be more discrete and focused than that.  If they aren’t, the parties need to be prepared to explain that to the arbitrator and maybe even pay the other side’s cost for extraordinary effort in looking.

That should go a long way to reigning in the costs of arbitration and making it a real alternative to litigation.

Of course, discovery isn’t only about documents.  Counsel is used to taking depositions for cases in court and will very often want to do the same in arbitration.  We’ll take that up in the next installment.

Efficient Arbitration, Part I: Getting Control of Document Discovery

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Arbitration offers many benefits over litigation in resolving commercial and intellectual property disputes.  The parties have an active role in picking the decision maker. In fact, they are generally given a listing of well-qualified arbitrators who are often experts in their legal field from whom to choose.  The whole system is set up to go faster with less formality and more emphasis on substance.  Continual procedural gambits and expense are easier to overcome, and the parties can count on a “date certain” for their hearing.  By contrast, a trial in court must be at the convenience of an often overburdened court awash in criminal and other matters.  In court you often are subject to call on a few days’ notice for a long period of time while the criminal matters go to the head of the line.

Why arbitration is not as favored as it used to be

So why isn’t every lawyer a fan of arbitration?  And I can tell you that there are many lawyers who are not fans of arbitration.  I’ve talked to them.

One reason we can’t do much about.  It is only natural to believe in the merits of your claim or defense.  When you lose, there is a tendency to blame arbitration.   The cure is to shun arbitration in the future if possible.  You normally can’t do that with court.

The other reason is cost.  The parties and their in-house counsel get the bill for the arbitration and conclude it is just as expensive as litigation.  The reaction is, “I thought this was supposed to be cheaper than court.  But here I have to pay arbitration fees and costs, and I also have to pay these large legal bills.  This isn’t cheaper at all!”  That may or may not really be true.  It could well be that court would have been more expensive. But the perception is still there.  In fact, while arbitration was once favored by corporate counsel, a study done in 2011 shows a significant decrease in use of arbitration in commercial matters since 1997 with cost being the main concern.  R. Lamare, The Evolution of ADR Systems at Large U.S. Corporations, Dispute Resolution Magazine, Vo. 20, No. 3 (2014)(online: http://ow.ly/NsI93).

Of course, the main thing that makes arbitration expensive, just as in litigation, is discovery, especially electronic discovery.

This should come as no real surprise.  Advocates want to be sure they have all the facts they can find to present their positions and maximize their chances of winning.  But this comes with what can be a huge price tag these days where the facts are to be found in computers, on servers, and even in smart phones, if you look hard enough.  But in many disputes the cost of getting all those facts can overwhelm the amount at stake.

Fixing discovery

This all suggests that, if arbitration is going to somehow provide an advantage over traditional litigation, containing discovery is a good place to start.  But how do you make sure the parties have the facts they need without breaking the bank?  Actually, there are plenty of tools available.  So let’s think about how to use them.

We’ll begin by focusing on normal document discovery.  Many lawyers in arbitration are focused on the traditional litigation-based rationale for discovery: parties may obtain discovery of any non-privileged matter relevant to a party’s claim or defense.  Fed. R. Civ. P. 26(b)(1).  This is true no matter whether or not the evidence is itself admissible so long as it is calculated to lead to discovery of admissible evidence, whatever that means. Id.   Usually one side’s “calculation”  looks to the other side like a “fishing expedition.”  The latest rule amendments replace “calculated to lead to discovery of admissible evidence” with “proportional to the needs of the case,” which is a welcome change.  But lawyers still know they are subject to later criticism unless they leave no stone unturned in search of that one critical clue that could turn the case around.  That is true whether such a clue exists or not. Besides, it is the opponent who actually has to turn over the stones in their trove of documents.  So why not insist that they do it?

Because arbitration is by its nature more flexible than litigation, the cost of discovery can be managed on a basis that makes the most sense for an individual case.  This is something we must take advantage of to try to manage the cost of discovery in arbitration.  And the arbitrator can usually save counsel from themselves regarding overly broad discovery by making sure the search for documents is rational rather than needlessly exhaustive.

A good place to start

A good way to begin to think about all this begins with the protocols issued by CPR on what it refers to as “modes” of discovery.  (Available under “Resources” at cpradr.org).  Different modes can be used, depending on the specifics of the case, including the amount involved and the likely location of information.

The first mode just requires provision of the documents a party intends to offer at the hearing a few days before the hearing.  That may be adequate in a fairly small-dollar dispute where the facts are straightforward.

The second mode requires the disclosures as in the first mode, but adds a prehearing disclosure of those documents “essential to a matter of import to the proceeding for which a party has demonstrated a substantial need.”  In other words, if a party thinks a certain category of documents needs to be provided by the other party, it needs to explain why.  It will be given the documents if the explanation is persuasive.

The third mode includes everything in the second, together with disclosure prior to the hearing of “documents relating to the issues in the case that are in the possession of persons who are noticed as witnesses by the party requested to provide disclosure.”  In other words, witnesses need to provide the documents they have that are relevant to the issues on which they will testify.

The fourth mode essentially tracks the scope of litigation discovery, requiring provision of “relevant documents regarding non-privileged matters that are relevant to any parties’ claim or defense, subject to limitations of reasonableness, duplication and undue burden.  This would be reserved for matters where there is enough at issue to justify this deep a dive into the documents.

These proposed modes are useful in suggesting the depth of discovery possible and, in many case, the parties will agree what makes sense for the matter.  In other cases, they will not agree.  That is where an experienced arbitrator comes in to weigh the likely burdens and expense against the likely value of the information.  The advantage of thinking of things this way, however, is it provides a basic structure for determining how far document discovery should go to begin to fit the procedures to the dispute.

Remember, these modes are just suggestions.  A careful study of the particulars of the case may reveal that there is another hybrid mode that makes more sense in the unique situation presented.  But these suggested modes are a good place to start and are quite a bit more helpful to crafting an efficient discovery process than general notions of relevancy, calculation, and burdens.

Of course, while the general scope suggested by the suggested modes are a good way to start getting a handle on discovery, there is still the complication of electronic discovery, which we will take up in the next installment.