Lawyer’s Advocacy in Arbitrations - Top 10 Horrible, Terrible, No Good Mistakes Lawyers Make: No. 5 through No. 1
This post is a continuation of the Top 10 most horrible, terrible, no good, “bang your head against the door” mistakes that I have seen lawyers make before, during, and after arbitrations in which I served as the arbitrator. As stated in the previous posts, there are pros and cons to binding arbitration versus trial in a court that go beyond a series of blog posts. In many instances, representing a party in an arbitration requires more due diligence and work than a trial. Great “arbitration” lawyering is essential, but many times does not happen.
No. 5: Know When to Fold ‘Em (Bad Claims/Defenses)
As the late Kenny Rogers sang, when playing poker, “you’ve got to know when to hold ‘em, know when to fold ‘em.” The same analysis equally applies to preparing for an arbitration hearing and determining what claims/defenses will actually be presented at the hearing. Without repeating the title of these series of blogs, one serious mistake I see, while both acting as an arbitrator or counsel, is lawyers (and clients) who feel that they not only need to present every single possible claim/defense to the arbitrator, but refuse to concede positions in the middle of a hearing when it’s clear the facts are not going their way. An arbitration is not a hearing before a jury or a judge who may not know anything about the subject matter of the dispute. Your arbitrator is an industry expert, most of the time an experienced lawyer in the field at issue. She knows what good and bad positions are and when one side is trying to pull the wool over her eyes. Especially in arbitrations where there are multiple claims (such as a construction dispute), a party’s credibility on ALL positions is vital. Presenting four great claims/defenses but also one to two highly questionable ones, or stubbornly sticking to positions that look like losers, is a serious mistake. Your adversary will use anything they can to oppose the four great claims/defenses and use the questionable claims/defenses to cast doubt on the valid claims/defenses. More importantly, the arbitrator will look askance (he may not say so) at those bad claims/defenses and wonder why you are still presenting a position that appears to be a sure loser. Conceding certain claims/defenses during a hearing, no matter how hard fought, can increase your credibility to the arbitrator. Such a narrowing down on positions and in-hearing concessions can also help reduce exposure, especially if there’s a prevailing party attorneys’ fees clause. This may take some persuasion for a client who may be worried about making ANY concessions, especially in a hard fought, emotional arbitration. But part of your job as a counselor is to give the best advice possible and lay out the pros and cons, and the client can then decide if he wants to go “all in” on all stated positions.
Finally, the other great line from this song is “you never count your money when you’re sittin’ at the table.” Knowing what claims and defenses to “hold” and present, and which ones to dump and fold, will give you and your client the best chance of walking away from the arbitration table with money in your client’s pocket (after legal fees are paid, of course…).
No. 4: Not understanding Pre-Arbitration Discovery Rights… and Limitations
After going through arbitrator selection and the initial administrative hearing, you not only have an arbitrator, but a scheduling order and a hearing date. Typically, in court, there would then be the start of a tedious and expensive pre-hearing “discovery” process. The mistake: not knowing your arbitration pre-discovery rights and limitations and not having a discovery “plan” in place that takes into consideration these limitations. Recall arbitration is a matter of contract. Does the arbitration clause address pre-arbitration discovery? Typically, a clause will incorporate by reference the rules of the group that will be administering the arbitration, such as the American Arbitration Association (AAA). What do these rules provide, if anything, on pre-hearing discovery? Recall my previous post discussion about effective drafting of arbitration clauses. The lawyer drafting the clause may have referenced some rules that may call for full bore discovery, when the pitch to the client to agree to arbitration was that discovery would be limited. The AAA also has separate rules for complex cases. You have to know what discovery you can and cannot obtain according to the clause and the rules, and be prepared to negotiate with opposing counsel if you cannot get what you need.
Party document exchange is always allowed, and it can be as simple as a letter with a list. It’s not necessary to send a formal “Request for Documents.” I still have arbitrations when counsel try to send interrogatories or requests for admissions. Again, absent a clause or agreement with counsel, the “rules of civil procedure” do not apply in arbitrations. The arbitrator does have the power to entertain motions related to party discovery, such as motions to compel. Entertaining and awarding sanctions is another matter, since again the rules of civil procedure, where judges are given options, do not apply. In these days of e-discovery, especially when there may be reams of documents and emails (especially in construction cases), it makes sense to try to work with opposing counsel on some kind of e-discovery protocol, such as search terms. Any reasonable arbitrator will expect and demand this sort of cooperation.
Pre-hearing depositions are always a tricky subject. Absent a clause, or what the rules provide, typically a party does NOT have a right to take any pre-hearing depositions. This drives some lawyers who do not have arbitration experience crazy. The arbitrator also does not have the right to “order” depositions (there can be exceptions for out-of-state witnesses). There can be an “agreement” with counsel for a full blown, unlimited depositions or just a few. But be forewarned: Many arbitrators who feel strongly about controlling legal costs (one hallmark of arbitration), may push back on “agreements” for extensive discovery. There have been arbitrations where the arbitrator believes the lawyers are out of control and sets up conference calls insisting that the clients participate, along with all counsel, to discuss why such depositions are necessary. How the arbitrator thinks about depositions is key when reviewing arbitrator lists. This is also a topic that prior to the initial scheduling conference counsel should have discussed, and certainly with the arbitrator in that conference where a scheduling order is being fashioned.
What about pre-hearing third-party discovery? The short answer is, unlike “court,” there is no “right” to such discovery. This is a huge factor in agreeing to arbitration in the first place. If there is a dispute arising out of the contract and your client will be the one who will need to have third-party discovery to prevail, that discovery may not happen. This post isn’t long enough to go through all of the case law (federal circuit courts differ on the enforceability of third-party, pre-hearing arbitrator subpoenas) and articles (just Google) on this topic. It is also important to know that unlike judges, arbitrators do not have the power to enforce a pre-hearing, third-party subpoena. The remedy for that party is to “go to court” to try to enforce the subpoena. Best advice: Have the arbitrator issue third-party discovery subpoenas early, well in advance of the hearing date. Since these third parties may simply ignore the subpoena, obtaining a continuance of a hearing because of your own issues with third-party discovery may not happen.
The primary learning points: (a) Know what your arbitration clause and rules allow for pre-hearing discovery; (b) have a plan for discovery in advance of the initial scheduling conference; (c) try to reach agreement with counsel if at all possible; and (d) use the arbitrator to manage the process to favor your client. Failing to do any of this will seriously hurt your chances of success at a hearing.
No. 3: Not Getting What You Need Out of the Initial Scheduling Conference
So, your arbitrator (or Panel) is appointed and within a few weeks a conference call is scheduled between counsel and the arbitrator. Many lawyers come unprepared, lured by the supposed “informality” of arbitration. Huge mistake. This is the first “impression” you and your client’s claims/defenses will make on the arbitrator. She has read whatever has been submitted and will be ready to ask questions. What have you submitted in advance? A one page, filled out demand? A form denial? While a detailed demand or answer, like a court complaint or answer, is not required, counsel should make sure that such a filing is in place prior to the conference. This educates the arbitrator and makes you look prepared.
Although you did your due diligence (see post No. 2) during the arbitrator selection process, it is time for more due diligence in advance of the call as soon as the arbitrator is appointed. Find out from colleagues who may have had this person as an arbitrator and how the arbitrator handles the initial conferences and deals with certain issues. This additional due diligence is especially important when there is a Panel. You should find out in advance who the chair of the Panel will be since he will determine how the arbitration is to be handled and may himself rule on discovery disputes. What’s his philosophy on key issues such as e-discovery, depositions or substantive pre-hearing motions? While “summary judgment” is not a concept frequently used in arbitration, in many instances there are appropriate motions that may need to be filed to narrow down claims or defenses or even dismiss an entire demand (such as the applicability of statutes of limitation). What’s the arbitrator’s philosophy on such motions? Setting aside the confidentiality aspects of arbitration, you should try to get your hands on a scheduling order previously issued by the arbitrator.
The arbitrator will look to counsel to help fashion a scheduling order with appropriate deadlines, which means pre-conference call preparation. Do you need a specification of claims/defenses from the other side so that you can better fashion written discovery? Do you need to request deadlines for the filing of counterclaims? What about site visits? Assuming the arbitration clause is silent on pre-hearing depositions, most arbitrators believe that they do not have the authority to order depositions. Depending on your relationship with opposing counsel, if you see the mutual need for limited depositions, call that counsel and discuss in advance what discovery you each need. Every arbitrator (like any judge) appreciates a good working relationship between counsel.
Finally, the one item every arbitrator worth her salt will insist on in an initial conference is to set the matter for a formal hearing. Your client will expect that also. That means thinking in advance about the time frame for the hearings; how many days of hearings will be needed; location of the hearing (it is great if your firm can host); and availability of counsel, client representatives and witnesses. While it’s perfectly acceptable to state that you will have to check with your client to confirm availability for agreed to hearing dates, the arbitrator will expect a prompt confirmation of dates. While you want to be liberal with the number of days, to avoid having to come back months after an incomplete hearing, be wary of the financial impact on your client with setting aside too many days. Most ADR agencies, such as the AAA, will within a few days after the hearings are set send out a bill to each side to pay for the arbitrator’s anticipated compensation, not just for the hearings, but pre-hearing matters, evidence review, and award preparation. Assume a three-person Panel for five days of hearings. Doing the math and giving each arbitrator eight days and an average hourly rate of $400, the total bill for each client which has to be paid in advance (otherwise no hearing) will be $45,600. This may change minds about whether or not you really want a Panel versus a solo arbitrator (the pros and cons of which could be a separate post) or whether that hearing you originally estimated would require five days might really be doable in three days.
The primary point is this: Like an initial appearance before your trial judge, nothing beats advance preparation. An experienced arbitrator WILL come away from the call with initial impressions of both counsel. Make sure that the first impression is favorable, because it will pay dividends in the future.
No. 2: Not Performing Due Diligence on Potential Arbitrator(s)
This post applies not to privately administered arbitrations where the parties attempt to agree on an arbitrator, but to the standard situation (whether through the American Arbitration Association or some other ADR organization) in which counsel are sent a “list” of possible arbitrators and their biographical information. After the arbitration demand is filed, counsel are provided with the list from which to select the arbitrator or arbitrators who will decide the case. The selection process is like selecting a jury in a courtroom trial: Cross off the unacceptable arbitrators; list the rest in order of preference; send the list back to the case administrator (without copying the other counsel); and soon thereafter you are assigned an arbitrator or panel of arbitrators.
How best should you handle this process? Do you review just the information, send to your client, and then start crossing off names? ABSOLUTELY NOT. This is the person who will render a final, binding decision for your client. If possible, you should research beyond the provided bios. Remember, the purpose of the bio is to get selected to serve (and therefore get paid) and not show any preference or bias. You want someone who will “call balls and strikes,” but it is amazing how much more information you can obtain by spending an hour on the phone or sending email inquiries. Proposed arbitrators are supposed to disclose all conflicts, but you should search for more. The more information you can get the better decisions you can make. As an example, you may find out that the arbitrator allows all discovery, including depositions, when you may not want full blown discovery. You may uncover a potential bias with opposing counsel. Would you want to know that the arbitrator has numerous cases as a lawyer with not just the opposing counsel but her law firm? Go to websites (especially for the lawyers). Go to your sources, your colleagues, especially if the proposed arbitrators are from different states, and start asking questions. Finally, when you are assigned your arbitrator, start the process again. Find some colleague that has had that person serve as an arbitrator and identify preferences. That arbitrator may, for instance, have a real focus on proving up damages or is willing/unwilling to issue preliminary substantive rulings.
The primary point is this: Your client will rely on you to make recommendations for arbitrators. While you can’t tell the client that this or that proposed arbitrator will rule in your favor (just as you cannot with a judge), by going through an exhaustive selection investigatory process you can at least be as informed as possible. So win or lose, that’s providing good service and advice.
Number 1: Mangling the Drafting of Binding Arbitration Clauses
Yes, this applies to your transactional lawyers as well as litigators. Arbitration is a matter of contract. Federal and state law allow for the enforcement of arbitration clauses. Courts now favor arbitration. There are plenty of articles out there on drafting arbitration clauses, but far too often drafters fail to consider the basics:
What “rules” will apply to any arbitration, including key topics such as filing fees and the selection of the arbitrator(s)? You must read those rules before agreeing to have a “bet the business” dispute resolved via arbitration.
What disputes will be subject to arbitration? “Any and all” disputes or only limited issues? Be careful not to create months and years of litigation arguing about the scope of an arbitration clause.
Since discovery between parties (especially depositions) and third-party discovery is typically limited under most arbitration rules, what information will your client need in the event of a dispute and how will you get it?
Will there be a condition precedent to the formal filing of an arbitration, such as going through a series of management meetings or even a mediation?
Do you include pre-qualifications for the arbitrators, especially if the disputes are very industry specific?
What about the venue for any hearings? It can be a tremendous advantage to have the hearing in your backyard with (typically) arbitrators who are local.
Should you have one arbitrator or a panel of three (which can be very expensive but also can mitigate the risk of a “rogue” arbitrator)?
The time to consider the answers to questions like those above is before you sign the contract when you decide to include an arbitration clause. After a dispute has arisen, it is too late to renegotiate a poorly written arbitration clause.
The primary point is this: If the business decision is made to resolve disputes via arbitration versus court, it is vital to make sure that you draft a workable “clause” that makes sense considering the subject of the contract.