Preparing for Contractual Arbitration |
from Survival
Guide for New Attorneys, 2006
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The initial step in preparing for contractual arbitration is an analysis of the arbitration clause in the contract. The clause typically identifies the parties, the arbitrable issues, and the remedial relief available. Code of Civil Procedure Sections 1280 et seq .outline the procedural components of arbitration, but these statutory provisions do not encompass all decisional law essential to arbitration advocacy. Contractual arbitration, as distinct from court-ordered arbitration, imparts finality to a dispute—and the language of the arbitration clause has a direct impact on the nature of the award ultimately issued by the arbitrator following a hearing. Procedure. Federal and state courts have analytically separated their review of an arbitration clause and whether the underlying dispute may be resolved in an arbitral forum from any consideration of the merits of the claims in the underlying dispute. Notwithstanding this doctrine of separability, counselmay confront familiar procedural law within the confines of the arbitration clause, including a variety of terms frequently invoked in litigation. A clause may include references to the performance of conditions precedent, consolidation of multiple arbitrations, and time limitations for the initiation of arbitration, and may contain forum selection as well as choice of law provisions. All these factors may affect the preparation of the parties as they address the substantive law of the dispute. Moreover, specific statutes and case law apply to arbitration clauses in employment contracts, consumer contracts, real estate agreements, and cases involving medical malpractice, health care issues, and construction defects. The party seeking arbitration—identified as the claimant—initially submits a demand for arbitration to the other party accompanied by a Statement of Claims. If pleadings in conjunction with a lawsuit are on file and the court has granted a petition to compel arbitration and stay the litigation, the complaint in the lawsuit may be used to identify claims, and parties may choose to present a stipulation adopting the complaint’s causes of action as a substitute for a Statement of Claims. The Statement of Claims identifies the specific issues to be resolved. Careful preparation of the Statement of Claims is important to avoid future challenges to an award on the ground the arbitrator did not rule on a specific issue, included the wrong party, erroneously cited the legal capacity of a party, or issued the wrong remedy. The opposing party—identified as the respondent—can file counterclaims or offsets as well as dispositive objections to arbitration, including objections based on the statute of limitations, laches, res judicata, collateral estoppel (if there was a previous litigation or arbitration), or summary judgment. Demurrers and motions to strike are impermissible in arbitration. In some instances the court will have resolved these issues. But once the court orders arbitration, the court retains no jurisdiction to intervene except to issue provisional relief; appoint an arbitrator if the parties cannot agree on one; and confirm, correct, or vacate an award. Parties. When ordering the parties to arbitrate in response to a petition to compel arbitration, the court does not always identify the parties and their legal capacity. The court should require the moving party to 1) confirm the correct names and capacity of the parties to the arbitration, and 2) specify whether unnamed third parties are affected. Whether the arbitration is court-ordered or the parties have agreed to arbitrate, this clarification is important for the determination of issues involving alter ego, individual or joint liability, corporate capacity, and agency. Moreover, it is critical for the determination of liability by joint venturers, assignees, doctors or hospitals, partnerships, and third-party beneficiaries. An arbitration award is potentially admissible in subsequent litigation or arbitration between the parties (and possibly third parties). Thus the proper categorization of the parties and arbitrable issues is crucial in resolving allegations of collateral estoppel or res judicata. Issues. Arbitration agreements often “carve out” parties or issues. If arbitration clauses exist in contracts among multiple parties to the arbitration, or third parties have contracted with the claimantbut selected different arbitrators, the court will need to sort out the parties and arbitrators. In the absence of a court resolution of this issue, or the emergence of a third party subsequent to the order compelling arbitration, an arbitrator may have to return the matter to the court for further proceedings. Whether the arbitrator should attempt resolution of collateral litigation and arbitration claims is unresolved in case law. Third parties, however, may elect to join an arbitration voluntarily. Jurisdiction. Contractual arbitration may fall under the jurisdiction of federal or state law. It is important to determine which jurisdiction governs because the Federal Arbitration Act (FAA)1 and the California Arbitration Act (CAA)2 often conflict. Most arbitration clauses designate the procedural rules of federal or state law, but parties are often confused about the statutory differences between the two. If the parties agree, they can choose to abide by either the CAA or FAA as the source of the procedural rules. No matter what procedural rules the parties select, however, arbitrators will reach their resolutions on the merits of the arbitration based on state substantive law. Rules of arbitration. An arbitration clause usually will identify an arbitration service provider or an individual arbitrator to administer the arbitration. Most service providers have drafted rules that govern specific types of arbitration (such as rules for class actions or complex cases). Copies of the applicable rules generally are available online or from the appointed case manager. Discovery. Unless an arbitration clause permits discovery, contractual arbitration under the CAA and the FAA disallows this litigation tool except in personal injury, wrongful death, and employment cases decided under California law. Despite these limitations, parties routinely request arbitrators to allow discovery. Parties commonly seek, at a minimum, for permission to exchange documents that provide support for each side’s claims or defenses. While arbitrators differ widely regarding their responses to discovery requests, they frequently allow the taking of depositions of the parties. Discovery disputes, if permitted, mirror those in litigation, and the arbitrator must resolve disagreements. To limit uncertainty about the arbitrator’s decision in a discovery dispute, the prevailing party (or the arbitrator) should prepare an order documenting the nature of the dispute and its resolution. Prehearing conference. Civil litigators are familiar with pretrial status conferences conducted pursuant to court rules. A prearbitration conference among counsel and the arbitrator is a similarly valuable tool in resolving issues and identifying the scope of the dispute. A prearbitration telephonic conference allows the parties to voice evidentiary objections, notice motions, and determine the dates, time, and location for the arbitration. Counsel can inform the arbitrator of substantive and procedural issues likely to emerge during the arbitration, frame stipulations, and discuss scheduling conflicts. Many arbitrators provide counsel with a preconference form listing all potential issues for discussion and require counsel to work together to resolve as many of the issues as possible prior to the conference. Winnowing the causes of action and framing the issues will guide the arbitrator to focus with specificity on the claims that must be resolved. The prearbitration conference can alert all parties to
Prior to arbitration, all parties should submit a list of witnesses to the arbitrator in conjunction with their arbitration briefs (which should be prepared in a manner comparable to trial briefs). Counsel and the arbitrator can structure the order of testimony, which may involve taking witnesses out of chronological order or otherwise accommodating participants. Since arbitrations are less formal than trials, counsel can typically stipulate to evidence by declaration or affidavit, conduct telephonic testimony, or use videoconferencing in lieu of live testimony. Exhibits. The creation of a joint exhibit list by the parties eliminates unnecessary duplication and facilitates numbering. If counsel require computers for Power Point presentations, shadow boxes for x rays, VCRs, or overhead projectors, they should inform opposing counsel and the arbitrator in advance. One common method to avoid documentary disputes is for parties to stipulate to the foundation and authenticity of each document. The only issues that will remain are relevance and materiality. The parties should alert the arbitrator to any anticipated disputes over document authenticity during the preconference discussion. Depositions. Standard practice in litigation requires the submission of a deposition transcript to a deponent for review and correction. In arbitration, parties should identify any corrections for the arbitrator. If a party elects to submit excerpts of a transcript in evidence, those portions should be highlighted. If the parties have agreed to engage in discovery, excerpts from interrogatories, requests for production of documents, or requests for admissions also should be marked to facilitate the arbitrator’s reading of these materials. Evidence. Case law and the Code of Civil Procedure allow the arbitrator to consider evidence without regard to the strictures of the Evidence Code (although the arbitrator should respect the Evidence Code on statutory privileges). The rules of evidence do not necessarily apply in arbitration. However, counsel should determine whether the arbitrator intends to follow the Evidence Code. Parties can ask the arbitrator to rule according to case law and the Evidence Code, but arbitrators are not necessarily bound by such a request. Appeals from adverse evidentiary rulings in arbitration are severely limited. In addition to stipulating to facts not in dispute and exchanging exhibits prior to the arbitration, parties are often asked by arbitrators to exchange the names of any expert witnesses who will testify and the witnesses’ CVs and reports. Facilitating the process. Arbitration offers the potential of an expeditious and inexpensive alternative to litigation. To facilitate the process, parties should discuss with the arbitrator the possibility of bifurcation to enable the arbitrator to separate the resolution of liability from the determination of remedies. Evidence matures as the preparation for arbitration takes its course. This often mandates changes in strategy. In some cases, counsel will dismiss claims or seek to amend claims. The arbitrator has discretion on whether to allow amended claims, although the arbitrator may be limited by the rules governing the arbitration. At the prearbitration conference, or immediately prior to arbitration, the parties should discuss whether to make opening and closing statements. Some arbitrators prefer to rely on the arbitration brief, while others request an opening statement that outlines the case chronologically and summarizes the evidence in support of the claims or counterclaims. Arbitration is as formal or informal as the arbitrator decides. The arbitration setting provides the potential for increasing contact between an arbitrator, parties, and witnesses. Counsel should remind all participants that the arbitrator is prohibited from engaging in ex parte conversations. Provisional relief. The Code of Civil Procedure permits the court to issue an injunction during arbitration only if the award would be ineffective without one. Arbitrators lack contempt power for the violation of a temporary restraining order or preliminary injunction and should not entertain requests for injunctive relief or appointment of a receiver. If a party seeks this type of provisional remedy, the arbitrator should refer the matter to the superior court. Arbitration is becoming a standard method of resolving a host of business disputes and civil matters that previously resulted in litigation. Familiarity with the expectations of parties as well as the differences between litigation and arbitration will allow attorneys to better advise their clients regarding which method is preferable and how an arbitration will be conducted. *** |