Preparation for Arbitration (citations omitted)

Court endorsement of arbitration at federal and state levels continues although recent case law reflects a judicial disposition to interject modifications in the process. Commercial contracts dominate arbitration caseload, but counsel increasingly confront arbitration clauses in residential real property contracts, employment and franchise agreements and, in some cases, torts “arising out of” a contractual dispute. Arbitration of intellectual property disputes is also emerging nationally.
Litigation counsel frequently have not participated in drafting arbitration clauses and must initially determine whether to oppose a petition to compel arbitration on statutory grounds enumerated in CCP 1281.2, or, if in federal court, 9 U.S.C. 3,4. Alternatively, if the contract contains an arbitration clause naming an institutional arbitrator, a party may bypass the judicial process and demand arbitration directly. To avoid arbitration in this mode, and without a complaint on file, the opposing party must seek mandate, an injunction or declaratory relief.

Petition to Compel Arbitration
In a hearing on the petition to compel arbitration, the court should:
1. Resolve “arbitrability,” i.e., objections to the validity and enforcement of the the arbitration clause (unconscionable; fraud; illegal). In some cases, the parties have agreed to submit “arbitrability”to the arbitrator;
2. Parties: List parties subject to the arbitration clause, their legal capacity and representation by counsel. Arbitration agreements often “carve out” parties-or issues. If multiple arbitration clauses exist in contracts between parties to the arbitration, or third parties have contracted with the litigants but selected different arbitrators and their interests are at stake, the court must sort out the parties and select the arbitrators. In the absence of court resolution of this issue, or emergence of a third party subsequent to the order compelling arbitration, the arbitrator may have to return the matter to the court for further proceedings.
3. Determine the status of any collateral arbitration or pending litigation among the parties, or third parties, and sever or consolidate claims if appropriate;
4. Rule on any question of waiver of arbitration by either party.

Common counts are routinely subject to arbitration but the United States Supreme Court and the California Supreme Court have approved arbitration of federal and state statutory claims. In this category, the arbitration must potentially “vindicate” statutory remedies for prevailing claimants. The California Supreme Court has mandated several procedural rules applicable to employment litigation conducted pursuant to the California Arbitration Act, but the United States Supreme Court has not definitively ruled on this issue under the Federal Arbitration Act.

Appointment of Arbitrator
If the court grants the petition to compel arbitration, or denies injunctive relief in the absence of litigation on file, the parties must agree to an arbitrator or petition the court to appoint. In either event, counsel should seek evidence of the arbitrator’s experience and litigation background. After selecting an arbitrator, counsel can prepare for arbitration utilizing skills already learned in litigation. The similarities between litigation and arbitration are striking, and counsel can facilitate the arbitration and its heralded efficiency by invoking familiar trial tactics.

Pre-Arbitration Conference
Counsel in litigation are familiar with pre-trial (status) conferences held pursuant to court rules. Similarly, a pre-arbitration conference among counsel and the arbitrator is a valuable tool in resolving issues and identifying the scope of the dispute. The pre-conference call allows the parties to voice evidentiary objections, obtain rulings on motions, brief the issues and eliminate delay in the proceedings. Counsel can inform the arbitrator of substantive and procedural issues likely to emerge during the arbitration, frame stipulations, and discuss scheduling conflicts.
If pleadings have been filed, causes of action identify the issues but under arbitration law these documents are functus officio after the court has granted a petition to compel arbitration. Winnowing the pleadings and framing the issues will guide the arbitrator to the specific grounds for resolution. (The technical word for identification of issues in arbitration is “Claims” and “Counter Claims.”) The pre arbitration conference can alert all parties to viable claims, remedies sought whether legal or equitable, punitive damages and provisional remedies.

Cross Claims
Just as cross complaints seeking affirmative relief are routine in litigation, “counter claims”replicating pleadings are allowed in arbitration. If an institutional arbitrator (JAMS or AAA) is named, review their respective rules for guidance on timely filing. Respondents can identify procedural or substantive “answers”, affirmative defenses, i.e., offsets, statute of limitations, and laches in the counter claim.

Third Parties
Counsel must also consider the ramifications of the arbitration decision on non signatory parties unnamed in the contract and the potential role of res judicata and collateral estoppel. Assignees, third party beneficiaries, guarantors, and sureties may not necessarily be bound by the arbitrator’s decision under the California Arbitration Act but rules are different under the Federal Arbitration Act.

Witnesses
All parties should submit a list of witnesses to the arbitrator in conjunction with filing briefs. Counsel can discuss scheduling conflicts with the arbitrator, adjust the chronologic order of testimony to take witnesses out-of- order or otherwise accommodate participants. Counsel ca n stipulate to evidence by declaration or affidavit, conduct telephonic conferences or use video conferencing to take testimony.

Exhibits
A joint exhibit list eliminates duplication of paper and facilitates numbering. If counsel require power point, shadow boxes for X-rays, VCRs, or overhead projection, inform opposing counsel and the arbitrator in advance.
One common method to avoid evidentiary disputes is a stipulation to foundation and authenticity of documents. Relevance and materiality become the only issues.

Depositions
Standard practice in litigation requires submitting the deposition transcript to a deponent for review and correction. Corrections should be identified and noted for the arbitrator. If a party elects to submit excerpts of a transcript, the use of yellow highlighted marking pens to isolate relevant question(s) and answer(s) enables arbitrators to read the transcript easily. If discovery has been agreed upon, excerpts from interrogatories, requests for production of documents or requests for admissions should also be highlighted for easy reading

Discovery
Except in personal injury and wrongful death litigation, discovery is extremely limited in arbitration; CCP. In complex litigation, agreement between counsel for limited discovery can facilitate presentation of evidence and avoid surprise. The CCP allows the arbitrator to issue subpoenas, but this process should not subvert the Legislative intent to limit discovery.

Evidence
Case law and the CCP allow the arbitrator to consider evidence irrespective of the Evidence Code (with the exception of statutory “privileges”). Parties can request the arbitrator to rule according to California and statutory law despite this prohibition. Appeals from adverse rulings in arbitration are limited but an arbitrator who fails to comply with the terms of the agreement between parties is arguably acting in “excess of jurisdiction”;

Administrative details
Confirm the hour, location and estimated time of the arbitration. Although mundane requirements, the parties, witnesses and counsel occasionally arrive at the wrong place or time-to the consternation of the opposition.

Provisional relief:
CCP 1288 permits the court to issue an injunction during the arbitration only if the award would be ineffective. Arbitrators lack contempt power and should not entertain requests for injunctive relief or appointment of a receiver.

Remedies
An arbitrator can fashion any remedy reasonably related to the nature of arbitration issues. Parties can limit this wide scope of authority by stipulating the award must arise out of the “essence of the contract” or in conformity with California law.

Award
Request the arbitrator to issue an “interim” award that reserves jurisdiction for submission of evidence on fees, costs, interest and identification of a prevailing party. In an appropriate case, the arbitrator can bifurcate the hearing and issue a series of interim awards.
One key ingredient of arbitration is the promise of “finality”. The arbitrator should issue a “final”award, subject to correction of minor errors. In reviewing the award, determine whether the arbitrator has addressed all issues and parties previously identified.

Appeal

Grounds for appeal are severely limited and the Court of Appeal in California has written that parties cannot confer appellate jurisdiction. The federal rule in the Ninth Circuit differs.


Judge Lawrence Waddington (Ret.)