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Is arbitration all that it’s cracked up to be?

Is arbitration delivering on its promise as a faster, cheaper alternative to litigation?

The answer is a resounding, “It depends,” according to panelists at a recent panel discussion entitled “Committing Your Company to Arbitration: Benefits and Pitfalls.”
The breakfast program was sponsored by the New England Legal Foundation (NELF) and held at the Boston College Club in Boston.
Panelist Patrick Lane, Procter & Gamble’s associate general counsel-litigation, enthusiastically endorses arbitration in the context of recurring disputes between competitors, where the parties have incentive to tailor procedures by agreement. Lane considers arbitration a failure, however, for one-off disputes arbitrated pursuant to sales and other pre-dispute contracts.
Panelists Kenneth Feinberg, an experienced neutral who served as special master for distribution of the Sept. 11 Victim Compensation Fund, and Richard Gelb of Gelb & Gelb in Boston, an experienced practitioner who moderated the NELF panel, both find arbitration to be at least as slow and expensive as litigation. They both strongly prefer mediation.
Professor William W. Park of Boston University’s School of Law, a recognized expert on commercial arbitration, also participated on the panel.
Park said he believes arbitration is generally a good choice for resolution of international disputes because it permits a level playing field linguistically and procedurally between parties from different cultures. And arbitration makes sense if participants are from countries where judicial independence is in question.
Park also explained that a U.S. arbitration award has more international currency than a decision of the U.S. Supreme Court. Apparently other countries don’t think too much of our system of jury trials in civil cases and runaway punitive damage awards. They have agreed to enforce our arbitration awards, but not our court judgments.
Massachusetts Superior Court Judge John C. Cratsley also participated in the panel discussion and expressed concern about the loss of judicial precedent in the securities field, where arbitration is compelled. He noted that an agreement to arbitrate does not necessarily eliminate litigation because disputes routinely arise over enforcement of arbitration agreements and awards.
Interestingly, Judge Cratsley supports the notion of complex disputes being resolved by arbitrators with specialized expertise. Other panelists, however, are adamantly opposed to the use of experts as neutrals.

What’s a practitioner to do?
If there is no across-the-board answer to whether arbitration is the right choice, what’s a practitioner to do?
Panelists had a number of practical suggestions regarding the selection of dispute resolution methodology and neutrals, as well as specific ADR procedures, a fuller account of which appears on NELF’s website at www.nelfonline.org.
Lane recommends the following approaches: (1) shortening time frames for both discovery and trial; (2) limiting the scope of paper discovery and the number of depositions; (3) requiring reasoned arbitral decisions; (4) jointly choosing three of the “best and brightest” as neutral arbitrators (i.e., no “party arbitrators”) and dispensing entirely with appeals; (5) jointly meeting with the panel before the hearing begins to express the parties’ common desire for a decision based on the facts and the law as opposed to a “split-the-baby” compromise; and (6) using mediation rather than arbitration in disputes with consumers and parties employing counsel on a contingent fee basis.
Panelists suggested that the requisite skill sets of both mediators and counsel for parties in mediation differ significantly from the skills of litigators and arbitrators.
Lane recommends leaving your litigator at home when you head to mediation. Both he and Feinberg steer clear of former judges as mediators, and Gelb generally lets his opponent choose the mediator.

Intriguing solution?
An intriguing potential solution to the concerns about arbitration expressed at the NELF event is offered by Henry S. Noyes, associate professor of law at Chapman University School of Law, in an article in the Spring 2007 Harvard Journal of Law & Public Policy.
In the article, entitled “If You (Re)Build It, They Will Come: Contracts to Remake the Rules of Litigation in Arbitration’s Image,” Professor Noyes argues that parties generally have the ability before a dispute arises to “choose the public courts as the forum for dispute resolution, yet waive, modify, and displace the ‘normal’ litigation rules.”
Starting with the “practical problem” that “arbitration is not all it is cracked up to be,” Professor Noyes argues that such modified litigation has all of the benefits of arbitration other than confidentiality and, properly constructed, will be both cheaper and better than arbitration.
There are no tribunal or decision-makers’ fees to be paid, appellate rights will be intact, and litigants will continue to have the benefits of creation of and adherence to legal precedent. And, as Professor Noyes notes, arbitration’s supposed advantage of confidentiality is far from a sure thing.
Characterizing civil cases as “owned” by the parties and U.S. rules of civil procedure as “default rules” that generally govern only if the parties have not agreed to other procedures, Professor Noyes suggests that parties have the ability to customize a broad array of litigation protocols.
Some modifications have already been found enforceable by most courts, according to Noyes – including waiver of trial by jury and appellate review, forum selection and choice-of-law provisions, and changes to evidentiary rules.
Noyes concludes that parties should also be able to do the following: (1) Waive defenses like lack of personal jurisdiction and improper venue; (2) agree not to remove cases to federal court; (3) eliminate the need for unanimous jury verdicts; (4) limit the nature or scope of discovery and/or the time frames for discovery or trial presentations; and (5) waive oral hearings, live testimony, and the rules of evidence.
Assuming Professor Noyes is right that parties can tailor litigation procedures, one can nonetheless question the practicality of reaching agreement on a customized set of detailed litigation rules before a dispute even arises.
That said, Noyes’ proposal offers food for thought. It presents the possibility of preserving the best of each of the litigation and arbitration alternatives and may even present a partial solution to the e-discovery nightmare by allowing for advance agreements waiving compliance with “litigation hold” requirements prior to litigation and limiting the scope of discovery of electronic data once litigation begins.
Evaluating the viability of the modified litigation approach for any particular company will – like the choice of dispute resolution methodology generally – require collaboration among counsel and others with litigation, corporate and contract responsibilities. It will generally be in-house counsel who can best lead this effort.
Jo Ann Shotwell Kaplan is general counsel at the New England Legal Foundation. Jo Ann recently joined NELF, having served previously as chief counsel, litigation, for Thermo Fisher Scientific Inc. and as an environmental litigation partner at Choate, Hall & Stewart in Boston. NELF is a non-profit foundation sustained by tax-deductible contributions from businesses, law firms, and individuals that support NELF’s mission of advocating the interests of business through amicus briefs in litigation and promoting public discourse on legal issues of concern to business.

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