Articles

Arbitration Advice: Ten Tips For Success

Marshall H. Tanick
(email)
Mansfield, Tanick & Cohen, P.A.
1700 U. S. Bank Plaza South
Minneapolis, MN 55402
Tel: 612.339.4295
FAX: 612.339.3161

Arbitration is used with increasing frequency for Alternative Dispute Resolution (ADR). Arbitration offers a number of advantages to conventional litigation. They include expertise of decision-makers; speed of proceedings; cost savings; and confidentiality of proceedings.

Arbitration also has some disadvantages. The drawbacks include limitations on discovery and other fact-gathering devices; lack of clear-cut precedents for guidance of parties; and absence of meaningful appellate review.

The advantages, however, seem to outweigh the disadvantages. Here are ten tips to help parties use arbitration successfully:

1. Arbitration Agreements. Arbitration generally is a consensual process. Therefore, parties usually must agree to arbitration before engaging in the process. It is important, therefore, for parties to contemplate arbitration at the earliest possible stage. Agreements to arbitrate should be drafted to take into account the likelihood of a dispute arising between the parties and provide a road map for dispute resolution. The absence of an arbitration agreement at the outset of a relationship may impede the likelihood of agreeing to arbitration later once a dispute develops. Parties should, therefore, consider including arbitration clauses in contracts and other documents.

2. Choose Carefully. Arbitration proceedings are generally conducted before a single arbitrator or, in some cases, a panel of three arbitrators, with an arbitrator selected by each of the parties, and the two designees then selecting a third party neutral.

   Choosing an arbitrator should be done carefully. The arbitrator, or panel of arbitrators, have substantial discretion in resolving disputes and essentially act as jurors. Parties should inquire into the background of arbitrators and make informed decisions in the selection process.

3. Site Selection. The facility for conducting an arbitration can be significant, at least in the perception of the parties. Occasionally, there is a "home" advantage if an arbitration is conducted at a particular site.

   To avoid bickering over the place of an arbitration, a neutral site can be selected. If an arbitration is conducted through the auspices of an organization, such as the American Arbitration Association (AAA), the organization can provide its own facility. In other cases, the parties may decide to select a neutral site.

4. Damage Demands. Arbitration can be used creatively. Rather than an all-or-nothing procedure, parties can agree to a "high-low" approach. Under this arrangement, the claimant agrees to limit damages to a set amount, while the other party agrees to a minimum amount that may be awarded regardless of the outcome. Using a "high-low" approach can assure a claimant that some recovery will be allowed, while safeguarding the party against whom a claim is asserted from an extreme result.

   Another creative approach is for the parties to each select a damage amount and have the arbitrator choose which amount is most reasonable. This approach maximizes the likelihood that both parties will take reasonable positions without extremes. In some cases, the issue may not be one solely of damages but some other type of non-economic relief, such as reinstatement to a job. In these cases, the parties may have less flexibility in devising remedies.

5. Fee Findings. Although legal expenses usually are less in arbitration proceedings than conventional litigation, they nonetheless can be substantial. The parties may wish to agree that the prevailing party in the arbitration is entitled to attorney's fees. If so, the parties must agree to this arrangement before the arbitration commences. Otherwise, arbitrators generally do not award attorney's fees to prevailing parties. A "prevailing party" clause with respect to legal expenses can encourage the parties to reach a settlement in order to avoid the risk of both losing the arbitration and paying the other party's legal fees.

6. Settlement Suggestions. Using arbitration as a means of ADR does not preclude settlement. Parties can, and usually should, attempt to negotiate a settlement even if an arbitration proceeding is pending. Often, this can be accomplished by combining a non-binding mediation with an arbitration, using the mediation as a precursor to arbitration if the mediation fails. In other cases, the parties may desire to utilize a non-binding arbitration, with the outcome simply advisory. A non-binding arbitration often provides substantial guidance that leads to an ultimate settlement, while preserving the parties' rights to engage in conventional litigation if they are displeased with the outcome.

7. Proper Preparation. Although case preparation in arbitration proceedings is usually less extensive than conventional litigation, preparation is nonetheless important. Appropriate witnesses should be identified, interviewed and prepared to testify. Documents should be gathered and identified in advance of the proceeding.

   Parties may also wish to submit short pre-arbitration briefs to acquaint the arbitrator with the facts and legal issues involved in the proceeding. After the hearing, the parties generally are invited to submit post-hearing briefs.

8. Discovery Documentation. Although arbitration generally does not involve prolonged discovery such as depositions, the parties are not necessarily precluded from exchanging some information. The parties can stipulate to engage in some pre-hearing discovery, including a limited number of depositions of key witnesses. They also can generally agree to identify witnesses and exchange documents prior to the hearing.

9. Relaxed Rules. Rules of evidence, procedures, and other processes followed in arbitration generally are more relaxed than in normal litigation. This means that the parties usually can introduce hearsay evidence, which ordinarily would not be admissible in judicial proceedings.

   Despite relaxed rules, arbitrators generally impose their own requirements that should be taken into account prior to arbitral hearings. The parties may wish to inquire of the arbitrators concerning particular rules that might be utilized.

10. Appellate Alternatives. The outcome of a binding arbitration proceeding usually is dispositive. Parties have few opportunities to appeal arbitral decisions. Absent fraud, bias, or other similar aberrations, the result generally cannot be appealed, even if it is deemed wrong.

Following these then tips does not assure a success in arbitration. Adhering to these principles, however, can maximize the likelihood of a success in this process that is being used with increasing frequency to resolve legal disputes.

This article originally appeared in Law Watch, Winter, 1998.

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