Earlier this month I attended a summit on alternate dispute resolution at the American Bar Association Forum on Construction’s Fall Meeting in Austin, Texas. One of the sessions I found particularly interesting was a session titled “Has Arbitration Fulfilled its Promise?” The presenters were William K. Andrews of Andrews Myers, P.C., L. Tyrone Holt of The Holt Group, LLC and Shelly L. Ewald of Watt, Tieder, Hoffar & Fitzgerald, LLP, where I clerked in law school. They gave several points to consider as you decide whether to include an arbitration clause in your next construction contract.
In the past few years, many construction contracts have included arbitration provisions, but the question remains, has arbitration lived up to expectations? Parties shifted to arbitration based on a promise of an efficient and final resolution to disputes, rather than litigation (which some parties found to be plagued with delay and inefficiency, to some degree due to the ever pending threat of appellate review). But has arbitration come to look too much like litigation over the years? Where might arbitration have gone wrong?
The cost of arbitration is almost always directly related to the amount of discovery permitted. In recent years, discovery in arbitration has expanded during a time in which federal courts have been attempting to rein in discovery, especially e-discovery. Barring action by Congress, as of December 1, 2015, federal courts are moving away from broad rights of discovery to a new emphasis on cost/benefit balancing to limit discovery. Arbitrators are given broad discretion to manage arbitration, so this same guidance on discovery may not always govern discovery in arbitration. Parties employing arbitration should remember that unlike in a court proceeding, the parties themselves select the arbitrator. Therefore, parties and their counsel should consider interviewing arbitrators pre-selection to determine whether the potential arbitrator’s philosophy toward discovery and arbitration generally matches the parties’ expectations regarding how much, or how little, discovery is appropriate as well as the process for the arbitration generally.
One of the blessings and curses of arbitration has tended to be the finality of the award, but now even this is under attack. Unlike court judgments which can be appealed on many grounds, arbitration rulings were generally thought to be final. However, in recent years the American Arbitration Association has instituted optional rules that allow for appellate-like review of AAA decisions with an ability to overturn decisions based on material and prejudicial errors of law and clearly erroneous determinations of fact. Again, this is an example of arbitration creeping closer to litigation. If parties want to avoid such options, the best solution may be to affirmatively reject such rules or include a contract term that allows a party to recover its attorneys’ fees and costs in a successful defense of an arbitration award.
My final thought is that arbitration is what the parties make of it – what they contract to and who they decide on as an arbitrator. Parties enjoy the strengths of arbitration when they take control and make it what they want – by drafting the right kind of arbitration provision and agreeing to the right kind of arbitrator for the case.