Is Your Arbitration Clause Outmoded?

Zela "Zee" G. Claiborne, Esq.

Zela “Zee” G. Claiborne, Esq.

by Zela “Zee” G. Claiborne, Esq.

Although arbitration is a “creature of contract” and many arbitrations proceed in the manner outlined in the arbitration clause, it is not unusual for the parties and their counsel to alter the terms of the original clause to suit the dispute at hand.  Often a dispute has arisen years after the arbitration clause was drafted, and circumstances have changed.  The clause may no longer be appropriate.  Although the parties and their lawyers may have strong disagreements on the merits of the case, they understand that stipulating to a customized process that suits the dispute is a huge benefit to everyone involved.  This flexibility is one of the strong points of the arbitration process.

The following suggestions are just a few of the ways to alter an outmoded clause:

1.  Select One Arbitrator

One goal of these stipulations is streamlining the arbitration process to make it more cost-effective.  When the clause calls for a panel of three arbitrators, counsel can make the process less costly and often more efficient by stipulating to use a sole arbitrator.  Although the parties may prefer a tripartite panel for a complex, “bet-the-company” case, choosing an experienced solo arbitrator can save time and money and does not involve extreme risk.  Counsel have an opportunity to review the arbitrator’s disclosures, to contact others about their experiences with the arbitrator and even to interview the arbitrator if there are concerns about fairness and the handling of the case.  Interviewing arbitrators has become a common practice, and a good way to do it is to meet with the candidate in the presence of the other side to ask various questions about how the candidate manages cases, while, of course, avoiding queries about the merits of the dispute.

2.     Select a Provider to Administer the Case

Arbitration participants often express a preference for a particular ADR provider based on factors such as experienced case managers, efficient administrative procedures, cost and a comfortable, high-quality hearing space.  While the arbitration clause may identify a particular provider, the parties may have had a negative experience with that provider in the past and may want to switch.  Therefore, it is not unusual for counsel to stipulate to a different, preferred provider.  As long as both parties agree, this is an easy process that will make the experience smoother and less frustrating for both sides.  Case managers are trained to assist with such a change.

For the rest of “Is Your Arbitration Clause Outmoded?” please read the full article from Law.com by clicking here.

Arbitrator Selection

Kim Taylor, Esq.

Kim Taylor, Esq.

by: Kimberly Taylor, Esq.

Much has been written in recent years about whether arbitration has lived up to its billing as a “better, faster, cheaper” alternative to litigation.  No matter one’s views about this, litigation is undoubtedly very costly, and wise counsel must look for ways to reduce unnecessary costs and time delays.  Unlike litigation, arbitration affords the parties much control over the process, including the selection of the arbitrator, arguably the most important decision in the process.

Also unlike litigation, if parties are unhappy with the decision of the arbitrator, there is very little recourse, because a fundamental tenet of arbitration is finality.  Grounds for vacatur are limited, and unless the parties have selected an appellate arbitration remedy, the arbitrator’s decision will likely not be overturned.  Therefore, selection of the arbitrator is a critical step.

Institutional rules generally provide a process for selection of the arbitrator if the parties cannot agree amongst themselves, often by use of a “strike list,” where several arbitrators are proposed and parties are permitted to strike names until an acceptable arbitrator remains.  Matters calling for a tripartite panel are handled differently, as each party usually selects its own party arbitrator (assumed to be neutral, but the parties can agree otherwise), and those two arbitrators select a neutral chair.  Having three arbitrators on the arbitral panel can alleviate the concern that a single arbitrator may not apply the law correctly and can justify the additional cost.

Whether the matter is to be determined by a sole arbitrator or a tripartite panel, there are important considerations to keep in mind in selecting the tribunal.  First and foremost, counsel should review the language of the arbitration clause, as it often dictates the qualifications of the arbitrator.  Second, counsel should review the arbitration laws of the place where the tribunal will sit.  Certain jurisdictions have restrictions regarding the nationality of members of domestic arbitration tribunals.  Beyond that, what should counsel look for when selecting an arbitrator, and how should those qualities be investigated?

Above all, parties want to select as their arbitrator someone who is familiar with the law and has a track record of fairness.  Certain disputes require someone with significant subject matter expertise (e.g., patent disputes, engineering and construction, entertainment, employment), so it is important to review the background and prior caseload (whether as a former judge, arbitrator or practitioner) to determine whether the proposed neutral has the requisite background to understand the unique facts and legal issues at stake.

To learn more about arbitrator selection, please read the full article from Law.com by clicking here.

A Primer on Arbitrability

Richard Chernick, Esq.

Richard Chernick, Esq.

By Richard Chernick, Esq.

Drafters of arbitration clauses must understand the concept of arbitrability if the parties’ objectives are to be achieved.  Arbitrability is the portmanteau for several distinct concepts:

  • Is the clause/agreement enforceable?
  • What is the scope of the clause, i.e., what disputes are subject to the parties’ agreement to arbitrate?
  • Who, in addition to the signatories, will be required or entitled to participate in the arbitration?

Is there an agreement to arbitrate?

The Federal Arbitration Act (FAA) requires a finding of an enforceable arbitration agreement before a court may compel arbitration.  The FAA makes agreements to arbitrate valid, irrevocable and enforceable, “save on grounds as exist in law or equity for the revocation of a contract” (9 U.S.C. § 2).  State arbitration statutes (e.g., California Arbitration Act, Code Civ. Proc. § 1281) are similar.

The existence of an agreement to arbitrate is determined under state contract law principles as to the formation of contracts.  The savings clause (FAA § 2) further allows for the assertion of defenses to enforcement, also per state contract law, on grounds for “revocation” of contract (e.g., fraud, duress, illusory agreement, illegal agreement, incapacity, apparent or actual authority, unconscionability).  The FAA may preempt state law, however, where (1) it does not operate neutrally as to all agreements (see Doctor’s Assocs., Inc. v. Casarotto (1996)) or (2) the state law is anti-arbitration and thus violates the underlying principle of the FAA that arbitration is a favored process (see AT&T Mobility LLC v. Concepcion (2011)).

To learn more about Arbitrability, please read the full article from Law.com by clicking here.

Construction Defect Disputes and the Abandoned Policyholder: Getting the Carrier to the Table

Barbara A. Reeves Neal, Esq.

Barbara A. Reeves Neal, Esq.

Kenneth Gibbs

Kenneth C. Gibbs, Esq.

By Barbara A. Reeves Neal, Esq. and Kenneth C. Gibbs, Esq.

There is much that can go wrong in any large construction project:  improper installations, defective products, errors and omissions made by designers, unexpected site conditions—the list is long.  Insurance coverage or a performance bond often means the difference between compensating injured parties and a nightmare of litigation and financial distress.  Unfortunately, insurance carriers often choose to wait while parties take their disputes through lengthy, expensive litigation, often adding yet more delays to the project.  Getting insurers to the table before litigation would save all parties significant time and money.  This article is a case study in one method of bringing insurers into settlement discussions early on through cooperative non-binding arbitration among the parties, followed by mediation with the insurance carriers.

The main problem for parties seeking insurance coverage in complicated construction defect cases is that there are too many variables.  There is often a tangle of liability issues, as well as confusion over which party the insurer is obligated to pay.  Further complicating matters, defective construction claims may involve (1) builder’s risk insurance (first-party coverage), (2) liability insurance (third-party coverage) and (3) a performance bond and the responsibility of the surety behind the performance bond.  Sorting this out can cause significant delays, particularly if a carrier takes the position that it does not owe coverage or that it is reserving its rights and refuses to come to the table for settlement discussions until after the other parties have fully litigated liability.

A recent case illustrates one solution to these problems.  It started when a mixed-use commercial/residential high-rise project took too long, cost too much and sprung a leak.  Normally in such a case, the owner would consider options to seek insurance coverage directly on a first-party basis under its property, or all-risk-type, policy, or to sue the contractor and product supplier pursuant to a third-party commercial general liability (CGL) policy.  However the owner decided to proceed, the next step would be for the parties to ask their respective insurance carriers for coverage and/or protection in and from a lawsuit.  The carriers would then answer yes and grant full coverage, answer no and deny coverage or answer maybe and agree to defend under a reservation of rights to later deny or accept coverage. The latter two answers, of course, will likely to lead to protracted, and expensive, litigation as the parties sort out liability.

The parties in this dispute, however, tried a completely different option.  The owner, contractor and subcontractors agreed to submit their claims to non-binding arbitration, with an agreement that the arbitration award would become binding 30 days after issuance if no party rejected it.  To expedite the proceedings, they agreed to submit their evidence through written presentations, largely from experts, with cross-examination available at the hearing.  All parties agreed that there was some degree of liability on the parts of one or more defendants, although they disagreed about the amount of damages.  However, all their efforts to date to involve their insurance carriers in meaningful settlement discussions or mediation had failed.  Thus, the parties entered into the arbitration with the expectation of an award in favor of the plaintiff/claimant, albeit in an unknown amount.

For the rest of this discussion on Construction Defect Disputes and the Abandoned Policyholder, please read the full article from Law.com by clicking here.