Thomas J. StipanowichWilliam H. Webster Chair in Dispute Resolution

Professor of Law, Pepperdine University School of LawAcademic Director, Straus Institute for Dispute Resolution

Chartered Institute of Arbitrators, East Asia BranchHong Kong ClubJune 29, 2010

“The moon waxes only to wane, and water surges only to

overflow.” Ancient Chinese

Idiom

The U.S.“vanishing” trial

The portion of federal court cases resolved by trial fell from 11.5 % in 1962 to 1.8 % in 2002. Significant declines are also observable in state courts.

Reasons for reduction in trial…

High cost of litigation, especially discovery

Risk, uncertainty

Impact on business, relationships

“Because of expense and delay, both civil bench trials and civil jury trials are disappearing.”

“Our discovery system is broken.”

FINAL REPORT ON THE JOINT PROJECT OF THE AMERICAN COLLEGE OF TRIAL LAWYERS TASK FORCE ON DISCOVERY

AND THE INSTITUTE FOR THE ADVANCEMENT OF THE AMERICAN LEGAL SYSTEM (Mar. 11, 2009)

Document discovery alone accounts for 50% of litigation costs in the average case, and 90% in active discovery cases.

Judicial Conference Adopts Rule Changes, Confronts Projected Budget Shortfalls, THE

THIRD BRANCH, (Admin. Office of the U.S. Courts)(Oct. 1, 1999)

E-discovery

“[E]lectronic discovery is a nightmare and a morass.”

FINAL REPORT ON THE JOINT PROJECT OF THE AMERICAN COLLEGE OF TRIAL LAWYERS TASK FORCE

ON DISCOVERY AND THE INSTITUTE FOR THE ADVANCEMENT OF THE AMERICAN LEGAL SYSTEM

(Mar. 11, 2009)

Of the [electronic discovery] data analyzed, only 10-20 percent of that ends up being relevant while a staggering 80-90 percent is irrelevant and non-responsive to the case.

Eric Rosenberg, Get Smart About Analyzing ESI,

Legal Tech Newsletter (Feb. 15, 2008)

In the business world…

There always is more information, sometimes a great deal more, that one might have if one waited longer or worked harder to get it—but the delay and the cost are not warranted. On an important decision one rarely has one hundred percent of the information needed for a good decision no matter how much one spends or how long one waits.

Robert Greenleaf, Management Expert, AT&T

Too much of a good thing?

China Daily Monday, December 8, 2008China Daily Monday, December 8, 2008

Woman deafened by Woman deafened by passionate kisspassionate kiss

A young lady lost her hearing after a A young lady lost her hearing after a passionate kiss from her boyfriend passionate kiss from her boyfriend in Zhuhai, Guangdong province.in Zhuhai, Guangdong province.

Unresolved conflict…

takes time and energy from other pursuits may lead to psychological and health

problems often escalates, with parties resorting to

heavier, more contentious tactics …with parties becoming more committed

to the struggleDEAN G. PRUITT & SUNG HEE KIM, SOCIAL CONFLICT: ESCALATION, STALEMENT AND

SETTLEMENT Ch. 2 (3rd ed. 2004)

”Although the civil justice system is not broken, it is in serious need of repair. In many jurisdictions, today’s system takes too long and costs too much. Some deserving cases are not brought because the cost of pursuing them fails a rational cost-benefit test while some other cases of questionable merit and smaller cases are settled rather than tried because it costs too much to litigate them.”

FINAL REPORT ON THE JOINT PROJECT OF THE AMERICAN COLLEGE OF TRIAL LAWYERS TASK FORCE

ON DISCOVERY AND THE INSTITUTE FOR THE ADVANCEMENT OF THE AMERICAN LEGAL SYSTEM

(Mar. 11, 2009)

There is a need for a wide range of critical changes in the landscape of American litigation, including an end to the “‘one size fits all’ approach of the current federal and most state rules.”

FINAL REPORT ON THE JOINT PROJECT OF THE AMERICAN COLLEGE OF TRIAL LAWYERS TASK FORCE

ON DISCOVERY AND THE INSTITUTE FOR THE ADVANCEMENT OF THE AMERICAN LEGAL SYSTEM

(Mar. 11, 2009)

Why arbitration?

Why do many companies continue to choose arbitration as a method for resolving business-related disputes?

• Saves time• Saves money • More satisfactory process than litigation• Limited discovery [and motion practice]• Neutral expertise• Privacy

Cornell/PERC/PriceWaterhouse Survey of Fortune

1,000 Companies (1997)

Choice: The basic element…

Ultimately, many business users regard control over the process—the flexibility to make arbitration what you want it to be—as the single most important advantage of binding arbitration and other forms of ADR.

CPR COMMISSION ON THE FUTURE OF ARBITRATION, COMMERCIAL ARBITRATION AT ITS BEST (2001)

Choice: The basic element…

Business needs and goals in dispute management vary.

Arbitration affords parties flexibility and autonomy in making process choices.

If possible, arbitration should be tailored to specific needs and goals.

CPR COMMISSION ON THE FUTURE OF ARBITRATION, COMMERCIAL ARBITRATION AT ITS BEST (2001)

Expansion of binding arbitration in late 20th C.

CoTraditional realms

of binding arbitration

Consumer

EmploymentEmerging Global Markets

All kinds ofCivil disputes

Current pressures on arbitration

Attacks by Consumer/employee advocates

Complaints by Business

CompetingOptions:Mediation,DRBs, etc.

SteppedApproaches to managingconflict

2004 Fulbright & Jaworski Survey of 300 Corporate Counsel

General Attitudes Regarding Domestic Arbitration

43%

21%

36%

0 10 20 30 40 50 60 70 80 90 100

Favored

Neutral

Disfavored

• Limited appeal• Compromise outcomes• Lack of confidence in arbitrators• Lack of qualified arbitrators, uneven

administration• Too costly• Too long• “Too much like litigation”

Complaints about arbitration

Jeffrey W. CarrVice President & General Counsel

FMC Technologies, Inc.

“Arbitration is often unsatisfactory because litigators have been given the keys to run the arbitration and they run it exactly like a piece of litigation. It’s the corporate counsel’s fault by simply turning over the keys to a matter.”

“[I]f you simply provide for arbitration under [standard rules] without specifying in more detail . . . how discovery will be handled . . . you will end up with a proceeding similar to litigation.”

James Bender,General Counsel, Williams Companies

“The overriding objectives [of business in choosing an appropriate forum for resolving disputes] . . . are fairness, efficiency (including speed and cost) and certainty in the enforcement of contractual rights and protections. . . . Too often the practice of [arbitration focuses] . . . on perceived concepts of due process to the detriment of efficiency, resolution and certainty.

GE Corporate Counsel Mike McIlwrath, Roland Schroeder

“I’m here to tell you that . . . our current experience is that we are getting quicker and more cost-effective results in U.S. courts!”

Corporate counselfor a leading global corporation

The vanishing default arbitration clause?

• E.g., American Institute of Architects Contract Documents (2007 edition)

• E.g., New “Consensus” Construction Contract Documents (2007)

Int’l arbitration costs v. litigationFulbright Litigation Trends Survey (2007)

2005 Response

Same62%

Less than32%

More than6%

2006 Response

Same53%Less

than26%

More than21%

Int’l arbitration costs v. litigationFulbright Litigation Trends Survey (2007)

2006 Response

Same53%Less

than26%

More than21%

2007 Response

Same75%

Less than9%

More than16%

Int’l arbitration time to resolution v. litigationFulbright Litigation Trends Survey (2007)

2007 Response

Same78%

Less than11%

More than11%

2006 Response

Same42%

Less than43%

More than15%

In arbitration, choice is the basic element…

Ultimately, many business users regard control over the process—the flexibility to make arbitration what you want it to be—as the single most important advantage of binding arbitration and other forms of ADR.

CPR COMMISSION ON THE FUTURE OF ARBITRATION, COMMERCIAL ARBITRATION AT ITS BEST (2001)

National Summit on the Future of Commercial

Arbitration Washington, Oct.30, 2009

Sponsored by the College of Commercial

Arbitratorswith support from:

American Arbitration AssociationJAMS

International Institute for Conflict Prevention & Resolution (CPR)

ABA Section of Dispute ResolutionChartered Institute of Arbitrators

Straus Institute for Dispute Resolution

National Summit . . . National gathering of more than 180

invited in-house counsel, outside counsel, arbitrators and “providers”

Based on two key insights: Lengthy, costly arbitration results from the

interaction of business users; in-house attorneys; institutions providing arbitration and other dispute resolution services; outside counsel; and arbitrators.

All of these stakeholders must play a role in achieving desired efficiencies and economies in arbitration.

“Town hall” meeting with electronic voting

National Summit Response

How often do business users desire arbitration to be speedier, more efficient and more economical than litigation?

National Summit Response

In your experience, how often does arbitration fail to meet the desires of business users when they want speed, efficiency and economy?

What are the Barriers to Containing Cost and Time

in Arbitration?

National Summit Response If you believe arbitration fails to meet

the desires of business users regarding speed, efficiency and economy, to what extent does excessive discovery tend to contribute to that result?

National Summit Response If you believe arbitration fails to meet the

desires of business users regarding speed, efficiency and economy, to what extent does excessive, inappropriate or mismanaged motion practice tend to contribute to that result?

National Summit Response

If you believe arbitration fails to meet the desires of business users regarding speed, efficiency and economy, to what extent do too-lengthy hearings tend to contribute to that result?

Who Should Be Part of the Solution?

Users; In-house Counsel

• …lay the groundwork for arbitration by crafting/selecting the arbitration provision and procedures

• …choose the advocates and have a voice in selecting the arbitrators

• …set the budget• …provide overall direction to counsel• …participate in the pre-hearing

process

National Summit Response

When arbitration fails to meet the desires of business users regarding speed, efficiency and economy, how much more can corporate in-house counsel do to help fulfill those expectations before disputes arise?

National Summit Response When arbitration fails to meet the desires

of business users regarding speed, efficiency and economy, how much more can corporate in-house counsel do to help fulfill those expectations once the decision is made to arbitrate a dispute?

Outside Counsel/Advocates

• …may have input on the arbitration agreement and procedures

• …may educate the client about how to realize arbitration’s benefits

• …may be relied on to guide strategy and tactics in arbitration, including arbitrator selection

• …may, in company with opposing counsel, establish parameters for and “complexion” of arbitration

National Summit Response

When arbitration fails to meet the desires of business users regarding speed, efficiency and economy, how much more can outside counsel (advocates in arbitration) do to help fulfill those expectations?

Arbitrators

• …may shape or heavily influence the arbitration process

• …may effectively “mediate” between parties with different objectives

• …may tailor the process to parties’ needs

• …may affect the expense and duration of arbitration by their management of discovery, motions, hearings

National Summit Response When arbitration fails to meet the

desires of business users regarding speed, efficiency and economy, how much more can arbitrators do to help fulfill those expectations?

Provider Institutions

• …are heavily relied upon by drafters to produce effective templates for B2B arbitration; often emphasize a single one-size-fits-all template

• …put their stamp of approval on arbitrators who are charged with managing the process

• …have a direct impact on process duration and party satisfaction through administrative functions

National Summit Response When arbitration fails to meet the desires

of business users regarding speed, efficiency and economy, how much more can institutions that provide arbitration rules, panels and administrative services do to help fulfill those expectations?

CCA Protocols for Expeditious, Cost-Effective

Commercial Arbitration

• 4 sets of guidelines aimed at business users and in-house counsel; outside counsel; arbitrators and provider institutions.

• Product of National Summit and later feedback from participants.

• To be published in Summer, 2010 with accompanying commentary and reference to helpful current resources

Protocol for Business Users & In-house Counsel

• 1. Use arbitration in a way that best serves economy, efficiency and other business priorities. Be deliberate about choosing between “one-size-fits-all” arbitration procedures with lots of “wiggle room” and more streamlined or bounded procedures.

• 2. Limit discovery to what is essential; don’t simply replicate court discovery.

• 3. Set specific time limits on arbitration and make sure they are enforced.

• 4. Use “fast-track arbitration” in appropriate cases.

• 5. Stay actively involved throughout the dispute resolution process to pursue speed and cost-control .

Protocol for Business Users & In-house Counsel

• 6. Select outside counsel for arbitration expertise and commitment to business goals.

• 7. Select arbitrators with strong case management skills.

• 8. Establish guidelines for early “fleshing out” of issues, claims, defenses, and parameters for arbitration.

• 9. Control motion practice.• 10. Use a single arbitrator in appropriate

circumstances.• 11. Specify the form of the award. Don’t provide

for judicial review for errors of law or fact.• 12. Conduct a post-process “lessons learned”

review and make appropriate adjustments.

Protocol for Arbitration Providers

• 1. Offer business users clear options to fit their priorities.• 2. Promote arbitration in the context of a range of process

choices, including stepped dispute resolution processes.• 3. Develop and publish rules that provide effective ways of

limiting discovery to essential information.• 4. Offer rules that set strict presumptive deadlines for

completion of arbitration; train arbitrators in the importance of enforcing stipulated deadlines.

• 5. Publish and promote “fast-track” arbitration rules.• 6. Develop procedures that promote restrained, effective

motion practice.

•

Protocol for Arbitration Providers

• 7. Require arbitrators to have training in process management skills and commitment to cost- and time-saving.

• 8. Require fact pleadings, early disclosure of documents and witnesses.• 9. Provide for electronic service of submissions and orders.• 10. Obtain and make available information on arbitrator effectiveness.• 11. Provide for expedited appointment of arbitrators.• 12. Require arbitrators to confirm availability.• 13. Afford users an effective mechanism for raising and addressing concerns

about arbitrator case management.

•

Protocol for Outside Counsel

• 1. Be sure you can pursue the client’s goals expeditiously.• 2. Memorialize early assessment and client understandings.• 3. Select arbitrators with proven management ability. Be forthright with

the arbitrators regarding your expectations of a speedy and efficient proceeding.

• 4. Cooperate with opposing counsel on procedural matters.• 5. Seek to limit discovery in a manner consistent with client goals.• 6. Periodically discuss settlement opportunities with your client.• 7. Offer clients alternative billing models.

•

Protocol for Outside Counsel

• 8. Recognize and exploit the differences between arbitration and litigation.• 9. Keep the arbitrators informed and enlist their help promptly; rely on the

chair as much as possible.• 10. Help your client make appropriate changes based on lessons learned.• 11. Work with providers to improve arbitration processes.• 12. Encourage better arbitration education and training.

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Protocol for Arbitrators

• 1. Get training in managing commercial arbitrations.• 2. Insist on cooperation and professionalism.• 3. Actively manage and shape the arbitration process; enforce contractual deadlines and

timetables.• 4. Conduct a thorough preliminary conference and issue comprehensive case management

orders.• 5. Schedule consecutive hearing days.• 6. Streamline discovery; supervise pre-hearing activities.• 7. Discourage the filing of unproductive motions; limit motions for summary disposition to

those that hold reasonable promise for streamlining or focusing the arbitration process, but act affirmatively on those.

•

•

Protocol for Arbitrators

• 8. Be readily available to counsel.• 9. Conduct fair but expeditious hearings.• 10. Issue timely and careful awards.

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