When counseling business clients about drafting arbitration clauses, I emphasize one of arbitration’s biggest selling points: speed. As an equity partner at Foley Hoag LLP and a seasoned arbitrator, I’ve seen firsthand how arbitration can offer a much faster alternative to traditional litigation. Even before the COVID-19 pandemic, commercial arbitration cases were typically resolved twice as quickly as similar cases in federal courts. Now, with the pandemic-induced court backlogs, I believe the speed gap has widened even further—especially in state courts, which were practically at a standstill for nearly a year. In light of these considerations, it’s crucial for clients to understand the specific strategies and best practices that can help ensure a streamlined arbitration process tailored to their unique needs.
Why Flexibility Matters in Arbitration
Some drafters of arbitration clauses prefer to set strict timelines for resolving disputes, such as limiting pre-hearing disclosures or capping hearing days. However, I caution against this approach. First, at the drafting stage, it’s difficult to predict the complexity of future disputes. Flexibility allows arbitrators, with input from the parties, to tailor the process to the case’s unique needs. Second, unrealistic demands, often from opposing counsel using template clauses, can create issues. I recall one case where a clause required full discovery under the Federal Rules of Civil Procedure to be completed in just a month—an impossible task. I believe there’s a limit to how much time should be spent educating transactional counsel on the arbitration process during contract negotiations. Flexibility and an experienced arbitrator are key to keeping cases efficient without unnecessary constraints
How Procedural Flexibility Led to a Swift Resolution
Recently, however, I encountered a case that made me reconsider my stance on procedural prescriptions in certain circumstances. The arbitration clause specified the JAMS Streamlined Rules, limited the hearing to just one day, and required the final award to be issued within seven days of the hearing. At first glance, I groaned, perceiving it as another drafting error by corporate counsel playing armchair litigator. The arbitrator, a distinguished retired judge, had a similar reaction, later admitting she wouldn’t have agreed to hear the case had she known she would be required to issue an award so quickly.
The case, a contract dispute over intent and reliance, spanned several years, with a present value in the eight figures—significant but not enormous. Anticipating the burden of proof, I believed we would require more than one hearing day. The opposing party, which hadn’t negotiated the agreement, wanted additional time for discovery, including a document subpoena and depositions. They also believed the case could be resolved through a dispositive motion. However, my client was pushing for a swift resolution due to business needs, while they suspected their adversary preferred a drawn-out process. This experience made me more open to specific procedural guidelines in cases where speed is crucial.
The JAMS Streamlined Rules don’t allow for depositions, third-party discovery, or dispositive motions, which posed a unique challenge: conducting a trial with multiple witnesses in just one day. To tackle this, the team prepared through pre-filed direct testimony and over two hundred exhibits. The arbitrator introduced a chess clock system, allocating each side a few hours for direct and cross-examinations. The parties crafted detailed written testimony, addressing potential weaknesses upfront to minimize time spent on redirect. Counsel focused their cross-examinations on key issues, and I even opted to skip cross-examining two witnesses, choosing instead to make thematic points during closing arguments. The closings, about an hour each, were supplemented with presentations referencing the record and legal authorities. Seven days later, the final award arrived, as comprehensive and well-reasoned as any I had seen. This level of efficiency is rarely achieved in court, allowing for a swift resolution based on the merits of the case rather than being driven to settle due to procedural delays. It’s a perfect example of how arbitration can deliver quick, substantive results without cutting corners.
Clause Crafting Essentials: Key Takeaways for Faster Arbitration
What does this experience imply for drafting arbitration clauses? I’ve identified several key takeaways that help refine the process. First, the choice of rules is crucial. The JAMS Streamlined Rules were effective for a speedy resolution, as would be the AAA’s Expedited Rules or CPR’s Fast Track Administered Arbitration Rules. Second, while imposing a time limit on hearings may seem artificial, practical solutions—such as pre-filed direct testimony and a focused approach to key issues—can make these limits manageable. Business principals likely appreciated the certainty of knowing their time commitment was confined to just one day. Third, having the parties in possession of crucial documents streamlined the process. If third-party discovery had been necessary, the proceedings may not have been as equitable. Fourth, the stakes in this case were substantial, likely among the highest the parties would ever encounter. A case involving higher than eight or nine figures would probably require more extensive processes than the Streamlined Rules allow. Lastly, the case benefitted from a smart, experienced, and diligent arbitrator—qualities that are not uncommon but should never be taken for granted, especially when agreeing to an expedited process.
Additional insights worth considering:
- Include Contractual ‘Off-ramps’: Consider integrating options to step back from the fast track when necessary. For instance, if both parties agree, if a claim exceeds $10 million, or if the arbitrator deems a more extended schedule essential for fairness. CPR rules include similar provisions, and the AAA Expedited Rules allow the arbitrator to add a second hearing day if needed. Additionally, JAMS Streamlined Rule 8(d) permits the arbitrator to extend any deadlines, except for the time to render an award after the hearing, ‘when necessary to facilitate the arbitration.’ Custom ‘outs’ can also be beneficial.
- Make Attorney Fee-shifting Mandatory: Mandating that the losing party pay the reasonable attorneys’ fees of the prevailing party can incentivize parties to avoid unnecessary delays. Knowing they might face larger awards if unsuccessful on the merits can encourage a more efficient process.
- Assess Disclosure Needs: It’s important to reflect on disclosure requirements. While the AAA Expedited Rules permit discovery beyond anticipated exhibits only ‘for good cause shown,’ this may suffice in most cases. However, the provision in Expedited Rule E-7 mandates a final hearing no more than sixty days after the preliminary conference, which could limit the discovery that can be obtained in that timeframe.
For me, the takeaway is clear: if my client is unlikely to face a substantial dispute and doesn’t rely on third-party information, I am inclined to mandate the use of expedited rules—even for seven-figure claims—to maximize the chances that arbitration delivers on its promise of being a faster and more efficient process.
Reprinted by Permission, American Arbitration Association and the International Center for Dispute Resolution, AAA-ICDR® Blog, October 2024
About the author:
John Shope energy industry litigation is conducted on behalf of a wide range of public and private industry clients. He has handled constitutional challenges to the deregulation and taxation of electric utilities, and represents both independent power producers and public utilities in energy-related disputes resolved through litigation, arbitration, and state and federal regulatory proceedings.
For over 25 years, John has represented companies and institutions faced with class action and other aggregate liability claims. John also has experience in a wide variety of commercial disputes, ranging from business divorces, non-competes, trade secrets, and breaches of contract to civil fraud.
For almost fifteen years, John has served on the large complex case, commercial, energy, expedited, and other arbitration panels of the American Arbitration Association and the International Institute for Conflict Prevention and Resolution (CPR), and has served as the arbitrator in over fifty-five (55) arbitrations. In addition to deciding cases, he frequently acts as counsel for parties in arbitration and assists clients with the drafting of arbitration and other dispute resolution clauses. He is a Fellow of the Chartered Institute of Arbitrators.
As a Special Assistant District Attorney, John conducted one dozen criminal jury trials. He has won civil fraud trials in both state and federal court as well as state and federal appeals.