Isomorphism of Construction Arbitration: The Key to its Prevention and Reversal

 John T. Blankenship © 2010

INTRODUCTION.

Isomorphism.

I was sorely tempted to take some liberties in earlier iterations of the title of this paper, all for the sake of it being snappy or clever.  The most egregious example was to imply, by comparison to the famous quotation about the weather, that no one is doing anything about the isomorphism of arbitration,[i] when, in fact, a great number of dedicated, intelligent and talented people are doing quite a lot to identify the cures for the isomorphism that ails us.[ii]  I am thankful to the wise editors at the American Arbitration Association (AAA) for steering me back to substance as opposed to snappy, and to crafting a title that compliments rather than detracts from the emphasis of the paper.  And that emphasis is to put specific focus on what I believe to be the most essential component in the remedy for the isomorphism of construction arbitration.  But first things first, what the heck is isomorphism anyway?  The best way to explain it is with a story.

Once upon a time, people sought to avoid the courts and turned to an alternative to litigation….The commercial community, who found the courts to be inefficient and inattentive to their specific needs, began to adopt and adapt this alternative.  Before too long, the courts got involved and began using the process to divert cases it couldn’t or didn’t want to handle.  The alternative thrived in its newfound role as an efficient means to resolve commercial disputes and as a legitimate institutionalized partner of the legal system, but there was trouble on the horizon.  Observers began to question the fairness of its use.  Some lawyers found the alternative threatening because it seemed antithetical to the accepted role of the adversarial system…Courts and policy makers began exercising more oversight and control over the process.  Eventually, disputants found that the alternative was growing more and more similar to, if not sometimes indistinguishable from, the adjudication for which it was meant to substitute.  While its use had become pervasive in society, the alternative was dead as an alternative.  Disputants had lost control over the process, which no longer seemed as effective in reducing hostility, reconciling adversaries, promoting community, and producing efficient outcomes as it was once upon a time.[iii]

The author of this tale, Douglas Yarn, makes it sound strikingly and eerily familiar to arbitration in America, but it is actually a description of the evolution of arbitration in England from the tenth to late nineteenth centuries.  Since Mr. Yarn describes an evolutionary process, it is not inappropriate for him to use a scientific term as being both the cause and effect of that evolution; hence isomorphism—being of identical or similar form or shape or structure.  Arbitration in England was a practice that began as a more conciliatory process and evolved into a purely adjudicative procedure, and there is widespread concern that a similar evolution has occurred or is occurring in the United States.  Even if the use of the term isomorphism is, in literal terms, a stretch, it is no leap to apply a similar word and concept to the evolution of arbitration in America, as it is often said that arbitration in this country has “morphed” or is “morphing” into just another form of litigation.  It is this isomorphism that this paper is about—arbitration in this country becoming of identical or similar form, shape or structure as litigation.  More specifically, this paper’s emphasis is somewhat antithetical to that concept as I intend to focus on and identify what I believe is the primary key to keeping arbitration from becoming just like litigation, and to returning arbitration to a process that is distinct from and a discrete alternative to a court trial.  As will be seen in this paper, I have thought about, studied and researched this topic over a period of several years, ever since I realized that my concerns about the future of arbitration were not imagined, but were shared by a large cross section of the members of both the practice and academic sides of the arbitration community.

Structure and Focus.

The following four additional sections follow this introduction: II. Arbitration: An Historical and Evolutionary Overview; III. A Synoptic Focus on Construction Arbitration and a Time of Unique Opportunity; IV. The Primary Key to Making and Keeping Arbitration a Distinct Alternative to Litigation; and V. Conclusion.  Even at the risk of the reader feeling they are protracted and unnecessary, I consider each of these sections important and not subject to omission.  They provide the necessary perspectives for this topic as I believe it needs to be presented.  In these following sections there are also certain givens that the reader should accept as axiomatic.  First, the struggle for the soul of arbitration and the pervasive concerns and complaints about the erosion of the characteristics that make arbitration distinct from litigation in terms of efficiencies of time and expense are real.  Despite the focus of this paper, I do not intend to imply that “doing it faster and cheaper” should ever come at the expense of “doing it right.”  The expertise of the arbitrator(s) is one of the hallmark benefits of the process, and I believe the case results bear that out.  Ironically, managing an arbitration case so that it is an economical and expeditious process is part of “doing it right.”  Second, the points discussed herein can certainly apply to arbitration generally, but improving construction arbitration is the impetus for this paper and, accordingly, specific suggestions and examples relate thereto.  It will, therefore, do no injury, and the reader is invited to, insert “construction” as precursor to the term arbitration when used herein; except when the context requires otherwise.  Third, references to “the rules” or “AAA rules” will be to the American Arbitration Association (AAA) Construction Industry Rules amended and effective October 1, 2009.  Fourth, arbitration is first and foremost a creature of contract, and party autonomy is the hallmark of arbitration.  Accordingly, when the parties themselves (and not by their counsels’ unilateral decision) desire and agree to an arbitration process with trial like procedures including extensive discovery, then their wishes must be respected.  Party autonomy and flexibility are the fraternal twins in the arbitration family of attributes, and they are why the aspect of choice has been described as arbitration’s primary value and advantage over litigation.[iv]  One must tread lightly when traversing the pathway of party autonomy or when considering action which would result in an abrogation of the parties’ threshold right to choose.  But it is the rare case indeed in which the parties themselves have made a deliberate decision to adopt the expensive and time consuming procedures attendant to a court trial into an arbitration process.  This type of case is not, therefore, the subject of this paper.  It is the vast majority of arbitration cases—the typical arbitration—that is the focus of this writing.  Specifically, it is the case arising from a construction contract in which the parties have simply adopted the AAA rules to govern their dispute.  In other words, it is the arbitration case in which the parties have chosen not to litigate and yet, all too often, it ends up more like a court trial than an arbitration proceeding.  And fifth, it is important to understand, appreciate and respect the history of arbitration as a process prior to delving into a consideration of fixing it.  Before jumping on the bandwagon of restoring arbitration to what it used to be, it is necessary to have some familiarity of what that was.  Moreover, the striking similarities between the criticisms of English arbitration and the criticisms of contemporary arbitration in America must not be ignored; especially in light of the fact that the same death knell complaints about the English system that arose over a thousand year evolution have arisen in the United States in less than one-tenth that time.  Those who cannot remember the past are condemned to repeat it.[v]

ARBITRATION: AN HISTORICAL AND EVOLUTIONARY OVERVIEW.

Roots in Antiquity.

Arbitration flourished in England because it was an alternative distinct from litigation, not because it was new.  Archaeological finds trace arbitration as far back as 2800 B.C., and clay tablets from ancient Babylon have been identified that refer to commercial arbitration proceedings.  Ancient Grecian records indicate that arbitration closely resembled modern arbitration procedures and had almost universal acceptance among the Greek states by 500 B.C.  In fact, an early arbitration ruling by Solon, a famous Athenian law maker, is cited as a pivotal event that helped lead to the establishment of democratic government.[vi]   Aristotle described arbitration as preferred over litigation because an arbitrator goes by the equity of a case, a judge by law.[vii]  Thus, one can conclude that arbitration, from its earliest origins, developed as an alternative to litigation and came into existence because of the need for a better, or at least different, method of resolving disputes.

The alternative flourished in the western world and thrived in England because of its distinctiveness.  Unfortunately, by the twentieth century, arbitration in England had become virtually the same process as litigation and that, according to some scholars, resulted in its demise as a form of alternative dispute resolution.  While some may reasonably question that arbitration in England actually died, history indicates that English arbitration evolved from a process of great popularity into one of great disdain.[viii]

Arbitration in America.

As one considers the history of arbitration in England it is no surprise that arbitration in America in the nineteenth and twentieth century came to be placed in the same philosophical paradigm.  As arbitration developed in the United States it began as a true alternative to litigation.  Since it was a process unburdened by procedural rules and the attendant practices, particularly expensive and protracted discovery, arbitration’s main appeal was in its relatively inexpensive and expedient process.  Furthermore, arbitration provided the parties with a dispute resolution mechanism where they could “choose” the decision maker, typically someone with expertise in the field, and obtain a final decision in a private setting.  State and federal courts alike, however, finding no support for the enforcement of arbitration agreements in common law, began to disrespect arbitration as a legitimate procedure, and became reticent to enforce arbitration agreements or awards; at times being rather vociferous in their rejections.  An enmity similar to what existed in England began to develop in America until the passage of the Federal Arbitration Act in 1925 which reversed a long period of judicial hostility.[ix]   Thus, the modern era of American arbitration was born. It was, however, conceived years earlier with the passage of the New York Arbitration Act in 1920, a statute upon which the federal legislation was later modeled, as it codified that agreements to arbitrate future contract disputes were enforceable.  The vast majority of states subsequently enacted similar measures, many adopting versions of The Uniform Arbitration Act, and later the Revised Uniform Arbitration Act.  Today, the public policy in favor of enforcing arbitration agreements is now nearly uniform across the country.[x] Furthermore, the U.S. Supreme Court made it clear that judicial favor of arbitration was the law of the land by declaring that arbitration clauses will be enforced even in consumer contracts.[xi]

Ironically, arbitration in America again appears to be under attack, but on more than one antithetical front.  Consumer and similar arbitration processes that are viewed to arise from pre-dispute provisions in contracts of adhesion or other disparate bargaining positions could soon be outlawed as efforts to legislatively overrule the Supreme Court dictated law of the land in such cases continue to make their way through the United States Congress. These efforts are based on premises that arbitration in these contexts strips people of fundamental rights, that arbitrators enjoy almost complete freedom to ignore the law and, in essence, that litigants in these circumstances can navigate the court system more easily and more effectively than arbitration proceedings and will find their rights much more protected there.  In other words, these forms of arbitration are not enough like litigation.  Undoubtedly, this legislation would hit the targeted transactions like a tsunami, but if enacted in its present forms, traditional business-to-business arbitration could be significantly affected as well.[xii]   Another irony is that business/commercial arbitration came under the not enough like litigation attack well before the complaints with consumer and similar arbitrations reached crescendo.

The More vs. Less Debate.

Many criticisms of traditional arbitration (i.e., lack of discovery, lack of appeal, lack of motion practice, etc) are basically complaints that arbitration is not enough like litigation and that its purported attributes are in reality serious deficiencies.  It appears that these complaints began to find a real foothold in the 1980’s as many practitioners wanted to remake arbitration in the image of civil litigation.[xiii]  It also appears that the foothold found purchase and became the genesis of an ongoing “arbitration should be more like litigation vs. less like litigation debate.”  The debate intensified in the 1990’s as arbitration was called upon to take on the burden of almost the entire spectrum of civil rights and remedies.  Perhaps it was only natural that arbitration would correspondingly look more and more like the litigation it was supplanting and that arbitration purists would take up the banner of traditional arbitration.  As one who leans heavily toward the purist model I have at times been left nonplussed by such paradoxical debate.  After all, it seems that arbitration can’t win for losing since in terms of comparison to litigation, it has simultaneously been accused of being both too much and too little.  Still, the debate has left a big footprint on the continuum of American arbitration, and it continues because of sincere, conscientious debaters and issues of singular importance.

Clearly, the debate varies in intensity among different types of arbitration, but some experts believe that the debate is misplaced altogether, that arbitration cannot be monolithic in character and that the flexibility of arbitration which allows it to be responsive to both simple and complex cases is what should be focused on. [xiv]  Some scholars have expressed analogous thoughts about ADR in general, positing that such procedures are incredibly malleable and can yield better or worse effects depending on many things, especially how people use them.[xv]  Nevertheless, the debate is important, and its resolution could significantly affect the future of arbitration in this country.  The debaters include arbitrators, dispute resolution services providers, lawyers and business people.

Creeping Legalism.

Business people are increasingly striving to find opportunities to avoid using lawyers and, in fact, the long standing battle between attorneys and business people has been portrayed as a struggle for the soul of arbitration.[xvi]  Some say lawyers are guilty of hijacking the arbitration process and are the ones at fault for turning an alternative to litigation into just another part of the problem;[xvii] others blame arbitrators and lawyers equally for this “creeping legalism.”[xviii]  Regardless, commercial arbitration, especially in complex, high-stakes disputes, has taken on more and more of the characteristics of a court trial and has been referred to as the new litigation.[xix]

Creeping legalism is viewed as a disturbing trend to many experienced arbitrators and advocates who believe it threatens to undermine arbitration as a low cost, speedy and efficient alternative to litigation.  The view that arbitration has begun to look, smell and feel like the litigation process it was designed to remedy is neither novel nor fairly debated. [xx]  A natural by-product of arbitration becoming more like litigation is that it becomes just as expensive and time consuming as a court trial, and, “like the color change in a chameleon, has become more like the court system to which it was touted as a rescuing alternative.” [xxi]

Indeed, the question that is critical to the future of arbitration, and to which history provides significant instruction, is whether arbitration can remain a process separate and distinct from litigation or whether its evolution has resulted in an irreparable erosion of its distinctiveness.  Asked another way, has arbitration so substantially incorporated the features of litigation that key constituencies have lost faith in the process? [xxii]

A SYNOPTIC FOCUS ON CONSTRUCTION ARBITRATION AND A TIME  OF UNIQUE OPPORTUNITY.

The AIA Constituency.

Arbitration is uniquely connected to the construction industry and construction arbitration can be viewed as the genesis point of other forms of commercial arbitration.  It can and should, therefore, serve as the genesis point for the return of arbitration to the process it was always intended to be.  Arguably, arbitration has certainly been more closely identified with the construction industry than any other area of commercial enterprise, this identification due in no small part to the American Institute of Architects (AIA).  The AIA traces its history to the year 1857.  Since 1866 the AIA, responding to what it viewed as an urgent need, has been the leading promulgator of standardized contract documents for the construction industry.  And for more than a century, mandatory arbitration, as the sole binding dispute resolution procedure, has been a part of the AIA documents.  Consider the following excerpt from the AIA’s 1888 standard form agreement between contractor and owner setting out the contractor’s remedy for challenging the architect’s valuation of changed work:

…In case such alteration is not agreed to, the Contractor shall proceed
with the alteration, upon the written order of the Architect, and the
valuation of the work added or omitted shall be referred to (3) three
Arbitrators, (no one of whom shall have been personally connected with the work
to which these presents refer), to be appointed as follows: one by each
of the parties to this contract, and the third by the two thus chosen; the
decision of any two of whom shall be final and binding, and each of the
parties hereto shall pay one-half of the expense of such reference.[xxiii]

This language provides a compelling inference that from the earliest days of construction arbitration in America a basic tenet was to have disputes decided by experts in the field.  The contract’s sole written disqualifier of having personal involvement in the project in dispute creates a strong presumption that only arbitrators with construction expertise were even considered for service.  I suggest that this presumption was as axiomatic as another presumed fact—that arbitration of construction disputes was significantly more expedient than litigation, providing great efficiencies in terms of time and money.  I further suggest that all three of these key attributes of arbitration—arbitrator expertise, efficiency in time and efficiency in money—can all be discerned from the brief contract excerpt above.  Indeed, it is apparent that for over 100 years the AIA viewed arbitration as uniquely suited to be the sole binding dispute resolution vehicle for construction disputes.  Such is no longer the case.  After first adding mediation as a condition precedent to arbitration to its dispute resolution template in 1997, the AIA’s 2004 design-build contract forms allowed the parties to designate whether they will arbitrate, litigate, or resolve the dispute by some third method of their choosing.  Then in 2007 the AIA adopted the same binding dispute resolution provisions, with mediation as a condition precedent: arbitrate, litigate, or resolve the dispute by some third method of their choosing in its standard form construction agreements. [xxiv]  It is too much of a leap to posit that the AIA has lost faith in arbitration or in the AAA as the provider best suited to administer construction arbitration cases.  Since before World War II, the AIA has worked in virtual partnership with the American Arbitration Association (AAA) by making the AAA the designated administrator of AIA contractually mandated arbitration,[xxv] and AAA retains this role under the new AIA protocol when the parties opt for arbitration.  It is not too much of a stretch, however, to connect the dots from the ongoing debate about and criticism of arbitration to the AIA’s “major philosophical and formatting change”[xxvi] in the realignment of its relationship with arbitration as its sole binding dispute resolution process.

Major philosophical changes and the moving away from century old procedures do not occur in a vacuum.  There are reasons behind such significant paradigm shifts and the reasons may be the result of discrete nuances or trends within the construction industry or, more particularly, the construction dispute resolution industry, or the reasons may be related to larger trends in dispute resolution across the entire commercial/business community.  It hardly seems coincidental that the AIA departed from arbitration as the sole dispute resolution procedure in its tried and true contracts at the same time that a leading commercial arbitration expert and scholar believed arbitration to be under unprecedented pressure.[xxvii]  Significant research, input, discussion and debate were no doubt part of the AIA formatting change,[xxviii] and I have no doubt that the change caused varying degrees of concern to members of the construction dispute resolution community.  I believe, however, that this change creates a unique opportunity for construction arbitration.  Now in the construction industry’s most recognizable dispute resolution form contract, the choice between arbitration and litigation is literally in black and white.  The two processes stand side by side and one must make a conscious choice between the two.  Accordingly, in light of the AIA change, now more than ever, arbitration needs to offer a true and distinct alternative to litigation.

The juxtaposition of arbitration to litigation is the most significant challenge facing construction arbitration and is today’s most compelling reason that the question of whether  arbitration is becoming just another form of litigation cannot be presented as purely rhetorical.  Moreover, though it may appear so, the question cannot be answered yes or no, or in any articulation alone.  The question begs for an answer by action, an answer of doing.  The real answer requires those of us who are most responsible for the erosion to recognize that we must summon the requisite intestinal fortitude to implement the steps absolutely necessary to preserve the use and popularity of this long standing method of dispute resolution—the essential keys to keeping arbitration from becoming litigation.

Are the Complaints Overstated?

An argument can be made that the critics of arbitration can’t make up their minds and that the fact that there are competing complaints is proof of their invalidity and overstatement.  Or is it that arbitration dissatisfaction and criticism are just parts of an inexorable cyclical dynamic?  Perhaps those of us concerned with the integrity and future of arbitration as a distinct process are handwringing unnecessarily.  Or perhaps like Chicken Little, we have imagined that the entire sky of arbitration is falling when in fact it is only a few acorns of discontent that are merely part of an inevitable, necessary and refining pendulum process.  Have we made much ado about nothing?  I don’t think so.  Arbitration as a distinct alternative to litigation may not be on a Humpty Dumpty inexorable downward descent, but it is definitely teetering unsteadily atop an eroding wall of separation.  The debate between too little and too much is no longer a stalemate.

Construction Arbitration and Civil Procedure.

The ever increasing complaints regarding the delay and high cost attendant to arbitration have resulted in discontent with the process never being more palpable if not more widespread.[xxix]  The historical characteristics of  little to no discovery, motion practice, judicial review, or other trappings of litigation, by which arbitration has been long and popular touted, have not only given way to extensive discovery and complex prehearing motion practice, but there is alarming evidence that the much-vaunted finality of arbitral awards is eroding.  Arbitration has taken on so much of the features of a court trial that it is not unusual for legal advocates to agree to trial-like procedures for discovery, even to the extent of adopting standard civil procedure rules.[xxx]  This is certainly true of construction arbitration.  I find it telling that even when the lawyers haven’t formally adopted a particular set of rules of civil procedure, it is not uncommon for them to submit unsolicited motions based on the civil rules of the state in which the arbitration is to be heard.  Since lawyers often view arbitration through the lens of civil procedure, it should come as no surprise that they expect to take discovery to the same degree as a civil trial.  There certainly appears to be significant consensus that the main cause of arbitration morphing into litigation is because of litigation type discovery.

Similarly, excessive motion practice in arbitration provides its own microcosm of isomorphism disease.  Why would lawyers be un-reticent to file motions based on rules that have no applicability in the proceeding?  Perhaps education and training in arbitration advocacy is deficient in substance and/or theory and the lawyers simply don’t know.  Perhaps lawyers schooled in trial advocacy rely on their knowledge and experience in this private analog of the process[xxxi] and simply don’t care.  Perhaps the debate between too much and too little has become so one sided that it has truly become academic and those of us in the business of providing arbitration services have finally abdicated allegiance to arbitration as a process that is and should be distinct from litigation.  Regardless of whether any or all of these propositions are true, people across the entire spectrum of arbitration in America recognize that there is a problem; a problem to which it is no longer sufficient to respond with mere theoretical debate, but one in vital need of hands on attention and change.  Research, study, writing, discussion and debate should continue, but the call for practical application is loud and clear.  And just as construction arbitration was part of the genesis of arbitration in America, those of us in the construction arbitration industry need to be part of the genesis of arbitration reform and preservation.  So long as arbitration remains an integral part of the construction industry, those of us in the best position to provide the hands on attention and change need to roll up our collective proverbial sleeves and get to work.   Litigation is by definition costly and lengthy, and the best way to keep arbitration from becoming like litigation is to keep it economical and expeditious.

Arbitration and Choice.

I embrace the proposition that the primary value of arbitration and its primary advantage over litigation is choice.[xxxii]  Arbitration is chosen by the parties who then, in large part, choose their arbitrator(s) and the rules of procedure.  To be and remain a choice, however, arbitration has to provide real reasons to be chosen—distinct attributes that make it a  fundamentally different process than litigation.  And in theory it should not be difficult to maintain a line of demarcation between arbitration and litigation because the fact is, arbitration is not litigation.  It is historically, philosophically and fundamentally different.  In practice, however, it has been difficult to maintain that line, so difficult that the blurring of the line is the cause of unprecedented discontent with construction arbitration; a discontent that left unabated may cause the line to disappear entirely.  So, I will say it again—arbitration is not litigation.  This needs to be said, said loudly and said often by those who should be saying it loudest and most often—the arbitrators.

It is “not mere hyperbole” that in arbitration, “the arbitrator is the process.”[xxxiii]  It is the arbitrator who must stem the tide of creeping legalism, and it is the arbitrators that I intend to focus on lest I and my colleagues be rightly accused that we “doth protest too much,” because the key to keeping arbitration from becoming litigation is not so much a what, but a who.

THE PRIMARY KEY TO MAKING AND KEEPING ARBITRATION    DISTINCT FROM LITIGATION.

Who.

As with real estate’s three most important considerations, “location, location, location,” the most critical keys to preserving the arbitration process are THE ARBITRATOR, THE ARBITRATOR, THE ARBITRATOR.   The arbitrator is the key.  This may sound simplistic and trite but, it is the plain and simple truth.  Fundamental change in the arbitration process begins and ends with the manager of each individual arbitration case—the arbitrator.  The arbitrator must be the vanguard of any movement to return construction arbitration to its intended and once existing process form, and/or to prevent arbitration from becoming litigation by another name.  Every technique, theory, innovation, concept or practice to preserve or improve arbitration finds its inception or implementation in the hands of the arbitrator.  The process is only as good as the arbitrator managing it, and the best techniques and procedures in the world remain nothing but tools in the toolbox until the arbitrator realizes that he/she is the chief builder and process manager and takes them out and puts them to use.  They can only be put to use as allowed by the process manager, and this makes obvious the power that the arbitrator wields.  Arbitration is preserved as a process distinct from litigation when the arbitrator recognizes this power and, just as importantly, the corresponding responsibility.  Arbitrators must have the willingness and courage to use this power.  They must do so, however, with discretion, wisdom, devotion and subjugation to parties and process, and in a way that spawns collaboration within an adjudicative process.  An effective tool in fashioning such a process is to ask the parties and/or their counsel to suggest ideas they may have to create efficiencies in their case, or ask the parties to confer together and develop such strategies jointly, and then build the process collectively as it progresses.

What.

Yes, the what is really more of a who.  Hopefully, the emphatic message of this paper is now abundantly clear: that it is as important, if not more so, to identify specifically from whom reform must come as it is the discrete techniques available to accomplish it.  I do not presume to posit that I can improve significantly on the wealth of expert materials already available for the management of an efficient and economical arbitration process.[xxxiv]  Likewise, my purpose is not to restate or provide comprehensive discussion of all the tools and techniques out there, but to emphasize who is charged with using and implementing them.

The arbitrator is the key to keeping arbitration from becoming like litigation; hence the emphasis on a role rather than a procedure or protocol.  And the role of the arbitrator is one made up of power, duty and responsibility all rolled into one; it is to be the manager of a unique, important and revered process, and not just a trier of fact and law.  My hope is that this role will be recognized, fully understood and embraced by all construction arbitrators.  This in turn may result in a renewed vigor in arbitrators towards achieving efficiency and economy in every construction arbitration.  So, it is critical that arbitrators recognize exactly what their role is.  In this sense there is a very important what that goes with the who.

There will be some additional “whats” discussed in subsection E; some specific examples of what can be done to improve the process.  However, the discussion of these examples is not to provide a finite checklist of techniques, but to encourage participants to the open of the spigot on the cask of unlimited “whats” that are available to build an efficient and effective process in every construction arbitration.  After all, every construction arbitration is ad hoc, and the process should always be fashioned to the particular dispute.

Where.

For construction arbitration reform to succeed, it must take place consistently in every case, from the smallest and simplest to the largest and most complex.  The large and complex cases are certainly more challenging in terms of achieving economy and efficiency.  It is not easy in any case, but it can be excruciatingly hard in the large, complex case.  It is important to point out, however, that the arbitrator, empowered by the rules of the American Arbitration Association (AAA), has the ability and authority to move the process along in essentially a fast track manner, regardless of whether the matter is under the AAA Fast Track Rules.[xxxv]  Arbitration is by definition “fast track” in comparison to litigation, and no arbitrator should be bashful in so proclaiming.  Nor should there be any reticence in managing each case so that the desired efficiencies are achieved.

When.

The answer is simple—NOW.  Hopefully, the reader can discern that this issue is not new.  It would be difficult to pinpoint the beginning date of this debate, or even the contemporary discussion.   I know that I have been hearing the concern voiced about the morphing of arbitration into litigation for close to twenty years and it has reached crescendo, in my experience, in the last ten.  I know that I have been “preaching” my concerns for most of the last ten years, and I genuinely believe, as many influential writers and practitioners point out, that the belief that arbitration has already become too much like litigation is ubiquitous.  The view is so widespread that I can discern the makings of a genuine movement—an arbitration restoration movement.  Any movement begins with talk—the voicing of concerns, study, debate, etc—but it must eventually move into action if the goal of the movement is to be achieved.  When the point for action on a movement continuum has passed without the requisite action, it becomes increasingly difficult to galvanize action because the goal becomes more obscure, the object of the reform becomes increasingly like and intertwined with that which it was intended to be separate from, and members of the movement lose motivation and desire because the “what’s the use” and “it doesn’t really matter” mindsets take hold.  The time for action in the construction arbitration restoration movement is now, and we must not let it pass by.

 How.

It is not hard to say that arbitration must become faster and cheaper, but it is to take the difficult steps to make it so.  Promulgating is always easier than implementing.  It is also always easier to consider a concept as a whole, universally or in the abstract, than to actually take the required or necessary action for and in each individual case.  Changing arbitration as a process begins and ends with its smallest and most vital components—each and every arbitration and each and every arbitrator.

It is also easy to talk about preventing arbitration from becoming too much like litigation, but consideration should be given to what that actually means.  Arbitration becomes too much like litigation when it is dominated by discovery, motion practice, judicial intervention, and has a lack of finality.  Let us all recognize, therefore, that to return arbitration to its intended form and a process that is a distinct alternative to litigation, it needs to be a process with little to no discovery, little to no motion practice, little to no judicial intervention, and has finality—one that is un-appealable.  This is much easier said than done, but it is not complicated.  One can identify key steps to avoid litigation characteristics and achieve arbitration characteristics by considering each of what I identify as the five phases of arbitration.  The arbitrator must recognize what can cause unnecessary time and expense in each phase or impede any characteristic or advantage of arbitration.  It should also be recognized that the improper handling of one phase can cause unnecessary time and expense, or a loss of other arbitration attributes, in subsequent phases.

There is a wealth of untapped ideas to make each construction arbitration the process it should be; hence the beauty of its flexibility.  The following discussion provides some concepts and ideas rather than a comprehensive checklist.  I hope to follow this paper with separate and succinct ones on each of these phases of arbitration in order to consider each one in more detail.

Appointment Phase.

No stage or phase of the arbitration process is perfunctory.  Each one is critically important in its own way and in the way it impacts other phases.  Moreover, all phases of the process are conjoined to make an integrated, interactive whole.  The appointment phase demonstrates this synergy very clearly.  Remember that choice is a key attribute and advantage of arbitration.  This includes the parties’ right to choose, or have significant input in the choosing of, the arbitrator.  This characteristic is a significant departure from litigation.  Parties choosing their judge in litigation is unheard of and runs contra to the norms, ethics and rules of litigation.  If the arbitrator fails to make a full and complete disclosure the parties’ right to choose is compromised because they have been denied the opportunity to make an informed decision.

Paradoxical though it may seem, full disclosure is a way of taking control of the process early.  Taking control early is an arbitrator maxim and I will no doubt repeat it, lest its importance be missed.  An arbitrator cannot relinquish control to the parties or their counsel and have any hope of regaining that control later.  The same applies to relinquishing control to the courts.  Keeping the arbitration out of the hands of the court is an absolute in preserving the true arbitration process.  Nothing could be more inefficient in terms of time, money or otherwise than to have parallel arbitration and court proceedings in the same dispute.  The arbitrator insures the integrity of the process and protects it from judicial intervention by making full and complete disclosure.  The rules provide the necessary guidance for the arbitrator.  Consider the following:

R-19. Disclosure

  • (a) Any person appointed or to be appointed as an arbitrator as well as the parties and their representatives shall disclose to the AAA, as promptly as practicable, any circumstance likely to give rise to justifiable doubt as to the arbitrator’s impartiality or independence, including any bias or any financial or personal interest in the result of the arbitration or any past or present relationship with the parties or their representatives. Such obligation shall remain in effect throughout the arbitration.
  • (b) Upon receipt of such information from the arbitrator or another source, the AAA shall communicate the information to the parties and, if it deems it appropriate to do so, to the arbitrator and others.
  • (c) In order to encourage disclosure by arbitrators, disclosure of information pursuant to this Section R-19 is not to be construed as an indication that the arbitrator considers that the disclosed circumstances is likely to affect impartiality or independence.

Subpart (a) is the salient section and it can be summarized succinctly: when in doubt disclose.   I suggest that it is not prudent for the arbitrator to interpret the rule in any other fashion.  If a question even arises in the mind of the arbitrator as to whether a matter requires disclosure, the answer is automatically yes.  There is simply no downside in disclosure, but the pitfalls are abysmal in not disclosing; the most notable downside being the potential of vacatur of the final award by the courts.  It is difficult to imagine a more disappointing process, or one more wasteful of time and money, than  an arbitration that goes all the way through the final award phase only to be set aside and have the parties start over.  Erring on the side of caution goes without saying in terms of arbitrator disclosures.  I recall struggling with a disclosure in a case in which I was appointed that arose from a dispute between group of nuns building a retirement home and their architect.  Ironically, and a situation that I doubt will ever occur again in my career, I had served as a mediator in a case earlier that year between a group of nuns building a retirement home and their engineer.  The homes were in different states, the respective nuns had no direct connection to each other and the cases were entirely distinct.  After asking myself if I would want to know this if I was an advocate for one of the parties, I made the disclosure.  Today, I wouldn’t even ask that question.  When in doubt disclose.

The rule also makes disclosure a continuing duty throughout the arbitration.  The arbitrator must remain mindful of this duty and promptly fulfill it.  This makes a good segue to the next section.  In the preliminary hearing, and as reflected in the preliminary hearing order,  the arbitrator should require the parties to exchange and provide to the arbitrator preliminary witness lists of any and all possible witnesses early in the process to facilitate the ongoing disclosure requirement.  The lists should always include a summary of each witness’s anticipated testimony to facilitate discovery and head off discovery demands.  I also suggest that the arbitrator include language in both the notice of appointment and in the preliminary hearing order that requires the parties to raise any matter not disclosed by the arbitrator that they believe might require disclosure.  It is always possible for the arbitrator to overlook a matter that he/she would disclose if it is pointed out.  The arbitrator protects the integrity of the process by knowing the rules and being proactive in his/her disclosure obligations.  And these precepts apply to all phases of arbitration.

Preliminary Hearing Phase.

In terms of our discussion, nothing is more important than the preliminary hearing.  I have participated in many preliminary hearings as an advocate for one of the parties and I have been amazed on more than one occasion to encounter an arbitrator who obviously believed the preliminary hearing was purely perfunctory and handled it accordingly.  The arbitrator should never abdicate the preliminary hearing to the lawyers by simply asking them to agree on schedule, procedure and protocol and submit an “agreed order.”  In the preliminary hearing the arbitrator sets the tone of the process and his/her management style, communicates his/her expectations, asserts control, creates a roadmap for the entire arbitration, simplifies the prehearing process, creates a collaborative environment and  establishes parameters and protocol.  In short, it is the preliminary hearing in which the arbitrator lays a foundation on which to build a process that produces the efficiencies in time, money and otherwise that arbitration is supposed to achieve.  I suppose one could summarize my paper by saying it all boils down to the arbitrator.  Well, it can be boiled down even further: to the preliminary hearing.  The stage in the process that provides the foundation on which the entire process is built should never be viewed as routine, or of less importance than any other phase, even the final hearing phase.  It requires preparation, study and thought.

Some of the dictates being espoused in this paper could be interpreted as complete dictatorial dominance by the arbitrator.  This is not at all the case.   The process belongs to the parties, and while the dispute is adversarial, the process should be as collaborative as possible.  Keeping a balance between maintaining control of the process and making it collaborative is one of the significant challenges facing the arbitrator.  It cannot be forgotten, however, that when the parties adopt the AAA rules to govern the proceeding, they are ceding ultimate control and decision making to the arbitrator.  Accordingly, by taking control of the process, the arbitrator is fulfilling his/her duty to the parties and the process.  Furthermore, the rules are replete with requirements that the arbitrator be dedicated to the process and make every effort to achieve an efficient process.  Consider the following:

R-32. Conduct of Proceedings

  •  (b) The arbitrator, exercising his or her discretion, shall conduct the proceedings with a view toward expediting the resolution of the dispute and may direct the order of proof, bifurcate proceedings, and direct the parties to focus their presentations on issues the decision of which could dispose of all or part of the case.

R-33. Evidence

  •  (b) The arbitrator shall determine the admissibility, relevance, and materiality of the evidence offered. The arbitrator may request offers of proof and may reject evidence deemed by the arbitrator to be cumulative, unreliable, unnecessary, or of slight value compared to the time and expense involved…

L-5. Management of Proceedings

  • (a) The arbitrator shall take such steps as the arbitrator may deem necessary or desirable to avoid delay and to achieve a just, efficient and cost-effective resolution of Large, Complex Construction Cases.

Although deferring to counsel completely is a mistake, it can be an effective tool when used wisely and in moderation.  For example, if counsel are at odds on the ultimate hearing date, i.e. one wanting an early hearing date and the other wanting one set off well in the future, I have found it effective to defer certain issues in the initial preliminary hearing, such as the date(s) of the final hearing, and reconvene in short order to finalize the deferred items and the preliminary hearing order.  In the interim, counsel can be directed to make every effort to agree on the deferred items, but to do so within parameters you establish during the initial preliminary hearing.

If the arbitrator has been diligent in the appointment phase, then he/she is better prepared for the preliminary hearing, having some idea of the complexity of the case, the number of potential witnesses both fact and expert, the possibility of issues of consolidation or joinder, arbitrability or jurisdiction, etc.   Any issue which could arise that would affect the expedient progression of the case has to be identified.  This means that the arbitrator must prepare for the preliminary hearing. Opening the file five minutes before the preliminary hearing is not preparation.  The arbitration must realize the importance of the preliminary hearing he/she is about to conduct and read, think and prepare accordingly.

Knowing the rules, and having them in front of you, is a requirement for every phase, but the arbitrator should also have read the demand, answering statement, counterclaim (if any), and particularly, the arbitration agreement between the parties.  It is from this agreement that the arbitrator derives jurisdiction.  It is in this agreement that the parties simply adopt the AAA rules or agree to other or additional procedures.  It is not unusual to find that counsel have not fully read the arbitration agreement and that inconsistencies, ambiguities or errors in the agreement need to be dealt with and resolved.  Most often, counsel appearing in the arbitration had nothing to do with the drafting of the arbitration clause.  It is in the preliminary hearing that all issues concerning the agreement to arbitrate are resolved, including procedural rules, jurisdiction and arbitrability in any degree.

Again, nothing is more inefficient than parallel arbitration and litigation in the same case.  Construction cases are inherently fraught with this peril.  Numerous parties other than the arbitration parties, such as subcontractors, sureties, and design professionals, may be involved in the same dispute or related ones.  Moreover, it is not uncommon for mechanics and/or materialman’s liens that require court enforcement to be in play, and for litigation to have already commenced when the arbitration preliminary hearing takes place.  Inquiry should be made regarding these issues.  It is a mistake for the arbitrator to assume no news is good news in terms of such matters.  Counsel should be asked to describe all related court proceedings, both actual and potential.  Issues of joinder, consolidation, claim amendment, etc. should be discussed not only to avoid surprises in the arbitration, but to see if efficiencies can be gained in terms of all the real and potential proceedings arising from the project that is the subject of the dispute.

The practice of some arbitrators to require detailed statements of claim, damages and defenses prior to the preliminary hearing[xxxvi] deserves consideration as this procedure could produce efficiencies.  At a minimum, detailed claim and defense statements should be a topic of discussion in the preliminary hearing and should be required to be presented early in the prehearing phase, including deadlines and protocol for amendments of claims.  It is critical that all the participants know precisely the claims and defenses being presented and have a clear understanding of all the issues that will be joined so that a roadmap and outline for the final hearing can be developed early on.  The arbitrator should make sure that an agenda is delivered to the parties prior to the preliminary hearing.  The form preliminary hearing order and Rule R-23 provide excellent listings of what should be included, but one should not assume the parties have received or read them.  An agenda prepared by the arbitrator or a letter in follow up to the Case Manager’s notice transmittal is a wise precaution.

The arbitrator should draft the preliminary hearing order.  It serves as the template for the management of the entire process and it should be precise, thorough and comprehensive.  Its clarity and completeness determines in no small degree the efficiency of the prehearing phase, and this order is both the arbitrator’s sword and shield in procedural battles that could arise.  This task should not be abdicated to the Case Manager to promulgate a letter listing the scheduling directives.  It should be an order prepared and signed by the arbitrator.  The AAA form preliminary hearing award is an excellent resource, but the arbitrator should not fail to include any necessary language describing specific protocols established or otherwise that do not appear on a the form.

I like to draft my orders in their entirety and I always include in my preliminary hearing order language that makes it clear that every effort will be made to preserve the final hearing date(s) and that the hearing date(s) will not be continued absent good cause shown.  I specifically state that a trial date for a court case involving counsel in the arbitration being set by a court that conflicts with the arbitration hearing date(s) does not automatically constitute good cause.  I will insist that counsel inform the court that the arbitration hearing is not subject to continuance due to a conflict with a court case set after the arbitration hearing date was established.  And, if necessary, I will request to speak with the judge setting the trial date in order to explain the process we have engaged in to establish and reserve the arbitration hearing date.  I have found this to be effective.  Although some courts still exhibit some degree of disrespect for the arbitration process in comparison to court proceedings, most judges are accommodating when they understand the significant amount of effort that has taken place, the arranging of schedules of parties, counsel, witnesses, experts and the arbitrator(s) that has occurred, and the difficulty and burden that will be placed on the arbitration participants to reschedule the hearings.

The importance of the preliminary hearing cannot be overstated.  The arbitrator should begin evaluating every case in the appointment phase and determine in every case whether an in person or telephonic preliminary hearing will be directed as Rule R-23 allows.  Oxymoronic as it may seem to spend the time and money for an in person preliminary hearing, in many cases these initial expenditures can result in significant cost efficiencies for the process as a whole.  Even when an in person preliminary hearing is impractical, consideration should be given to having the actual parties as well as counsel participate in the telephonic preliminary hearing.  Unanticipated efficiencies can be achieved when the actual parties to the process are involved and their process determinations are not left solely in the hands of counsel.

Prehearing Process Phase.

The Discovery Monster.

The period of time between the preliminary hearing and the final evidentiary hearing can also present challenges to the goals of efficiency, economy and expedience.  It is in this phase that the discovery monster, the single most destructive activity to an orderly and efficient process, raises its ugly head.  At least this is the phase in which any “discovery” to be done in the case will take place.  The discovery monster should have been thwarted in the preliminary hearing so that any discovery efforts that arise in this phase and any attendant discovery disputes are minimal.  This issue could have been discussed in the preliminary hearing section, but I chose to discuss it here.  It should be taken as a given, however, that the amount of discovery to be allowed has been thoroughly discussed and clearly established, or a protocol for establishing same, in the preliminary hearing, and has been documented in detail in the preliminary hearing order.  Accordingly, this issue may in fact be academic in the prehearing process phase, but even if it appears to be a moot point, it is not unusual for new claims, issues, and circumstances to arise in this phase that result in one or more parties asking for additional discovery; usually in the form of depositions.

Depositions: The Face of the Monster.

I have found it necessary at times to remind counsel that their clients, by choosing arbitration, have chosen not to litigate.  As fundamental as this precept is, it often seems to have been forgotten or overlooked.  As regards every other phase of arbitration, the arbitrator must know the rules in order to effectively manage discovery, albeit the issue arises in this phase or in the preliminary hearing.  Not only do the rules not provide a right to take depositions (the ugliest part of the discovery monster), they do not allow the parties to agree to depositions over the objection of the arbitrator.  One might assume that if the parties agree to a certain amount of depositions, the arbitrator has no authority to overrule the agreement, but must simply accept it.  Such is not the case.  Consider the following AAA Regular Track Procedure:

R-24. Exchange of Information

  • (a) At the request of any party or at the discretion of the arbitrator, consistent with the expedited nature of arbitration, the arbitrator may direct
  • (i) the production of documents and other information, and
  • (ii) the identification of any witnesses to be called.
  • (b) At least 7 calendar days prior to the hearing, or by the date established by the arbitrator, the parties shall exchange copies of all exhibits they intend to submit at the hearing.
  • (c) The arbitrator is authorized to resolve any disputes concerning the exchange of information.

(d) There shall be no other discovery, except as indicated herein, unless so ordered by the arbitrator in exceptional cases.

How much clearer could “…no other discovery…” be?  Since I can carry a tune I have been tempted more than once to sing one line of a song to counsel when the deposition debate is raging: “What part of no don’t you understand?”[xxxvii]  Consider also the following Large, Complex Case Procedure:

L-5. Management of Proceedings

  • (c) The parties may conduct such discovery as may be agreed to by all the parties provided, however, that the arbitrator may place such limitations on the conduct of such discovery as the arbitrator shall deem appropriate. If the parties cannot agree on production of document and other information, the arbitrator, consistent with the expedited nature of arbitration, may establish the extent of the discovery.
  • (d) At the discretion of the arbitrator, upon good cause shown and consistent with the expedited nature of arbitration, the arbitrator may order depositions of, or the propounding of interrogatories to such persons who may possess information determined by the arbitrator to be necessary to a determination of the matter.

Under Rule L-5 (c), even if the parties agree to deposition discovery, the discretion of the arbitrator remains inviolate. And under subpart (d) it is clear that even in the largest, most complex case, depositions in a construction arbitration are the exception rather than the rule.  They remain subordinate to the expedited nature of arbitration and the discretion of the arbitrator, and they require a showing of good cause.  This stands in stark contrast to the rules governing litigation.  Even when depositions are allowed in arbitration they should always be limited in terms of time as well as number.  Arbitration is not litigation and arbitration depositions are not litigation depositions; and advocates should be prevented from taking a deposition in arbitration the same way that they are taken in litigation.  Depositions are for a different purpose in arbitration, and if counsel do not understand that, then the arbitrator has a duty to educate them.

Note the concept embodied in Rule L-5(d)—testimony may be obtained by deposition “At the discretion of the arbitrator…” from “such persons who may possess information determined by the arbitrator to be necessary to a determination of the matter(Emphasis supplied).  The rule contemplates depositions for purposes of presenting evidence, not for discovery in the traditional sense as contemplated in litigation.  The purpose is certainly not for counsel to leave no stone unturned in order to discover every possible fact, nuance and scintilla of evidence so that their morbid fear of surprise can be assuaged.  And it is not for the purpose of developed an exhaustive record of testimony so that counsel can then attempt to impeach the witness on every minor inconsistency between the testimony given in deposition and that given in the final hearing.  This raises a practice point for the final hearing phase: the arbitrator should diligently monitor laborious cross examination that focuses on attempts to impeach the witness instead of the issues in controversy.  The purpose of depositions in arbitration is to obtain information that is necessary to determine the dispute. End of story.  And it is the arbitrator who determines whether the information is necessary.  Therefore, the arbitrator should never allow depositions just because the parties have agreed to a limited and equal number of them.  The arbitrator must delve into the specifics of the information sought, how it relates to the ultimate determination of the dispute, and why it can’t be obtained in some other way.  This demonstrates another reason why the arbitrator must set time limits on the deposition(s) as well as on the number, and this can only be determined by the arbitrator exploring the issue thoroughly.  Once he/she has, then a proper determination can be made as to the use of depositions and the extent to which they will be allowed.  In every circumstance, “get to the point” provides the basic parameters for an arbitration deposition; a procedure that is precise and specific surgery, and not the exploratory kind.

“Discoveration.”

I espouse the theory of litigation evolution posited by many lawyers with practices that predate the adoption of rules of civil procedure and formal discovery: 1) that before formal discovery existed most cases filed were tried, and the time between filing and trial was a period of only a few weeks or months; and 2) that cases are now dominated by discovery driven by lawyers feeling compelled to “look under every rock” in their efforts to discover every single facet of the case, resulting in enormous expenditures of time and money and extensive motion practice; and very few cases are actually tried anymore.[xxxviii]  There is certainly significant analytical and hard data to support the decline in trials,[xxxix] but the point of comparison to arbitration must not be lost.  I am not suggesting in any way that settlement—a primary cause of the decline in trials—is bad, but merely that there is another lesson to be learned if arbitration is, in fact, becoming more like litigation and is following a similar evolutionary path.  The argument can be made that discovery has promoted settlement and reduced the number of trials, but one has to consider what is actually being gained if settlement comes only after discovery and motion practice so extensive that the time and expense is comparable to that of trial.  The AIA appears to have a much different process in mind by making mediation a condition precedent to arbitration or litigation.  For arbitration to remain a real form of alternative dispute resolution and one that is distinct from litigation, the process cannot be one in which discovery is the dominant focus and driving force.  In litigation, discovery is often no longer the means to the end contemplated by the rules of procedure; it has become an end in and of itself or only the means to a very expensive settlement process.  If arbitration is allowed to travel this same inexorable path then not only will arbitration and litigation be virtually indistinguishable, they will share a new and common name—“Discoveration.”

Just Say No.

Arbitrators must learn to just say no.  If they have assumed proper control of the process, have effectively managed and documented the preliminary hearing, and exceptional circumstances in a regular track case or good cause in a large track case have not been shown, then the arbitrator is supposed to say no.  Experienced litigators are well practiced in playing the prejudice card.  This word can send shudders up the spine of the arbitrator as soon as it is uttered.  This is one of the prime examples of how and why I have said keeping arbitration from becoming like litigation is hard.  It requires tough decisions, tough choices, and drawing lines.  It is much easier to give into parties’ claims of prejudice, or a discovery agreement, or a subpoena for third party documents or requests for depositions than to deny them.  Arbitrators often feel they should err on the side of caution in order to preserve the integrity of the award.  No one said this would be easy, in fact, it can be exceedingly difficult.  It is much easier to talk about preserving arbitration and returning it to its roots than it is to implement.  But this is what is called for—just saying no when the circumstances of the case demand it.  When the circumstances of the case indicate that the exception should take place and not the rule, so be it, but when the rule and circumstances don’t so demonstrate, the answer must be no.  Regardless of how difficult this is or how great the tension, this is how the arbitrator carries out his/her duty to the parties and the process.

Continuances.

The same tension often arises in regard to requests for continuance.  Most arbitrators know that failure to grant a continuance is one of the few grounds for vacatur of the award under both the Federal Arbitration Act and the Uniform Arbitration Act (most states have adopted the Uniform Arbitration Act or the Revised Uniform Arbitration Act in some form).  Accordingly, they may lean more towards granting a continuance than denying it.  The fact of the matter is that the arbitrator(s) had to have been guilty of misconduct in refusing to grant a postponement and it must result in actual prejudice to the party.  A review of cases on this issue reveals that arbitration awards are seldom vacated on this ground.  Unless the party requesting the continuance can show good and sufficient grounds for the continuance, the answer again has to be no.  The party has to show that actual prejudice will be suffered if the postponement is denied, not merely that it creates significant inconvenience.  Again, it is easy to play the prejudice card, but the skillful arbitrator will require the moving party to show with specificity exactly what prejudice it will suffer if the motion to continue is denied.  It is often much harder to detail the actual and specific prejudice than it is to simply say it.  I have also found that if I have established the proper tone in the beginning and I have properly communicated my expectations, I get fewer requests for continuance.  And when I do, I have found it effective to require counsel to confer and consider every possible option and alternative to a continuance and then report back to me before I will take up the request.   Bifurcation, compressed hearings, alterations in the order and manner in which proof is presented, and every other option should be considered in lieu of automatically continuing the entire process and throwing out the established hearing date(s), even when sufficient cause has been shown.  Even when counsel have agreed to a postponement it should not result in an automatic continuance.  At a minimum, the arbitrator should discuss the matter with counsel, learn the nature of the reason(s) for the agreed continuance and deliver the message (if not delivered already) that the arbitrator will be diligent in preserving the integrity of the process and will not abdicate that role.   A different situation arises, however, when it is the actual parties, and not counsel only, who are agreeing and making a joint request for a postponement.  This brings other process paradigms into play such as party autonomy and choice.  This is one situation in which it is wise to convene a status conference that includes the attendance of the parties themselves as they should know all of the effects the continuance will have.

As with all other rulings in the prehearing phase, the arbitrator should document decisions made on discovery issues or continuances by written order.  I like to keep a record of all proceedings and determinations that are made throughout the arbitration process.  I have found that keeping a sequential order of “Procedural Directives” (beginning with Preliminary Hearing Order/Procedural Directive No. 1, then Procedural Directive No. 2 and so on), promotes efficiency, consistency, understanding and agreement; and helps avoid confusion, disagreement and unnecessary, inefficient disputing.  For example, I will always issue the next Procedural Directive after each status conference.  To effectively manage an arbitration, I believe the arbitrator needs to schedule and hold regular status conferences between the preliminary hearing and the final evidentiary hearing(s).  Even when an issue has not been made known to the arbitrator, it is often the case that one has arisen between the parties and is merely “lurking” under the surface.  The arbitrator is able to identify these issues and stay on top of the case by the use of ongoing status conferences.  It is very difficult to imagine an arbitrator having no contact with the parties or their counsel between the preliminary and final hearings, but simply to hope that nothing comes up at the last minute to disrupt the process.  The number and frequency of status conferences are determined by the size, complexity and circumstances of each case.  These conferences also help head off unnecessary motion practice.  Without regular conferences being scheduled the parties may have no vehicle to address the arbitrator regarding issues that arise except by filing a motion or requesting a hearing.  I have found that the use of regular status conferences combined with a written protocol that does not allow motions until the party raising the issue has conferred with the other side to see if the matter can be resolved by agreement, and leave of the arbitrator to address the matter by motion has been given, is effective in reducing motion practice in construction arbitration.  When motions do arise, it is critical that the arbitrator be available and prompt.  The matter should be heard expeditiously, within hours or days of the issue arising, but insuring each side is fully heard; and the decision on the matter should be made and communicated to the parties immediately or as soon as possible.

Evidentiary Hearing Phase.

Flexibility Within the Rules.

Is it any surprise that I first say, “know the rules?”  It is in the final or evidentiary hearing phase that arbitration can offer one its most unique advantages: flexibility.  Litigation is a process driven by rules; so much so that in many instances the rules are no longer a means to an end, but an end unto themselves. Arbitration is a process not dominated by rules.  It is process driven rather than rule driven.   The AAA rules are brilliantly succinct and simple.  They provide all the structure that is necessary for an efficient, orderly and just arbitration process.  In terms of arbitration rules, as to preserving the economical and expedient process that arbitration is supposed to provide, less is more.  Hence, it is not oxymoronic to say, “know the rules,” specifically what they are and what they are not.

Rules of evidence and well established, specific procedures regarding the order of proof, introduction of evidence, presentation of witnesses, motion practice, etc, govern litigation.  Such is not the case with arbitration.  Rule R-33 specifically excuses conformity to the rules of evidence, and Rule R-32 specifically authorizes the arbitrator to alter the traditional order of proof and use alternative means of presenting evidence.   Other examples of inherent flexibility are either express or implicit in other AAA rules.   Construction arbitration in particular lends itself to applying flexible and creative hearing methods in order to expedite the process or otherwise make it more efficient.   Claim by claim order of proof is a good example.  In the traditional court trial the plaintiff presents all of its case, then the defendant presents all of its defense and all of its counterclaim(s), if any.  Then rebuttal and sur-rebuttal may follow.  Construction cases are often made up of several discrete claims making up the larger claim.  For example, a case may include numerous change order claims by a subcontractor against a general contractor or by a general contractor against an owner, and numerous backcharges by a general contractor against a subcontractor or by an owner against a general contractor.  Instead of the traditional order of proof, imagine that these claims are heard on a claim by claim basis with all of the evidence by both (or all) parties on a particular claim being presented at one time.  Then the next claim is presented and so on.   Not only are the efficiencies increased by significant reduction in duplication of evidence and otherwise, but the arbitrator is put in a much better position to decide each issue than when the evidence from each party is heard days or weeks apart.  If the individual claims are so numerous that they challenge the efficiency of this process, a monetary threshold can be established such that the claims not reaching that threshold are submitted in writing.  As long as a fair and equitable process is maintained that is in conformance with the rules and the parties are given equal opportunity to present their respective cases, the flexibility universe in arbitration hearing procedures is vast.

Witness Panels.

Another effective tool in construction arbitration, because of the nature of construction claims, is the use of witness panels.  The Claimant and Respondent can each impanel a group of witnesses, the people knowledgeable about the claims being presented and/or rebutted, and conduct direct and cross examination of their respective witness groups in turn.  And instead of being disjointed and confusing as some fear, the process, when handled properly, can make the testimony focused, succinct, non-duplicative, clear and enlightening.  The benefits of such testimony are obvious, as are the time and economic efficiencies that are gained.   Moreover, when witness panels are combined with a claim by claim order of proof, the efficiencies become exponential. Even when fact witness panels are not expedient, expert panels can synthesize the salient issues and create clear lines of demarcation between what is agreed to and what is actually in dispute between the respective experts.

Exhibits.

The introduction of exhibits in litigation is usually a time consuming and procedurally intensive process.  The requirements to properly authenticate an exhibit including the number of witnesses, the steps necessary to comply with the rules of evidence, the need to create a proper record,  and the resulting objections and separate proceedings combine to make it a laborious process.  Construction disputes are document intensive cases.  Accordingly, construction arbitration provides a superior vehicle to expedite and economize this process.   The arbitrator should require the exhibits to be well organized in a consistent and simple manner.  These exhibits are considered “in the record” and formal introductions of exhibits are dispensed with.  This does not foreclose a party from taking a position in the form of an objection or otherwise on an exhibit that is critical to the party’s case.   I have found these instances to be rare in practice, however.  Compiling the exhibits in tabbed three ring binders with multi-page exhibits individually page numbered should be mandatory in the use of hard copy exhibits.  This should have all been established in the preliminary hearing or during the prehearing process.  Consideration should be given to organizing the exhibits by witness or in some manner so that reference to multiple notebooks with an individual witness can be minimized.  Joint, consolidated exhibit notebooks should be encouraged instead of separate, duplicative sets for each party.

Arbitrators should, however, be encouraging the parties to present their exhibits electronically when it is feasible.  The time that is saved by viewing an exhibit on a screen instead of having to turn repeatedly to various notebooks is huge.   Furthermore, special trial software is not needed except in exceptional cases.   Standard Adobe software can be used efficiently to create an index of exhibits and project them even when they number in the hundreds.  Again, the concept is a proactive arbitrator.  Arbitrators must be proactive in every phase and element of the process, even in the layout of the hearing room.

Award Phase.

Can you guess?  Know the rules.  The arbitrator can never be late in issuing the award.  Rule F-13 requires the award in fast track cases to be issued within 14 days of the close of hearing.  Rule R-43 requires the award in regular track and large, complex cases to be issued within 30 days of the close of hearing.  It bears repeating, the award must never be late.  As with any problem with the award, tardiness leads to delay, cost and lack of finality.

As set out specifically in Rule R-44, the award must be in the form requested by the parties and/or established in the preliminary hearing and order, be it a standard award, reasoned award, abbreviated opinion, or findings of fact and conclusions of law.  It is important for the arbitrator and the parties to be on the same page in terms of what these different forms of award actually consist of and in terms of what is expected and what will be provided.  The arbitrator must endeavor to present a form of award consistent with that agreed to and/or ordered.

The arbitrator must be both precise and thorough in writing the award.  All matters presented to the arbitrator for determination must be covered in the award.  Often, requesting the parties to provide proposed forms of award is a good tool to help insure completeness of the award.  And it is always a good idea to remain thoroughly familiar with Rule R-45—Scope of Award and all other rules dealing with the award.  The fundamental and overriding principal is that the award should be written so as to avoid judicial intervention for any reason.  The finality of the award is one of the key distinctions between arbitration and litigation.  While appeal is automatic in litigation, it should be exceedingly rare in arbitration.  If an award results in court intervention due to a motion to vacate or in any way other than to confirm the award, the arbitrator has failed in some phase of the process or in some way that has undermined the integrity and finality of the award.

Lastly, it is essential that the arbitrator not unintentionally undermine his/her own award by improperly responding to a post-award motion to modify.   Rule R-48 allows modification only for clerical, typographical, technical or computational errors in the award.   The arbitrator is specifically prohibited from reconsidering any part of the merits of any claim.  Accordingly, an arbitrator’s response to any motion to modify an award on any basis other than the very narrow typographical/technical error type should be to deny the motion solely on the basis that the arbitrator has no authority to do so.  The arbitrator should not even entertain the matter as it invites judicial intervention to deny such a motion on any basis other than a lack of authority.

CONCLUSION.

Perhaps this paper waxes too philosophical; if so, so be it.  Arbitration must be preserved.  It was created to provide a different way to resolve disputes and to be a distinct alternative to litigation.  The long, rich and venerated history of arbitration makes that abundantly clear. If we allow the continued erosion of arbitration as a process truly distinct from litigation, it will cease to exist.  We may continue to call the process arbitration, but it will not be arbitration.  The essence of arbitration is cost effective, expeditious and final resolutions of disputes.  If the essence of something is taken away, then that thing is no longer what it was; it no longer exists.

Arbitration is not just the cornerstone of the ADR movement, it provides and protects a fundamental right—the freedom to choose.  The more arbitration loses its distinctiveness, the more the right to choose is eroded.  The current AIA contract forms merely provide a written template of the actual and philosophical template that has always been implicit in arbitration—it is not litigation.  Just as counsel may need to be reminded of this fundamental precept from time to time, so may we all.  The parties to a construction arbitration, the ones to whom the dispute and attendant resolution process belong, are not just choosing to arbitrate, they are choosing not to litigate.  And it is the arbitrator who serves as the guardian of that right to choose, and the one to whom the process is entrusted.  Therefore, the arbitrator owes a duty to not only the parties, but to the process they have chosen.  By serving and protecting the process, the arbitrator serves and protects the rights of the parties.             More than any other person, institution, rule, practice, procedure or protocol, the arbitrator, because of the nature of the process, has the power and, as a result, the attendant responsibility and duty to preserve arbitration as an expeditious and economical process distinct from litigation.  This begets but one conclusion, the fate of arbitration rests in the hands of the arbitrators.  The most basic formula applicable to all of life’s endeavors confirms it: Ability + Opportunity = Responsibility.


[i] “Everybody talks about the weather, but nobody does anything about it,” is generally attributed to Mark Twain, or his friend and collaborator, Charles Dudley Warner, who actually coined it.

[ii] For example, The College of Commercial Arbitrators (CCA) convened a National Summit on Business-to-Business Arbitration in Washington, DC on October 31, 2009.  The Summit was sponsored by the leading arbitration/ADR institutions in America, including the American Arbitration Association.  A unique and ground-breaking product was produced from the Summit—The College of Commercial Arbitrators Protocols for Expeditions, Cost-Effective Commercial Arbitration.  The conceptual basis for the National Summit, and hence the Protocols, is that the business users (and their in-house attorneys), institutions that provide arbitration services, outside counsel, and arbitrators interact in a way that results in lengthy, costly arbitration; and that all of these “stakeholders” must play a role in achieving the desired efficiencies and economies.  The Protocols list and describe “Critical Actions” and “Other Important Actions” for each of these groups of stakeholders, and all of these actions could be called keys to keeping arbitration from becoming litigation.

The CCA is a national group of prominent, experienced commercial arbitrators founded on the view that a national organization of commercial arbitrators could provide a meaningful contribution to the profession, the public and to the businesses and lawyers who depend on commercial arbitration as a primary means of dispute resolution.  One of its contributions, indeed an excellent one, is its publication, The College of Commercial Arbitrators Guide to Best Practices in Commercial Arbitration.  See, www.thecca.net, last visited May 28, 2010.  It is a privilege for this author to be a Fellow of the CCA.

Also, the scholarly and practice oriented literature is replete with discussions about the morphing of arbitration into litigation, and I am in general agreement with the concerns, causes and cures promulgated by those writers who see it as a danger.

[iii] Douglas Yarn, The Death of ADR: A Cautionary Tale of Isomorphism Through Institutionalization, 108 Penn. St. L. Rev. 929, 930 (2004).

[iv] Thomas J. Stipanowich, Arbitration: The “New Litigation,” 2010 U. Ill. L. Rev. 1, 50 (2010).

[v] 1 George Santayana, The Life of Reason (1905).

[vi] Henry T. King, Jr. & Marc A. Leforestier, Arbitration In Ancient Greece, 49 Disp. Resol. J. 38, 39 (1994).  Solon arbitrated an exacerbating crisis between debtor peasants and creditor landholders by maintaining the existing land distribution, but ending the securing of debt with land or personal freedom, and the freed peasant majority became the seed of Athenian democracy.

[vii] 2 Aristotle, The Complete Works of Aristotle 2188-89 (Jonathan Barnes ed., 1991).

[viii] James E. Beckley, Equity And Arbitration, 949 PLI/Corp 3l, 44 (1996).

                                 [ix] See Beckley, supra, note 6 at 44.

[x] Thomas J. Stipanowich, Rethinking American Arbitration, 63 Ind. L.J. 425, 450 (1998).  See also Joseph M. Matthews, Consumer Arbitration: Is It Working Now and Will It Work in the Future?, 79 APR Fla. B. J. 22 (2005).

[xi] See Matthews, Id, at 24 citing Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987).

[xii] HR 1020 IH, the U. S. House of Representatives 2009 iteration of The Arbitration Fairness Act remains pending in the U.S. Congress, as does a similar Senate version.  The Act, a proposed amendment to the Federal Arbitration Act, would make pre-dispute arbitration clauses in consumer, employment and franchise contracts unenforceable.

[xiii] See Thomas J. Stipanowich, Beyond Arbitration: Innovation and Evolution in the United States Construction Industry, 31 Wake Forest L. Rev. 65 (1996), n. 32 (citing findings of an ABA survey of attitudes toward commercial arbitration directed to practicing attorneys in 1985 and 1986 sponsored by the Forum Committee on the Construction Industry and the Construction Litigation Division of the American Bar Association Litigation Section; the first such major independent undertaking since the early 1960’s).  See also John W. Hinchey, Yes, We Do Need Special Rules for Complex Construction Cases, Construction Law., Aug. 1991, at 1.  See also Luther P. House & Brian G. Corgan, No, Don’t Inhibit Arbitration with Courtroom Due Process, Construction Law., Aug. 1991, at 1.  See also Gerald F. Phillips, Is Creeping Legalism Infecting Arbitration?,58-APR Disp. Resol. J. 37, 39 (2003).

[xiv] Thomas J. Stipanowich, The Multi-Door Contract And Other Possibilities, 13 Ohio St. J.on Disp. Resol. 303, 341-342 (1998).  See also Stipanowich, supra, note 10 at 78.  See also Laurence R. Helder & Graeme B. Dinwoodie, Designing Non-National Systems: The Case of the Uniform Domain Name Dispute Resolution Policy, 43 Wm. & Mary L. Rev. 141, 193 (2001) (The authors posit that under the paramount arbitral principle of party autonomy, the parties have virtually unfettered discretion to choose the structure under which their disputes will be decided.).

[xv] John Lande, Shifting the Focus From the Myth of The Vanishing Trial to Complex Conflict Management Systems, or I Learned Almost Everything I Need to Know About Conflict  Resolution From Marc Galanter, Cardozo Journal of Conflict Resolution 27,28 (2005).

[xvi] See Stipanowich, Beyond Arbitration, supra, note 13 at n. 142.

[xvii] Id. at n. 187.

[xviii] Gerald F. Philips, Is Creeping Legalism Infecting Arbitration? 58 APR Disp. Resol. J. 37, 39 (2003).

[xix] Thomas J. Stipanowich, ADR and the Vanishing Trial: The Growth and Impact of Alternative Dispute Resolution, J. Empirical Legal Stud., Volume 1, Issue 3, 843-912, (2004).

[xx] I find this to be the predominant view and criticism of arbitration in virtually every arbitration meeting, convention, seminar and training program I have attended in recent years.  Take for example an unscientific survey I recently performed at a national convention in which I surveyed 85 leading commercial arbitrators around the country and 72% of the respondents said that arbitration was becoming too much like court litigation

[xxi] Robert N. Dobbins, The Layered Dispute Resolutions Clause: From Boilerplate to Business Opportunity, 1 Hastings Bus. L.J. 161, 174-175 (2005)

[xxii]  John Lande, Failing Faith In Litigation?  A Survey of Business Lawyers’ and Executives’ Opinions, 3 Harv. Negot. L. Rev. 1, 64 (1998).

[xxiii]   See http://www.aia.org/aiaucmp/groups/ek_public/documents/pdf (last visited 7/5/10).

[xxiv]  See <http://www.aia.org/about_history> (last visited 5/31/10).

[xxv] Stephen K. Huber, Arbitration And Contracts: What Are The Law Schools Teaching?, 2 J. Am. Arb. 209, 216 (2003).

[xxvi]  G. William Quatman, The AIA’s New (and Improved) Design-Build Contracts, Good News for the Design-Build Community (2005).

[xxvii] Telephone interview, Thomas J. Stipanowich, then President & CEO, International Institute for Conflict Prevention & Resolution (CPR Institute) (October 7, 2005).

[xxviii] Telephone interview, Suzanne Harness, Managing Director of Documents and Counsel, AIA, Washington, D.C.  (October 12, 2005).  These changes were developed after input from industry representatives of several construction disciplines and deliberative consideration by the AIA document committee which is comprised of individuals representing many segments of the community and who serve 10 year terms.

[xxix] Thomas J. Stipanowich, Arbitration: The “New Litigation,” 2010 U. Ill. L. Rev. 1, 5 (2010).

[xxx] Id.

[xxxi] Id at 12.

[xxxii] Thomas J. Stipanowich, Symposium: Winds of Change: Solutions to Causes  of Dissatisfaction with Arbitration: Arbitration and Choice: Taking Charge of the “New Litigation” (Symposium Keynote Presentation), 7 DePaul Bus. & Comm. L.J. 383, 432 (2009).

[xxxiii] Id at 436.

[xxxiv] For example, the AAA has promulgated and/or developed numerous materials and training/educational programs regarding the effective management of arbitration cases; its ACE courses now required of all AAA arbitrators being examples of the this particular wealth of excellent materials.  See also, the CCA, supra, N. 2; the CCA also produces exceptional seminars on this topic as well as its fine materials.  See also, Dr. Patricia D. Galloway, P.E. and Dr. Kris R. Nelson, JD, Large Complex Construction Disputes—To Arbitrate or to Litigate—That is the Question, submitted for publication to the Journal of Legal Affairs and Dispute Resolution in Engineering and Construction on July1, 2010.  As indicative from these endnotes, there are numerous articles, guides and handbooks on effective arbitration; this paper’s purpose is to place more emphasis on the component of the arbitration restoration movement that is most critical in the author’s view—the primary key—than on particular protocol or techniques.

[xxxv] See Galloway and Nelson, Id.

[xxxvi]  Id.

[xxxvii]  Lorrie Morgan, What Part of No, BNA, released December 7, 1992.

[xxxviii] Interview with Charles H. Warfield, Esq., Of Counsel with the law firm, Stites & Harbison, Nashville, Tennessee, July 26, 2010.  Mr. Warfield’s description is similar to many other practitioners’ views I have obtained by conversation, correspondence or reading.

[xxxix] Marc Galanter, The Vanishing Trial: An Examination of Trials and Related Matters in Federal and State Courts, Journal of Empirical Legal Studies, Volume 1, Issue 3, 459-570 (2004)