NUTS AND BOLTS OF A SUCCESSFUL ARBITRATION
Posted on Jun 18, 2016 |Publications
By: Howard J. Kaplan, Esq.
New York Law Journal Alternative Dispute Resolution (ADR) Special Report
I have had the privilege of being a trial attorney for thirty-five (35) years. Without a doubt, during those years, I have tried and arbitrated hundreds of cases having been involved in both. It is clear to me that arbitration is the better method for an expeditious and cost-effective conclusion to a lawsuit. This article will lay out the “nuts and bolts” of arbitration.
The Differences Between Arbitration and Mediation
Arbitration is a neutral proceeding whereby a mutually agreed upon person or persons (tri-panel arbitration) decides the outcome of a dispute. It is binding and judicially enforceable. It brings a dispute to an end. Judicial review is quite limited as will be addressed later in this article.
Mediation, on the other hand, is a proceeding whereby the parties agree to have an individual seek to bridge the gap between the litigants in terms of their demand to settle and offer to settle. If no settlement is reached during the course of the mediation, the case most times proceeds to formal litigation. However, it should be noted that mediation serves many purposes even in the absence of a settlement on the day of the mediation (i.e., bringing parties closer to settlement, better understanding of each other's positions and, perhaps, opening the door to further discussions).
Advantages of Arbitration Versus Traditional Litigation
There are many compelling reasons to select binding arbitration over traditional litigation.
Today's court calendars are congested. For example, Bronx County has become a venue where a trial date is a promise without “teeth”. A case can languish on the trial calendar for two to three years after the filing of the Note of Issue. During that time period, files sit idly in an attorney's inventory. Dollars are lost. The insurance company's reserves are increased as pend times expand. In sum, nobody wins. Even elsewhere, such as Kings, Queens and New York counties, the time from the filing of the lawsuit until time of trial can be three to four years. Clearly, this is justice delayed.
In an arbitration, the parties control the date when the case will be heard. This brings certainty to a world where uncertainty is the rule in the courts. Arbitration allows a case to quickly go from agreement to hearing. The parties control the time frame by efficiently completing written and verbal discovery. This process will often taken months rather than years. Moreover, arbitration is far more cost effective than traditional litigation. In most instances, experts are not physically produced at the hearing, thereby saving thousands of dollars.
By submitting to arbitration, defense counsel protects his/her client from potentially excessive exposure (beyond insurance coverage) of a jury verdict. In turn, plaintiff ensures itself some recovery, as the agreement to arbitrate often provides for a low award amount (i. e., a guaranteed amount of recovery regardless of the arbitrator's decision).
Consideration must also be given to the fact that a trial verdict may not be the end of the litigation as there may be appeals or motions following the verdict. Appeals to the Appellate Division, Second Department can take 2-3 years to be heard. In the vast majority of cases (i.e., those with values from $25,000 to $150,000), it is a loss to have a case in litigation for a total of 3-6 years. Binding arbitration eliminates these risks. Remember, both the private practice of law and insurance are businesses. The goal is to resolve cases. This is true for both sides. Arbitration delivers the desired result.
The Decision to Arbitrate
The decision to arbitrate is an easy one. The key is to come to an agreement on the high/low parameters for the arbitration (i.e., $20,000 to $100,000) and the selection of the arbitrator. Both are important considerations. I often tell other attorneys and insurance companies not to worry about the high, as the insurance coverage is in play before a jury anyway. The low is often the tougher part of the negotiations.
Every case is a candidate for arbitration. It has been my experience that the parties are better off having an experienced neutral assess the case, rather than six “strangers” who form the jury. While you may lose the advantage of a runaway jury (big verdict), you generally get a reasonable award and no appeal. No doubt there are large cases where counsel will opt for a jury trial, but the vast majority of cases have values in the $15,000 to $150,000 range (perhaps 80-90%), and clearly they are better suited to arbitration. Trying cases such as these results in wasted dollars.
Upon deciding to arbitrate a case, the parties sign a standardized arbitration agreement with an ADR provider such as NAM (National Arbitration and Mediation). The agreement covers all of the basic terms – the parties agreement to arbitrate, selection of the arbitrator and rules for exchange of documents and witnesses. The parties must be careful to add any conditions precedent to the contract (i. e., depositions, items of discovery, physical examinations). Understand that the contract and thus the ADR Provider's Rules of Procedure, controls discovery prior to the arbitration, not the CPLR. The agreement can be entered into at any time. I recently signed such an agreement while on trial in Queens County where we removed the case from the court in the midst of trial. What drove the decision to arbitrate at the time of trial? As is sometimes the case, we were in front of a very difficult judge, with a reputation for dragging a simple matter out for weeks. Arbitration was a preferred alternative when a multi-week trial was looming ahead.
Selection of the Arbitrator
Perhaps as important as the decision to arbitrate is the selection of the individual who will make the final binding decision. It has been my experience that parties tend to select neutrals that they believe are really not neutral. I have also heard carriers and attorneys say, we will never use a particular arbitrator as a result of a decision they deem to be too high or too low. I would respectfully suggest that we do not get to give up jury trials due to a verdict we deem too low or excessive. Therefore, parties should look at trends and the quality of the individual arbitrator, rather than a particular award.
The goal should be to target an arbitrator with extensive experience in the field, and a reputation for fairness and neutrality. Parties should seek recommendations from other attorneys, from the particular ADR provider, such as NAM, and be open to trying someone new. Remember, the goal of arbitration is not to receive an outrageous award on either side, but rather a fair, cost-effective and timely decision that brings a case to an end.
I was recently involved in a case where the primary injury was a left knee meniscus tear with a resultant arthroscopic procedure. There was $100,000 in available coverage. The offer to settle was $40,000 and the demand was of course the $100,000 policy. The case was venued in Queens County. Trial was likely two years in the future. We entered into an arbitration with parameters of $25,000 on the low $100,000 on the high. No experts were called. The plaintiff testified, and the arbitrator awarded $60,000. While neither side was thrilled with the result, it was the best way to proceed. The time and cost of trial would have far exceeded any benefits.
It has oftentimes been said that both sides need to walk away satisfied, but not delighted with the award. Today, smart lawyers are leaving the battlefield of the courtroom with all of its uncertainty to enter the wonderful world of alternative dispute resolution.
The Arbitration Submission
I never go to an arbitration without having first submitted a memorandum. The purpose of the submission is to lay out your case, the weaknesses of the other side's case, and to tell the neutral what you want him/her to do.
The submission should contain an outline of the party's salient points, along with the exhibits to support the case. It is wise to cite to the pattern jury instructions, relevant statutes and any cases that support the award being sought. The arbitration agreement will dictate the timeframe for submission of the memorandum (i.e. generally 10 days prior to the hearing).
Rules of Evidence
The arbitration proceedings are governed by the Federal Rules of Evidence, although the arbitrator has great latitude, and will apply the rules liberally. The arbitrator can take any exhibits for consideration, even if not in strict compliance with the rules. The same holds true for witness testimony. However, all documents, and the names of any witnesses to be called must be exchanged prior to the hearing date (should be 10 days before the hearing).
Parties are permitted to make opening and closing statements. Witnesses are subject to direct and cross-examination.
Vacating an Arbitration Award
Civil Practice Law and Rules Section 7501 (hereinafter referred to as CPLR) governs the vacatur of a binding arbitration award. Suffice it to say, there are very limited circumstances in which an arbitration award can be set aside. CPLR 7511 provides for vacating an award if there is fraud, misconduct, corruption, partiality, or if the arbitrator exceeds his/her authority.
CPLR 7501 dictates that arbitration agreements are enforceable. Section 7503 allows a party to make a motion to compel a party to proceed to arbitration. Finally, Section 7510 allows a party to move to confirm an award within one year of its issuance.
In my many years as a practicing attorney I am certain that arbitration is the clear choice over traditional litigation. Every practitioner, and their principals, would be wise to give serious consideration to arbitration as a preferred method to resolving disputes. It's time efficient and cost-effective, and its benefits far outweigh the risks of a courtroom battle. The results can be a win-win for both sides.
Howard J. Kaplan, Esq. is a member of NAM's (National Arbitration and Mediation) Hearing Officer Panel and available to arbitrate and mediate cases throughout the United States. He was voted a Top Ten Arbitrator by the 2017 New York Law Journal Reader Rankings Survey for the third year in a row.
Click here to view Howard Kaplan's resume
For any questions or comments, please contact Jacqueline I. Silvey, Esq. / NAM General Counsel, via email at firstname.lastname@example.org or direct dial telephone at 516-941-3228.
Reprinted with permission from the July 18, 2016 issue of The New York Law Journal © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.