F. Arbitration Procedures

Arbitration is a formal mechanism for resolving disputes that differs from litigation. Hearings are conducted by arbitrators rather than by judges and are not limited by strict rules of evidence. They can consider all relevant testimony when making an award, including some forms of evidence (e.g., hearsay, questionable copies of documents, etc.,) that would be excluded in a regular court, Arbitrators have the authority to hear witnesses out of order. Their decision is usually final and unappealable. (Note: Limited circumstances for appeals are mentioned later in this section.)

To obtain an arbitration the law requires both parties to agree to the arbitration process beforehand in writing to prevent claims of unfairness by the losing side. Typically in an employment contract, lease, loan agreement, or other document, the relevant clause may state some version of the following:

"Any controversy or claim arising out of or relating to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules of the American Arbitration Association and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof."

Advantages of Arbitration

Expense.Substantial savings can be achieved through arbitration. Attorney fees are reduced because the average hearing is shorter than the average trial (typically less than a day versus several days). Time consuming and expensive pre-trial procedures, including depositions, interrogatories, and motions, are usually eliminated. Out-of-pocket expenses are reduced because stenographic fees, transcripts, and other items are not required.

Time.Arbitration hearings and final awards are obtained quickly; cases are usually decided in a matter of months, compared to several years in formal litigation.

Privacy.The arbitration hearing is held in a private conference room, rather than a courtroom. Unlike a trial, the hearing cannot be attended by the general public.

Expertise of arbitrators.Arbitrators usually have special training in the area of the case. In a breach of an entertainment contract dispute, for example, arbitrators serving on the panel are typically respected lawyers or other professionals with significant experience in the entertainment industry. Their knowledge of trade customs helps them identify and understand a problem more quickly than a judge or jury.

Increased odds of obtaining an award.Some lawyers believe that arbitrators are more likely than judges to split close cases down the middle. The theory is that arbitrators bend over backwards to satisfy both parties to some degree since their rulings are final and binding. This tendency to compromise, if true, benefits claimants with weaker cases.

Disadvantages of Arbitration

Finality.Arbitrators, unlike judges, need not give formal reasons for their decisions. They are not required to maintain a formal record of the proceedings. The arbitrator's decision is binding. This means that an appeal cannot be taken if you lose the case or disagree with the size of the award except in a few extraordinary circumstances where arbitrator misconduct, dishonesty, or bias can be proved.

Arbitrator selection.The parties sometimes agree that each will select its own arbitrator. In such cases it may be assumed that the chosen arbitrators are more sympathetic to one side than the other. However, arbitrators are usually selected from a list of neutral names supplied by the AAA. This method generally eliminates bias.

Loss of sympathetic juries.Some knowledgeable lawyers believe that juries tend to empathize more with certain kinds of people such as fired employees, destitute wives, and older individuals. Arbitrators are usually successful lawyers and business people whose philosophical orientation may lean more toward companies rather than individuals.

Loss of discovery devices.Some claimants must rely upon an adversary's documents and records to prove their case. For example, sales agents, authors, patent holders, and others often depend upon their company's (or licensee's) sales figures and accurate record keeping to determine how much commission and royalties they are owed. The same is true for minority shareholders who seek a proper assessment of a company's profit picture.

These people may find a disadvantage in the arbitration process. Trial lawyers have ample opportunity to view the private books and records of an adversary long before the day of the trial. This is accomplished by pre-trial discovery devices, which include interrogatories, depositions, and notices to produce documents for inspection and copying. However, these devices are not readily available to litigants in arbitration. In many instances, records are not available for inspection until the day of the arbitration hearing, This makes it difficult to detect whether they are accurate and complete. And, it is often up the arbitrator's discretion whether to grant an adjournment for the purposes of reviewing such records. Such requests may be refused.

Sexual harassment and sex discrimination issues are currently being resolved in arbitration as well as by litigation. Often an employee prefers that her matter not be resolved through arbitration because punitive and other special damages are not granted in an arbitrator's award in many states. However, if you signed an employment agreement containing an arbitration clause, you may be forced to arbitrate your case (including claims made by a fired employee for age discrimination under the Age Discrimination in Employment Act).

Tip:Courts favor resolving cases through arbitration when agreed beforehand by the parties. Thus, it is essential to understand the ramifications of signing any employment agreement or contract containing an arbitration clause.

Summary of Steps Leading to the Hearing

Commencing the hearing is a relatively simple matter once arbitration has been selected as the method of resolving a dispute. A party or her lawyer sends a notice called a Demand for Arbitration to the adversary. See page 278 for an example of this notice. Copies of the demand are sent to the American Arbitration Association, along with the appropriate administrative fee. The AAA is most often selected to arbitrate disputes. It is a public service nonprofit organization which offers dispute settlement services through the national office in New York City and dozens of regional offices in major cities throughout the United States.

The notice briefly describes the controversy. It specifies the kind of relief sought, including the amount of monetary damages requested. A response to the charges is then sent by the opposing party, usually within seven days. This may also assert a counterclaim for damages. Either party can add or change claims in writing until the arbitrator is appointed. Once this occurs, changes and additional claims can only be made with the arbitrator's consent.

After the AAA receives the Demand for Arbitration and reply, an AAA administrator usually supplies the parties with a list of potential arbitrators. The list contains the arbitrator's name, current occupation, place of employment and appropriate background information. The parties mutually agree to nominees from this list. Potential arbitrators are obligated to notify the AAA immediately of any facts likely to affect their impartiality (e.g., prior dealings with one of the litigants), and disqualify themselves where appropriate. (Note: If the parties do not agree beforehand to the number of arbitrators, the dispute is decided by one arbitrator, unless the AAA determines that three arbitrators is appropriate.)

Once the arbitrator is selected, the AAA administrator schedules a convenient hearing date and location. There is no direct communication between the parties and the arbitrator until the hearing date; all requests and inquiries are received by the administrator and relayed to the arbitrator. This avoids the appearance of impropriety. The parties are free to request a pre-hearing conference to exchange documents and resolve certain issues. Typically, however, the parties, administrators, lawyers, and arbitrator meet face-to-face for the first time at the actual hearing.

The Arbitration Hearing

Most hearings are conducted in a conference room at an AAA regional office. A stenographer is present, if requested. (Note: The requesting party generally bears the cost.) The arbitrator introduces the parties and typically asks each side to briefly summarize its version of the dispute and what each intends to prove at the hearing.

The complainant's case is presented first. Witnesses are called to give testimony (usually under oath). After witnesses finish speaking, they are usually cross-examined by the opposing party's lawyer. They may also be questioned by the arbitrator. The complainant introduces all its witnesses, documents, and affidavits until it has finished presenting its side of the case.

The opposing party then introduces its witnesses and documents to defend its case and/or prove damages. After the opposition has concluded its case, both sides are usually requested to make a brief summary of the facts (i.e., what they felt was proved at the hearing). Sometimes the arbitrator may request that legal briefs be submitted that summarize the respective position of the parties before rendering a final decision.

Arbitrators are generally required to render written decisions within 30 days unless the parties agree to some other time period. The arbitrator can make any award that is equitable. She can order the losing party to pay additional costs, including AAA filing fees and arbitrator fees. Legal fees may be awarded if the arbitration clause so provides. See page 279 for an example Award of Arbitrator.

Arbitrators volunteer their time for hearings lasting under two full days; they are paid a reasonable per diem rate (up to $750) for additional hearings. If the parties settle their dispute prior to a decision, they may request that the terms of the settlement be embodied in the consent award.

Arbitrators have no contact with the parties after the hearing is concluded. The parties are notified in writing by the AAA administrator and are sent a copy of the award. The decision in a typical employment case is brief Ñ usually no formal reasons are given to explain why a particular award was rendered or the basis on which damages were calculated.

It is practically impossible to appeal a losing case. The arbitrator has no power once the case is decided. The matter can be reviewed only by a judge, and judges cannot overturn the award on the grounds of insufficient evidence. The only ways a case can be overturned on review generally are:

• For arbitrator dishonesty, partiality, or bias
• When no valid agreement was entered into that authorized the arbitration process
• When an issue that the arbitrator was not authorized to decide was ruled upon Awards are modifiable only if there was a miscalculation of figures, or a mistake in the description of the person, property, or thing referred to in the award. How To Increase The Chances of Success in Arbitration Since the arbitrator's award is final and binding, it is essential to prepare and present a case properly the first time around, because you won't get a second chance. The following strategies may help increase the chances of success. Hire a lawyer.People have the right to appear themselves (pro se), but it's best to have a lawyer represent you at the hearing, particularly if the dispute involves a large amount of money or complicated legal questions. The familiar expression, "He who represents himself has a fool for a client," is certainly applicable in arbitrations. Seek the services of an experienced lawyer who is familiar with the intricacies of the arbitration process. Ask your prospective lawyer how many times she has represented clients in arbitration within the past several years. If the answer is "never" or "only a few times," look elsewhere for representation. Prepare for the hearing.It is important that both you and your lawyer submit evidence to prove the case, so:
• Organize the facts - Gather and label all documents needed at the hearing so they can be produced in an orderly fashion.
• Prepare a checklist of documents and exhibits so nothing will be forgotten during the presentation.
• Make copies of all documents for the arbitrator and adversary.
• If some of the documents needed are in the possession of the other party, ask they be brought to the hearing or subpoenaed.
• Interview witnesses.
• Be sure that friendly witnesses will attend and testify; if there is a possibility that additional witnesses may have to appear, alert them to be available on call without delay.
• Select witnesses who are believable, who understand the case and the importance of their testimony, and who will not say things at the hearing to surprise you.
• Coordinate the witnesses' testimony so your case will seem consistent and credible.
• Prepare witnesses for the rigors of cross-examination.
• If a translator is required, make arrangements in advance.
• Prepare a written summary of what each witness will hopefully prove and refer to it at the hearing.
• Anticipate what the opponent will say to defeat your claim and be prepared to refute such evidence.
• Practice your story to put you at ease and help organize the facts.
• Prepare a list of questions your lawyer should ask the opponent at the hearing.
• Dress appropriately by wearing conservative business clothes.
• Act professionally and show respect for the arbitrator.
• Listen to the arbitrator's questions and instructions; never argue with the arbitrator.
• If a question is posed while you are speaking, stop talking immediately.
• Answer all questions honestly and directly.
• Avoid arguing with your opponent at the hearing; interrupt his presentation only where absolutely necessary.

Finally, most losing parties voluntarily comply with the terms of an unfavorable award. However, if you win and your opponent decides not to pay, you can enforce the judgment in a regular court. Speak to a lawyer for more details if applicable.