Articles from the “Alternative Dispute Resolution” issue of the printed journal, Communiqué (April 2016):
- “Court-Connected ADR Mythbusters!” by ADR Commissioner Chris A. Beecroft, Jr.
- “Appeal Settlements at the Supreme Court of Nevada” by Paul C. Ray, Esq.
- “ADR Everywhere, and It’s Here to Stay” by Phil Dabney, Esq.
- “Good Faith in Mandatory Settlement Conferences” by John Naylor, Esq.
- “Want to Better Control Your Arbitrations? 10 Steps to Writing a Better ArbitrationAgreement.” by Jay Young, Esq.
© 2016 The following articles were originally published in COMMUNIQUÉ, the official publication of the Clark County Bar Association. (April 2016). All rights reserved. For permission to reprint this article, contact the publisher Clark County Bar Association, 717 S. 8th Street, Las Vegas, NV 89101. Phone: (702) 387-6011.
Court-Connected ADR Mythbusters!
By ADR Commissioner Chris A. Beecroft, Jr.
Next year, the Court Annexed Arbitration Program and the Short Trial Program will celebrate anniversaries of twenty-five and fifteen years, respectively, providing economical, efficient, and effective mechanisms of dispute resolution. Notwithstanding, some still harbor significant myths about these programs as they navigate through them. But like all great myths, they can be dispelled, so let’s bust some court-connected ADR myths!
Myth #1: “Help! I’m stuck in mandatory arbitration and I can’t get out.”
Reality: There have always been methods by which litigants can “opt out” of the mandatory court annexed arbitration program (the “Program”). First and foremost, there are exceptions to mandatory arbitration in the form of exemptions set forth in Nevada Arbitration Rule (“NAR”) 3(A), both automatic and non-automatic, that practitioners may utilize to escape the grip of compulsory arbitration if properly utilized (more on this subject in Myth #2). Second, NAR 3(C) provides that, with approval of the district judge to whom the case is assigned, the parties may stipulate or the court may order that a settlement conference, mediation, or “other appropriate technique” be conducted by another sitting or retired judge or special master. District Court has implemented an outstanding Judicial Settlement Conference Program, which has had excellent resolution results. Additionally, pursuant to NAR 6(A), parties may stipulate to the use of a private arbitrator in lieu of one court-appointed. Third, there is a court-administered mediation program available (yes, there is!) that is a true alternative to mandatory arbitration and which offers some of the best mediators in Clark County; see Subpart C to the Rules Governing Alternative Dispute Resolution contained in the Supreme Court Rules. Finally, you can avoid mandatory arbitration and mediation altogether by going directly into the Short Trial Program by way of stipulation (more in Myth #6).
Myth #2: “I sought automatic exemption by stating in the caption of the complaint ‘Exempt from Arbitration: Amount in Controversy Exceeds $50,000.’ Notwithstanding, the ADR Office erroneously sent me an arbitrator selection list.”
Reality: Incorrect! Read (and re-read) NAR 5(A) carefully. There is no automatic exemption for a case in which the amount in controversy exceeds $50,000. In order to avoid mandatory participation in the Program, a Request for Exemption must be filed with the ADR Office in all cases seeking exemption based upon a probable jury award value in excess of $50,000 per plaintiff.
Corollary to Myth #2: “I sought automatic exemption by stating in the caption of the complaint ‘Exempt from Arbitration: Action seeks Injunctive Relief.’ Notwithstanding, the ADR Office erroneously sent me an arbitrator selection list.”
Reality: Incorrect again! NAR 5(A) states that in order to claim an automatic exemption from mandatory arbitration, the initial pleading (complaint, answer, counterclaim, etc.) must specifically designate the category of claimed exemption in the caption and not the type of case within that category. NAR 3(A) provides several categories of exemption, including equitable relief, extraordinary relief, title to real estate, etc. Injunctive relief is a type of case within the category of an action in equity or an action seeking extraordinary relief. Utilize the category, not the type of case, and you are out of mandatory arbitration.
Myth #3: “I filed a Request for Exemption with the ADR Office, but received a Notice to Appear to submit additional facts supporting my contentions. I don’t have anything to add, so why am I being summoned to appear?
Reality: Check your Request for Exemption carefully. NAR 5(A) requires that you provide a summary of facts which supports your contentions. If your Request is inadequate, NAR 5(D) provides that the ADR Commissioner may require that a party submit additional facts supporting the party’s contentions, hence the notice to appear. For example, if your case involves a personal injury claim, have you provided details of when and how the accident occurred, how the plaintiff was injured, the treatment the plaintiff received, and the current amount of medical specials incurred? If you are claiming lost wages or future medical treatment, have you supported those claims adequately? Was an opposition filed? You may want to file a supplement to your request before the hearing which further supports your grounds for exemption or responds to the opposition; it may save you a trip to the courthouse. Remember: do not attach voluminous records to any request for exemption, opposition or supplement.
Myth #4: “I received a selection list of five arbitrators, but have no idea who they are and what their experience or area of specialty is. I think I’ll just tack the list on the wall and throw darts at it.”
Reality: The ADR Office has always maintained a current portfolio of arbitrators’ resumes that provide this information; anyone can come to the ADR Office and examine the resumes. If the resumes do not provide sufficient information regarding an arbitrator’s experience or area of expertise, check with colleagues or other sources of information such as Martindale-Hubbell. Even though the NAR does not require it, the ADR Office maintains two panels of arbitrators, one for tort claims and the other for non-tort (contract) claims, and assigns cases to arbitrators based upon their area of specialty.
Myth #5: “I’ve settled that case I had in the mandatory arbitration program and filed my stipulation and order of dismissal. My job is done.”
Reality: You must advise your arbitrator that the case is settled so that the arbitrator can file a Change of Status with the ADR Office notifying it that the case has settled. Otherwise, neither the arbitrator nor the ADR Office knows that the case has settled and will continue needlessly processing the case. You may also receive a letter from the ADR Office asking for the status of the case and, if that letter is ignored, a Notice to Appear will issue.
Corollary to Myth #5: “I have filed the Request for Trial de Novo with the court clerk. My job is done.”
Reality: NAR 18(A) requires that you file the Request for Trial de Novo with the clerk of the court and serve it on the other parties and the ADR Commissioner’s office.
If you do not do so, the ADR Office does not know that you have filed the Request and will needlessly issue a Notice to Prevailing Party. You may also receive a letter from the ADR Office advising that the rule has not been properly followed; repeat transgressions of the rule may result in issuance of sanctions.
Myth #6: “Help! I’m stuck in the Short Trial Program and I can’t get out.”
Reality: Not the case at all. It is true that after the filing and service of the written Request for Trial de Novo from arbitration, NAR 18(D) and Nevada Short Trial Rule (“NSTR”) 4(a)(1) mandate that the case proceed in the Short Trial Program (the “STP”). However, litigants can “opt out” of the STP should they choose to do so pursuant to NSTR 5(a) by timely filing a “Demand for Removal from the Short Trial Program” and depositing with the clerk of court the demand out fee required by NSTR 5(b). But why would litigants want to do so? There is insufficient space in this article to list all the benefits of utilizing the STP, but here are just a few: litigants can stipulate to the use of a particular pro tem judge and to a higher cap; litigants are given a firm, expedited trial date; continuances are strongly discouraged; the trial is completed in one day; juries (if demanded) can be composed of 4, 6 or 8 members; written reports (including those from experts) can be utilized in lieu of live testimony at great savings to litigants; and evidentiary booklets, compiled and approved before trial, are utilized. And do not forget: litigants can stipulate to have their short trial conducted by a District Court Judge with the Judge’s consent, or they can agree to utilize the short trial format in a case pending in District Court with the Court’s permission.
Hopefully, some myths about court-connected ADR have been debunked. But if you ever have any questions about court annexed arbitration and mediation or the Short Trial Program, please feel free to contact the ADR Office at 702-671-4493. The ADR staff is always accessible and will answer any of your policy or procedure questions – we like to say that there is a reason we have telephones. You can also find current rules as amended, revised and refined forms and helpful information and instructions at our website http://www.co.clark.nv.us/ClarkCountyCourts/ejdc/courts-and-judges/adr/adr.html.
Appeal Settlements at the Supreme Court of Nevada
By Paul C. Ray, Esq.
Mediators often tell parties that after judgment, the chances for settlement decrease substantially. But the rate of settlement in the Supreme Court of Nevada’s program is 52% since the inception of the program in 1997. The settlement program has succeeded in reducing the court’s caseload and in decreasing expenses to many parties who have participated.
All civil appeals in which all parties are represented by counsel are eligible for the program. The program administrator determines which cases the court refers to the program. For those referred, participation is mandatory. Referral of a case to the settlement program suspends all deadlines for ordering transcripts and briefing, but the deadline for filing a docketing statement remains in place, which is 20 days after the appeal is docketed.
The clerk’s office checks for conflicts in the assigning of cases to settlement judges. Usually related appeals are assigned to the same mediator. The settlement judges are experienced mediators who are required to have a minimum amount of formal mediation training and coursework and to keep up their annual minimum standards, including ethics. Their biographies are available on the court’s website.
The program administrator or the assigned mediator can determine that the case is exempt from the program. A determination of exemption reinstates the normal time for the ordering of transcripts and briefing.
For all cases assigned to mediation the settlement judge conducts a telephonic conference within 30 days. The mediator and counsel discuss scheduling of mediation and who should attend, such as insurers or other persons who may be important to the success of the mediation. While the case is in the program the court will normally not consider a motion to dismiss for lack of jurisdiction, though filing of bankruptcy by a party will generally stay mediation in the program. Normally the settlement conference occurs within 90 days of assignment. Child custody, visitation, relocation, and guardianship cases have shorter schedules than other civil cases.
The settlement judge files a case assessment report within 30 days of assignment to report if the case is appropriate for the program. During the assignment to the program all documents filed with the court must also be served on the mediator.
Confidentiality is, of course, crucial to the program. Documents prepared by counsel or the settlement judge in furtherance of settlement are confidential. The only documents which are public are the conference status report and the stipulation to dismiss upon settlement. The court does not receive confidential information, and none should be included in these documents. The parties sign a confidentiality acknowledgement, and all discussions are confidential.
Each party serves a confidential settlement statement on the settlement judge within 15 days of the date of the notice of assignment or such time as the mediator may set by extension. The mediator decides whether to grant any requests for extensions. The settlement statements must contain the relevant facts; the issues on appeal; the argument supporting the party’s position on appeal; the party’s weakest points in its position; the settlement offer the party believes is fair or the party would be willing to make to conclude the matter; and all other matters counsel believes may assist the settlement judge in conducting the conference. Form 10 in the NRAP Appendix of Forms provides an example.
All parties and their counsel must attend in person unless the mediator allows for telephonic attendance. The mediator may also allow others to attend who may help facilitate settlement, such as insurance representatives.
Each settlement judge has discretion how to conduct the conference. Common practices include introduction of all parties and counsel in an initial, joint session in which an agenda is set, sometimes with opening statements. Eventually, if not from the outset, the mediator will meet alternately and privately with each side in separate meetings, sometimes called caucuses. The mediator will typically probe for the parties’ priorities pertaining to settlement and to explore possible terms to try to facilitate settlement. If the parties reach a settlement, the parties must execute an agreement, and the mediator must advise the court within ten days of the conference whether a settlement was reached or whether a continuance will occur.
The parties may wish to request vacating or amending of district court orders as part of their negotiated settlement. The parties may provide for reinstatement of the appeal if the district court declines the requested relief. If the parties can only resolve some of the issues on appeal, leaving others for resolution by the appeal, the parties may use the procedure established in Huneycutt v. Huneycutt, 94 Nev. 79, 80-81, 575 P.2d 585, 585-86 (1978). Foster v. Dingwall, 126 Nev. 49, 51-53, 228 P.3d 453, 454-55 (2010) further explains the Huneycutt process, and counsel are well advised to read these cases before attempting to use the procedure.
If the case does not settle, the mediator reports the status to the court, and transcript ordering and briefing schedules are reinstated. The mediator may recommend sanctions for failure of a party to participate in good faith, such as failing to attend a settlement conference or for noncompliance with the procedural rules. Ordinarily the court will only grant sanctions upon the mediator’s recommendation, in which the case the court will typically issue an order to show cause.
While the court’s program does provide an excellent opportunity for settlement, parties should not file appeals just to get into the program. Many appeals do not settle, and the responsibility and expense of pursuing an appeal follows with every such appeal. The court encourages settlement, of course, but the court also reviews in its survey process whether parties experience undue pressure to settle from the program so as to maintain integrity in the appeal process. The program can facilitate both cases that need to be adjudicated by appellate decision and cases in which the parties can resolve their own disputes with a bit of judicial assistance and accommodation.
ADR Everywhere, and It’s Here to Stay
By Phil Dabney, Esq.
Alternative Dispute Resolution has transformed in recent years from a tried and true process for resolving commercial and construction disputes into a lightning rod of controversy and litigation. The controversy surrounds the use of ADR to force consumer and employment disputes into arbitration and out of class actions. You can read more about this evolving controversy in the New York Times, which published a three-part series about arbitration called Arbitration Everywhere, Stacking the Deck of Justice, which appeared in the publication on October 31, November 1 and 2, 2015. Recent litigation includes attempts to fend off the trend toward ADR in consumer and employment disputes. Add that to the continued general attacks on enforceability of ADR agreements, attempts to establish waiver of the right to contractual ADR, and attacks on the awards of arbitrators.
The U.S. Supreme Court’s recent decisions in this arena can be summed up as follows:
WE SUPPORT ARBITRATION AND OTHER FORMS OF ADR. YOUR ATTACKS WILL NOT SUCCEED, AND MAY COST YOU DEARLY!
Our Nevada Supreme Court recently published three decisions that echo the sentiments of the U.S. Supreme Court. One case enforced an unsigned arbitration agreement and written waiver of class action rights in employment disputes between employee and employer. Another whole-heartedly adopted the federal line of cases supporting arbitration pursuant to the Federal Arbitration Act (FAA). A third not only affirmed the district court’s dismissal of a case where one of the parties failed to engage in contractually required mediation, but affirmed the award of attorney fees against the litigating party.
- Tallman v. Eighth Judicial District Court, 131 Nev. Adv. Op. 71 (Sept. 24, 2015) – In this case, employees of a construction security firm sued over wage and hour issues and sought class action status. After a trip to federal court and back, the employer sought to compel arbitration and to enforce the anti-class action language in the written agreement between employees and the security firm. The employer failed to sign the agreement. In denying the writs of mandamus of the employees, the Nevada Supreme Court overruled a prior decision in order to align Nevada law with a recent U.S. Supreme Court decision that validates employee waivers of class actions. The Court also followed the FAA, and case law interpreting it, to hold that an arbitration agreement need only be in written form and need not be signed to be enforceable.
- Principal Investments, Inc. et al vs. Harrison, et al, 132 Nev. Adv. Op. 2 (Jan 14, 2016) – This case arose out of the controversy swirling in Las Vegas Justice Court, when it was found that a process server was falsifying affidavits for service of process and thousands of default judgments were being entered improperly against civil collection defendants. The default judgments entered by one payday loan company led to the filing of a class action lawsuit in District Court, seeking to overturn the thousands of default judgments and for an award of punitive damages, statutory penalties, and attorney fees against the lender. The lender filed a motion in the district court case to compel arbitration based on a complex and otherwise enforceable agreement to arbitrate. The plaintiffs succeeded in convincing both the district court and the Supreme Court that the lender waived the right to arbitrate under the peculiar facts of this case. However, the lengthy Supreme Court decision made it clear that very high standards for waiver apply to any case where the FAA is implicated. The Court also provided factors to analyze to determine whether the arbitrator(s) or the Court is the proper forum for determining whether waiver exists under the particular facts of the case.
- MB America, Inc. v. Alaska Pacific Leasing Co., 132 Nev. Adv. Op. 8 (Feb. 4, 2016) – This dispute arose between a rock crushing manufacturer and a dealer. The dealer agreement between the parties contained a clause stating that the parties shall mediate any dispute first, then may litigate if the mediation does not resolve the dispute in 180 days. One of the parties filed a declaratory relief action in district court, but that party refused to participate in mediation requested by the other party. The defendant obtained dismissal from the district court and an award of attorney fees and costs as the contractually-determined prevailing party, based on the theory that the plaintiff failed to satisfy the condition precedent of mediation before initiating the lawsuit. The Supreme Court affirmed, adopting holdings from two federal court decisions that contractual mediation requirements must be satisfied or waived by agreement of both parties before litigation may be commenced.
The future of ADR may be rife with controversy, but the law of the land is becoming clear: If parties agree to ADR, they must abide by their agreement. Challenges in court to ADR or to arbitrator decisions are becoming an aggravation to an overburdened court system. Make sure any challenge you assert is valid and supportable, or be prepared for a potentially painful outcome. Better yet, pick a good ADR professional and proceed with the fair and efficient process your clients agreed to in the first place! (For those interested in following the inevitable march toward a world of ADR, take a look at “Arbitration Nation,” a blog by attorney Liz Kramer of the firm Stinson Leonard Street, at www.arbitrationnation.com.)
Good Faith in Mandatory Settlement Conferences
By John Naylor, Esq.
Many attorneys—litigators and commercial attorneys alike—have participated in a court-mandated settlement conference. Courts typically require the parties to “negotiate in good faith” which may seemingly present a problem when the client does not want to settle. Other difficulties arise when courts go a step further by requiring the parties send a representative “with full settlement authority” or, as is increasingly been the case, send someone “with settlement authority up to the full amount of the Plaintiff’s claim.” Some clients simply do not want to settle (at least at that point in the case) and object to the notion of having to provide a representative with anything more than authority to settle at nuisance value. These types of orders highlight the tension between the public policy objective of having the courts expeditiously handle civil matters and a litigant’s right to a day in court. Some believe that more and more parties and attorneys are incorrectly being found to have participated in bad faith, leading to sanctions. This article discusses the fine line attorneys must navigate to comply with the order and meet their client’s needs.
NRCP 16(f), which allows a court to impose sanctions for failure to comply with pretrial orders, generally governs mediated settlement discussions at the district court level while NRAP 16(g) governs those at the appellate level. The rules impose a good faith requirement, but the scant Nevada case law on this rule only deals with discovery disputes. Analogies may be drawn by looking to the discussion of good faith in the context of a motion for a trial de novo. See, e.g., Chamberland v. Labarbera, 110 Nev. 701, 877 P.2d 523 (1994), Campbell v. Maestro, 116 Nev. 380, 996 P.2d 413 (2000) and Gittings v. Hartz, 116 Nev. 386, 996 P.2d 898 (2000).
The case law interpreting the federal counterpart, Fed. R. Civ. P. 16(f), offers greater guidance on what is expected at a settlement conference. The case law demonstrates that a finding of good faith (or conversely a bad faith finding) typically requires a fact intensive, case-by-case analysis using a somewhat ambiguous standard with few hard and fast rules. Some have likened this analysis to Justice Stewart’s statement on pornography, modifying it to, “I know bad faith when I see it.” See, e.g., the discussion in Hutchings, Rachael C., Defining Good Faith Participation in Mediation, American College of Civil Trial Mediators, (Accessed February 29, 2016). doi: http://www.acctm.org/docs/Defining%20Good%20Faith%20Participation%20in%20Mediation%20_LAIT-Hutchings_.pdf
The easy cases, of course, are at the extremes. For example, all the decisions agree that refusing or failing to show up for a settlement conference without good reason constitutes sanctionable bad faith as well as possible contempt. Ayers v. City of Richmond, 895 F.2d 1267 (9th Cir. 1990), and Ikerd v. Lacy, 852 F.2d 1256 (10th Cir. 1988) (both sanctioning attorneys under Fed. R. Civ. P. 16(f) for failing to appear at an ordered settlement conference).
Once the court orders a conference, what do you and your client have to do to meet the good faith standard? To avoid a finding of bad faith (or lack of good faith), at the outset, a party should meaningfully participate in the selection of a mediator, if possible, and scheduling the dates and locations. Seidel v. Bradberry, Case No. No. 3:94-CV-0147-G, 1998 WL 386161 (N.D. Tex. July 7, 1998), *1. A party should provide a well thought out and reasoned mediation statement (these are typically confidential). Whitfield v. Pick Up Stix, Inc., Case No. 2:10-cv-00099-ECR-PAL, 2011 WL 3875330 (D. Nev., Sep. 1, 2011), *2. It was not that long ago that settlement statements were typically short position papers prepared on the eve of the due dates that had little substantive discussion of the issues or positions. The norm and the expectation now is a more detailed analysis and discussion of a party’s position.
You do not have to settle, and refusing to settle is not evidence of bad faith. Id. (noting that the failure to settle has no bearing on whether the parties participated in good faith); see also Fuchs v. Martin, Case No. 49S02-0602-JV-69, 2006 WL 1029752, *2 (Ind. Apr.20, 2006). You do not even need to make a counteroffer. Whitfield, 2011 WL 3875330, *1, 2. You can also go into and leave a settlement discussion taking the position that you need more information (so long as you have a basis for doing so and offer an explanation, and counsel should inform the court of this ahead of the mediation). Sherwin v. Infinity Auto Ins. Co., No. 2:11–cv–00043–MMD–GWF, 2013 WL 1182204, *2 (D. Nev. Mar. 19, 2013). This guidance stems from the rule that a court cannot require a party to settle. Id. To that end, a party can go into a settlement discussion initially refusing to pay anything. Negron v. Woodhull Hosp., Case. No. 05-4147-CV, 2006 WL 759806, *1 (2nd Cir. Mar. 23, 2006). That party must, however, meaningfully consider settlement options and have authority to accept an offer if they find it acceptable. Whitfield, 2011 WL 3875330, *2; see also, Outar v. Greno Industries, Inc., No. 03-CV-0916, 2005 WL 2387840, *3 (N.D.N.Y. Sep. 27, 2005).
Generally, a party who is an individual or small business owner easily meets these requirements because in those cases the ultimate decision maker will be attending. The situation is more complex when the party is a large organization or corporation that sends a representative and any settlement requires one or more layers of approval. In those situations, federal case law provides guidelines that both the litigants and the courts should observe. A party representative should have enough knowledge to meaningfully participate in the discussions by being knowledgeable of the facts, explaining the organization’s position and listening and responding to the other side. Id.
Orders requiring a party to appear with settlement authority up to a particular dollar amount can create unintended problems. Orders requiring a defendant from sending a representative with authority up to a plaintiff’s total claim are especially problematic. They presents the practical problem of giving a plaintiff (or defendant if a counterclaim is the primary subject of the settlement conference) a distinct tactical advantage, i.e., the plaintiff will be approaching the mediation knowing that there is pressure to settle and that the representative has the authority to do so at full value.
This type of order also puts a defendant in a difficult, if not impossible, position when the mediation or settlement conference takes place early in the case, and the plaintiff has not made all of the damages disclosures pursuant to NRCP 16.1 or Fed. R. Civ. P. 26. If you are in the position of having to provide someone with full settlement authority and the plaintiff has not made the appropriate disclosures, you should consider filing a motion to compel or a motion to move the date of the settlement conference. That way, you will have something in the record that reflects the plaintiff’s failures and the impact on the settlement negotiations. Practice has shown that merely mentioning this problem in your confidential settlement memorandum may not save you or your client from sanctions.
This type of an order may also exceed the court’s authority. At least one court has held that this practice is not proper because it may impermissibly coerce a settlement:
In this case, considerable concern has been generated because the court ordered “corporate representatives with authority to settle” to attend the conference. In our view, “authority to settle,” when used in the context of this case, means that the “corporate representative” attending the pretrial conference was required to hold a position within the corporate entity allowing him to speak definitively and to commit the corporation to a particular position in the litigation. We do not view “authority to settle” as a requirement that corporate representatives must come to court willing to settle on someone else’s terms, but only that they come to court in order to consider the possibility of settlement.
G. Heileman Brewing Co., Inv. v. Joseph Oat Corp., 871 F.2d 648, 653 (7th Cir. 1989) (emphasis added).
This is particularly true when a plaintiff demands what may reasonably be considered an unsubstantiated demand. Del Fuoco v. Wells, No. 8:03CV161T-23TGW, 2005 WL 2291720 (M.D.Fla. Sept. 20, 2005), *9. Indeed, plaintiffs have been found to be acting in bad faith by, among other things, making high demands with little or no basis to support the claimed amount. Id.
Overall, court-mandated settlement conferences can be frustrating because of the potential clash between the parties’ expectations and rights and the courts’ legitimate use of them as an effective tool for managing their dockets. Effective use of the process requires that everyone understand what is expected of them and the appropriate boundaries of what can be required of a party.Good faith will probably always require a fact intensive analysis, however, following these general guidelines will help create a productive, useful process.
Want to Better Control Your Arbitrations? 10 Steps to Writing a Better Arbitration Agreement.
By Jay Young, Esq.
Many of the complaints that I hear from litigators about arbitration could be solved if the arbitration clause were written better. Arbitrations are a creature of contract; therefore, the parties’ arbitration agreement—together with applicable arbitration rules and caselaw—is often the beginning and end of the arbitrator’s authority. NRS 38.241(1)(d); Federal Arbitration Act, 9 U.S.C. § 4; AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011). It is therefore of utmost importance that the parties draft their arbitration clause to give only the desired authority.
The drafter of the arbitration clause has the power to control many aspects of the arbitration. Advise the client of the importance of a well drafted clause. The following are ten items to consider when drafting a client’s arbitration agreement.
1. Scope of the Arbitration
A well-drafted arbitration clause will define exactly which disputes are subject to mandatory arbitration. If the clause is too narrowly drafted, one party might try to litigate certain issues in Court, and others in the arbitration, reducing the value and effectiveness of the agreement. Conversely, if the clause is too broad, some courts will presume that all issues should be resolved in the arbitration.
2. Mediation Before Arbitration
Some agreements require mediation of the parties’ differences prior to arbitration. These types of clauses may save the parties from looking weak by being the first to suggest mediation or settlement. On the other hand, mandatory mediation can sometimes increase costs and delay the inevitable. If mediation is desired, the agreement should determine the method for selecting the mediator and arbitrator, how the neutral’s fee is to be paid (whether by one party or as a shared expense), and a deadline for how soon the mediation will be held after the demand. If no selection method is specified, but the parties have chosen a specific institution to administer the mediation/arbitration, the default selection rules of that institution will apply.
3. Payment of Arbitrator, Administrative, and Attorney Fees
The parties should determine if each is responsible for one half of the arbitrator’s fees and administrative costs or if the prevailing party is entitled to an award against the losing party for the cost of the arbitration. They should also agree whether each side will bear its own attorney fees, whether the prevailing party is entitled to an award of its actual or reasonable attorney fees, or whether the arbitrator is tasked with allocating all costs and fees between the parties.
4. Number and Qualification of Arbitrators
Some practitioners argue that a three-arbitrator panel ensures a better result, as a majority of three respected neutrals must agree on any result, mitigating the chance of a ruling adverse to the evidence. As three-arbitrator panels can be very expensive, some drafters allow for a single arbitrator unless the claim is over a threshold amount where the extra expense may be more justifiable.
The agreement may specify the qualifications of the arbitrator, such as a minimum level of technical knowledge, or requiring an arbitrator who is a retired federal judge or has at least 20 years of experience litigating in a particular area of law. If the dispute is international in nature, consider adding a language requirement (“the arbitration will be conducted in the Spanish language”).
5. Duration of the Arbitration
Give consideration to whether the types of arbitrations in which your client may be involved might benefit from limiting or expanding the duration of the arbitration. For instance, an agreement might provide that the arbitration award must be made within 90 days of the filing of the claim and that the arbitration must be completed in one calendar day, with each side limited to 4 hours of presentation time on a chess clock. In other circumstances, such a limitation might be wholly inappropriate.
6. Venue & Governing Law
A well-crafted arbitration clause should determine where the arbitration will take place. In the absence of such a clause, if the parties cannot agree on a location, one will be determined by the arbitrator. Careful consideration should be given to what procedural and substantive law will apply to the arbitration. If you agree to arbitrate through a service such as AAA or JAMS, you may consider using its procedural rules and the substantive law of the forum state.
7. Discovery and Motion Practice
If the parties fail to designate the scope of allowable discovery in their arbitration agreement, the arbitrator may be guided by institutional procedural rules or personal ethos to limit discovery. Careful consideration should be given to the amount and type of discovery you want to allow in your arbitrations. Consider designating the types of document exchanges which must take place, the treatment of electronically stored information, the number and location of depositions, and whether interrogatories and/or requests for production of documents or other discovery methods will be allowed. The parties should also consider whether motion practice should be allowed in the arbitration.
8. Arbitration Submitted on Documents
In certain circumstances, the parties may deem it advantageous that matters be submitted to arbitration, but heard without live testimony or oral argument. Written submission arbitrations are considered by some to be a considerable advantage where one anticipates small-dollar value claims or where the desire is to obtain a speedy result.
9. Limitation and Type of Award
Parties may determine by contract whether the arbitrator has authority to award consequential or punitive damages, and may determine whether the arbitrator has authority to grant equitable or injunctive relief. The agreement should also determine the type of award (standard, reasoned, or with findings of fact and conclusions of law) the parties desire from the arbitrator.
A standard award designates the prevailing party and delineates the resulting award and allocating costs and fees as appropriate without explaining the reasoning of the award. A reasoned award contains a summary of the issues, questions, claims, and defenses, as well as the reasoning behind the arbitrator’s award. A reasoned award could require only one or two sentences, or it might require formal findings of fact and conclusions of law. The parties should specify whether they expect findings of fact and conclusions of law. Finally, although most arbitrations are not subject to appeal, the parties may agree to allow an appeal and designate the procedures for the same.
Although a recognized benefit of arbitration, confidentiality is not always guaranteed. Most arbitrations through a recognized service will require adherence to rules requiring confidentiality. A private arbitration held outside one of these services may not always impose confidentiality on the parties. The parties should therefore specify whether they desire confidentiality.
Many of the fears clients and litigation attorneys have regarding arbitration can be obviated or mitigated if careful attention is paid when the contract is being drafted. Consider these ten steps the next time you are drafting a contract with an arbitration clause.