Locke Lord QuickStudy: Conversion of Litigation to Arbitration: An Answer to Judicial Delay in the Time of COVID-19

Typically arbitration is commenced based on an arbitration clause contained in a contract executed months or years before the parties’ dispute arises.  In other instances, once a dispute arises, the parties agree that the dispute should be decided by arbitration and enter into a post-dispute agreement known as a submission agreement.  One example of a simple submission agreement can be found in the American Arbitration Association’s Commercial Arbitration Rules:

We, the undersigned parties, hereby agree to submit to arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules the following controversy: (describe briefly).  We further agree that the above controversy shall be submitted to (one) (three) arbitrators.  We further agree that we will faithfully observe this agreement and the rules, that we will abide by and perform any award rendered by award.

The use of a submission agreement, however, is not limited solely to those instances where a dispute has arisen but the parties have not instituted a lawsuit.  A carefully crafted and comprehensive submission agreement can also be used to convert a pending lawsuit to arbitration.

The COVID-19 virus has disrupted the courts nationwide.  The manner in which the courts are handling the disruption vary widely with some jurisdictions suspending both civil and criminal trials and others encouraging remote appearance by phone or video whenever possible.  However, even when the virus has abated and the courts are once again open for “business as usual,” there will be a tremendous backlog of cases to be tried. In those jurisdictions where the courts have both criminal and civil jurisdiction, the delay in trying civil cases will be further aggravated due to the precedence given criminal trials.

Those parties for whom “justice delayed is justice denied” may wish to convert their lawsuit to arbitration through the use of a submission agreement.  In these tumultuous times, arbitration provides numerous benefits for parties desiring to have a dispute decided without undue delay.  Those benefits include:

• Protection of Information:  Unlike many courts, arbitral institutions have established protocols for the protection of parties’ information and for online filings and business continuity.  In 2020, the ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration was issued.  This protocol is intended to provide a framework to determine reasonable information security measures for individual arbitration matters, including procedural and practical guidance to assess security risks and identify available measures that may be implemented.  Although designed for international arbitration, the framework is equally applicable to domestic arbitrations and can be adopted by the parties.

• Experience with Videoconferencing:  Arbitral institution rules typically provide for the presentation of evidence by alternative means including video conferencing, internet communication and telephonic conferences, the sole restriction being that the alternative means must afford a full opportunity for all parties to present any evidence that the arbitrator deems material and relevant to the resolution of the dispute.  Many arbitrators, especially those who sit on international tribunals, have previous experience in taking evidence through videoconferencing due to the medium’s time and cost savings.

• Protocol to protect due process:  In furtherance of the precept that all parties should be afforded due process, the Korean Commercial Arbitration Board issued the Seoul Protocol on Videoconferencing in International Arbitration.  The protocol is intended to serve as a guide to best practice for planning, testing and conducting video conferences in international arbitration.  Among the topics addressed are witness examination, video conferencing venue, documents, and technical standards for the videoconferencing equipment.  Its concepts and directives are equally applicable to domestic arbitration and can easily be adopted by the parties to guide a domestic videoconference arbitration.

• Assistance with videoconferencing:  Arbitral institutions can assist with alternative hearing arrangements, including the use of video teleconferencing that will allow for remote participation in hearings.

• Adapting Procedures:  The parties, with guidance from the tribunal, can design their own procedural schedule based on the status of the dispute at the time of conversion to arbitration.  This schedule might necessarily include an agreement that the arbitrator is bound by all prior court rulings.

• Alternative means of adducing evidence:  The parties can agree on a system for adducing evidence at the hearing.  For example, in international arbitration, it is the norm for all direct testimony to be given via written witness statements with only cross-examination occurring live.  This process can be employed in a domestic arbitrations as well, greatly reducing the hearing time which should be a prime consideration for any online hearing.  Similarly, the parties can agree to waive oral hearings and have the dispute resolved through document submission.  The AAA, JAMS and CPR Rules all recognize that upon agreement of the parties, a dispute may be resolved without an oral hearing.

• Narrowing the scope of the dispute: For parties who may benefit from reducing the range of their dispute to a simple either/or outcome, they may consider “baseball arbitration,” epitomized in the AAA Final Offer Arbitration Supplementary Rules.  With these rules, the parties submit competing proposed monetary awards to the tribunal, and the tribunal must select between the two proposals.  Benefits of these rules include the increased possibility of resolving the dispute before the hearing once the parties see the competing offers, and confirming the range of risk that the parties face.

• Ability to appeal:  One of the hallmarks of arbitration is that an award typically is final and cannot be appealed.  Recognizing that parties in some instances would like an opportunity for appellate review of an award, both the AAA and JAMS have optional rules to address the appeal of an award.

The AAA Optional Appellate Arbitration Rules provide that a party may appeal on the grounds (1) that the underlying award is based on an error of law that is material or prejudicial or (2) the determinations of fact are clearly erroneous.  The determination is made by an appellate tribunal that may adopt the underlying award, substitute its own award for the underlying award (incorporating those aspects of the underlying award that are not vacated or modified) or request additional information.

JAMS Optional Arbitration Appeal Procedure provides for an appeal conducted by an “Appeal Panel.”  The Appeal Panel applies “the same standard of review that the first-level appellate court in the jurisdiction would apply to an appeal from a court decision.”  The Appeal Panel may affirm, reverse or modify an award.  Both the AAA Rules and the JAMS Rules require that all parties agree to the optional appellate procedure.  That agreement may be made before or after an award is made.

In short, a properly designed submission agreement coupled with representation by a knowledgeable arbitration advocate can help ensure that a dispute will be heard efficiently, securely and without the COVID-19 disruptions affecting the courts, thereby ensuring justice is neither  delayed nor denied.

Organizations that plan for their recovery and are rebuilding for the future will be better positioned for a post-pandemic world. Please visit our Adapt. Adjust. Advance. Resource Center often for up-to-date information on navigating these and other important legal considerations in the postpandemic reality.