Now is the time to revise arbitration provisions in your contracts to take advantage of the shift to remote arbitration
With the new norm of social distancing, and a recent decision out of the Eleventh Circuit Court of Appeals, Henry Chalmers of Arnall Golden Gregory LLP, believes that times are changing the way arbitration are conducted. Now is the time to update the arbitration provisions in your contracts to take advantage of these changes the next time you have to arbitrate a dispute.
Zooming arbitration hearings
The standard arbitration hearing has always involved the parties, attorneys, witnesses, and arbitrators together in the same room, similar to an informal trial setting. The COVID-19 pandemic may change that for the foreseeable future. Just as businesses are transitioning away from in-person conferences and towards Zoom meetings, so too are arbitration hearings.
The Rules for many arbitration tribunals—like the American Arbitration Association and JAMS—allow arbitrators to decide whether to hold hearings in person or via video conference, unless the parties have agreed otherwise. So, the next time you negotiate a contract with an arbitration provision, think about whether it would be to your advantage to require that disputes be arbitrated in person or remotely, then draft that into the contract.
Here are a few things to consider in making this decision:
- Are you likely to need a quick resolution to the dispute? If so, a virtual hearing may be to your advantage, as coordinating travel schedules for out of state parties, attorneys, witnesses, or arbitrators to attend in person can make scheduling more difficult.
- Is your dispute likely to be complex and document-intensive? If so, requiring an in-person hearing may make it easier to present your case to the arbitrators. Conversely, if your position will be easy to convey consider requiring any hearing to be conducted via video conference.
- Will the other party have greater financial resources to devote to the arbitration? In-person hearings are often more expensive than virtual ones, especially if travel is involved. If you are concerned that the other party might leverage its financial position to drive up the cost of arbitration, you may want to require that hearings be conducted via video conference.
- Which party is likely to appear more credible and sympathetic in person? If it’s you, then you may want to require a live hearing. Be aware, though, that the advantage may be lost if everyone is required to wear face masks at a live hearing.
No Zooming non-party depositions
One significant difference between litigation and arbitration is the relative ease of getting discovery from non-parties. In a federal court lawsuit, you can subpoena documents from a non-party anywhere in the country. In arbitration, the only way to get those documents is to subpoena the non-party to appear before one or more of the arbitrators and demand that she bring the documents with her. In essence, you are subpoenaing her to attend a “mini-hearing” at which she can be questioned about the documents and other matters.
As you can imagine, the associated costs can be significant—e.g., flying your attorney and the arbitrator to the non-party’s location to conduct the document review and questioning. And if the arbitrators decide the cost and disruption would outweigh the value of the evidence sought, they can simply decide not to issue the subpoena, essentially eliminating the non-party’s evidence from your case.
A common workaround has been for an arbitrator to “attend” the mini-hearing via teleconference or video conference, to minimize time and travel expense, not to mention making it easier to coordinate scheduling. That option, however, no longer exists for most arbitration in Georgia, Florida, and Alabama. The Eleventh Circuit Court of Appeals, which governs these three states, recently ruled that the arbitrator must be physically present when the non-party is questioned, and that the questioning must be part of the actual arbitration hearing and not simply a separate pre-hearing deposition. Managed Care Advisory Group v. CIGNA, 939 F.3d 1145 (11th Cri. 2019).
In other words, just as the rest of the world is moving towards conducting business remotely, that avenue is being cut off for some parties seeking non-party documents or testimony in arbitration. Not only will this affect strategies for gathering evidence in arbitration, it also demands that parties reevaluate whether to continue including arbitration provisions in some of their contracts.
When negotiating your next contract, consider whether, if a dispute arises, you might need documents or testimony from non-parties to prove your case. If so, the safer route may be not to include an arbitration provision in the contract and instead litigate any disputes in the courts. Conversely, if the other party is likely to need non-party evidence, then keep the arbitration provision and consider adding language affirmatively prohibiting the arbitrator from issuing non-party subpoenas in the first place.
These are just two examples of how arbitration is changing as the business world moves to operating more remotely. Now is a good time to review your arbitration agreements, to reevaluate whether they help you take advantage of the changing landscape of virtual arbitration, and to draft language that puts you in the best position should disputes arise. We’re here to assist you with the process.
Henry Chalmers is the immediate past Co-Chair of AGG’s Litigation Group, an Arbitrator with the American Arbitration Association, and Co-Chair of the ABA Section of Litigation’s Alternative Dispute Resolution Committee. In addition to representing clients in arbitration and serving as an arbitrator, Henry assists clients in drafting and tailoring contractual arbitration provisions to best serve their business and litigation needs.