In principle, every case should be decided according to the facts and the law, no matter who is making the decision or in which forum. In practice, the forum making the decision can make a huge difference. In particular, the differences between litigation in court and arbitration before a private panel can be dispositive because of the differences in procedures, the nature of the forum, opportunities to seek fees and costs, and the opportunities for review after the proceeding is over. Those differences may also be critical regarding certain preliminary aspects of the dispute, such as requests for injunctive relief. Each stage of the process presents different kinds of strategic decisions.
The first question a litigator should ask herself when a dispute arises is where the dispute should be heard. Is there an arbitration clause that might be applicable? If there is, does it in fact apply? To a large extent, whether the clause applies will depend on the language of the clause and how it relates to the facts, although the Eleventh Circuit has cautioned that “‘[t]he case law yields no clear answer’ to the question of how broadly to construe an arbitration clause.” Hemispherx Biopharma, Inc. v. Johannesburg Consol. Invs., 553 F.3d 1351, 1366 (11th Cir. 2008) (quoting Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109, 1114 (11th Cir. 2001)). For example, a clause that required arbitration of disputes that “arise out of or relate to” an agreement settling a dispute did not require arbitration of later conduct similar to what caused the settled dispute because that is a new dispute. Zetor N. Am., Inc. v. Rozeboom, 861 F.3d 807, 810 (8th Cir. 2017). A clause calling for arbitration of “[a]ny dispute arising from the [fundraising] Activity” covered by the contract did require arbitration of a minimum wage claim by a fundraiser. Leonard v. Delaware N. Am. Cos. Sports Serv., Inc., 861 F.3d 727, 729 (8th Cir. 2017). “‘[A]rising under’ language is narrower in scope than language, such as “relating to,” under which a claim may be arbitrable if it has a “significant relationship” to the contract, regardless of whether it arises under the contract itself.” Evans v. Building Materials Corp. of Am., 858 F.3d 1377, 1381 (Fed. Cir. 2017). An arbitration clause covering disputes that “arise out of or in any way relate to” the services provided covers antitrust claims by customers. In re Cox Enters., Inc. Set-top Television Box Antitrust Litig., 835 F.3d 1195, 1202 (10th Cir. 2016).
If the clause arguably does not apply, the attorney should ask herself whether it is worth trying to litigate the case in court. The other side may commence motion practice under section 3 of the Federal Arbitration Act to stay the action and have the dispute referred to arbitration. Even if that motion does not succeed, the exercise may take several months. Is the delay worth it? More to the point, what are the chances the case can stay in the court system? There is a strong policy in pretty much every court system in favor of arbitrating disputes. That means a party resisting arbitration needs a very strong argument as to why an arbitration clause does not apply. See, for example, Chassen v. Fidelity Nat’l Fin., Inc., 836 F.3d 291, 304 (3d Cir. 2016) (“[I]f the language of the contract is ambiguous, the presumption of arbitrability applies because we must resolve any doubts concerning the scope of arbitrable issues in favor of arbitration.” (internal quotations and alterations omitted)).
If there is no arbitration clause, should the parties consider whether to enter into a post-dispute arbitration submission agreement? Certain kinds of disputes might be well-suited for such a submission. For example, if the parties prefer not to have their dispute become a matter of public record, they might prefer to construct an appropriate arbitration procedure and panel for their dispute in order to avoid public scrutiny and press coverage. Alternatively, the nature of the dispute may require that it be heard in a court that is utterly unfamiliar with the type of case at issue; if the parties want a decision maker who has at least some clue about how to think about their dispute, they can agree to have their dispute arbitrated by a credentialed person.
There are limited opportunities to choose your judge if your case is in court. Most courts assign cases out of a wheel or similar random assignment system. It is easier to avoid a disfavored judge (by discontinuing under Rule 41(a)(1) and refiling) than to steer a case to a favored one. Arbitration affords greater opportunities for choosing the decision maker. The American Arbitration Association typically provides lists of proposed arbitrators and invites the parties to strike disfavored names. The arbitration agreement might provide procedures for selecting the arbitrator, set forth minimum qualifications, or name a specific person. In all events, the litigant should think hard about the characteristics of the person she wants deciding the case and plan the strikes and nominations with those goals in mind. One common procedure calls for each side to name one arbitrator and then the two named arbitrators pick the third. For this type procedure it is necessary to consider how persuasive your named arbitrator can be in order to keep the selection of the third arbitrator within acceptable bounds.
Choosing your decision maker should be part of your decision about what your overall approach to the dispute should be. In court the tools are well known: motions to dismiss to narrow the issues, discovery to learn the facts and lock the other side into their story, and motion for summary judgment to win the case or get as much of it decided in your favor as possible ahead of trial. Which tools you use and how, and which grounds you will raise at which stage of the proceeding, will vary from case to case, of course.
Arbitration presents a different set of challenges because you have fewer tools readily available. In most arbitrations, motions to dismiss are not contemplated. Discovery is more limited—typically there are no interrogatories or depositions. Specific types of arbitration might vary, such as FINRA arbitrations, and parties can always agree to additional procedures, but it is never advisable to rely on the other side’s agreeing to your preferred procedure.
In at least some federal courts, there is no third-party discovery in arbitration: third-party evidence either is before the arbitrators or not at all. See, for example, Life Receivables Tr. v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210 (2d Cir. 2008); Hay Group, Inc. f. E.B.S. Acquisition Corp., 360 F.3d 404 (3d Cir. 2004). The Sixth and Eighth Circuits disagree. See In re Sec. Life Ins. Co. of Am., 228 F.3d 865, 870–71 (8th Cir. 2000); American. Fed’n. of Television and Radio Artists, AFL–CIO v. WJBK–TV (New World Commc’ns of Detroit, Inc.), 164 F.3d 1004, 1009 (6th Cir. 1999). This doesn’t necessarily mean the third party has to show up and testify; the arbitrator may and often will facilitate third-party discovery by directing that documents be produced before him or her at an interim hearing called for the sole purpose of having the third party produce documents. Often the adversary will see which way the wind is blowing and consent to having the production done without the arbitrator present. But a good litigator must bear in mind the relative ease of access to third-party proof.
The likelihood in arbitration is that you are going to trial. That means arbitration may provide you with tools that may not be available in court. Bear in mind the grounds on which arbitration awards can be vacated. They are set forth in section 10(a) of the Federal Arbitration Act:
- where the award was procured by corruption, fraud, or undue means;
- where there was evident partiality or corruption in the arbitrators, or either of them;
- where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
- where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
Although these grounds are narrow, they are real, and arbitrators don’t like being overturned any more than judges do. So they are likely to run the hearing in a way that will keep them far away from any of these. The ones that give parties the most scope for affecting the proceeding are subsection 3 and 4.
Defendants in particular can—and often do—use the prospect of a post-award vacatur proceeding under subsection 3 as a tool to obtain adjournments and to keep the record open for all kinds of evidence that in court might be viewed as cumulative or of limited probative force or questionable admissibility. Of course, it is possible to overdo it, and a good arbitrator will see through the more egregious misuses of this strategy.
Similarly, the parties may wrangle over the scope of the arbitrator’s power and how it is exercised because subsection 4 permits challenges on those grounds. These arguments will turn on the language of the contract that empowered the arbitrators in the first place (which may or may not be idiosyncratic, unclear, or debatable). In court, though, such issues typically are pitched in terms of jurisdiction, finality, or scope of discretion, and there is usually a wealth of case law to inform the parties’ arguments.
Courts, especially federal courts, have much more rigid guidelines for the procedures to be followed, well-defined evidentiary rules, and, in the main, a case-management ethic that expects judges to keep cases moving along smartly. Although the number of tools is greater (motions, discovery), the opportunities for delay in each part of the proceeding are far fewer. Unlike arbitrators, whose decisions are highly insulated from substantive review, judges can be reversed on appeal. Although appellate courts reverse trial courts in only a small percentage of cases, see, e.g., Just the Facts, (Dec. 20, 2016) (fewer than 9% of federal appeals resulted in reversals in 2015); National Center for State Courts, Caseload Highlights (March 2007) (of appeals prosecuted to decision, 70% were affirmed), the prospect of a reversal on appeal can occasionally be a useful tool for a litigant.
The bottom line: no matter which forum you are in, each stage of the proceeding requires that you keep in mind the rules of the forum so that you can construct your strategy to fit the forum and maximize your client’s chances.
Stuart Riback gratefully acknowledges the assistance and input of Judge Gail Andler (ret.), Peter Valori and Mian Wang.