Six steps to succeeding in arbitration.

Arbitration is the referral of a dispute to one or more impartial people for final and binding determination. It has now spread beyond the traditional areas of labor-management contracts, securities agreements, real estate sales and listing agreements, uninsured motorists' claims, and construction contracts. Recently, the general public heard and read about the arbitration of baseball contracts, and sophisticated business clients are well aware of their nonlitigation options today. An attorney who discourages resolving a claim through arbitration solely because of lack of experience is not serving clients' interests.

Arbitration can be mandatory if the underlying contract contains an arbitration clause or voluntary if afl parties agree to it after a dispute has arisen.

When there is a choice of proceeding with arbitration or going to trial, the old general rule of thumb had been: If the facts are on your side, choose arbitration, and if the law is on your side, choose litigation. Although the general rule is still true, additional factors like the amount of the claim; the amount of delay that going to trial would cause; the technical nature of the claim (you can choose arbitrators who are experts in the particular field involved in the arbitration); the need for privacy; and the client's nonmonetary need for a quick resolution (for example, some clients consider litigation continual source of tension and frustration, and some clients have a personal animosity toward the other litigant) should be considered.

An arbitration can be advantageous in at it avoids the strict rules and legal technicalities of a trial. Also, an arbitrator who is an expert in the particular area being arbitrated is well equipped to resolve the dispute fairly. Finally, if the private nature of the dispute is a factor, arbitration is a confidential process.

On the other hand, the limited nature of discovery may hamper your client's ability to present the case fully. Also, the arbitrator often does not provide a written opinion explaining the award, which would discourage future claims or litigation when your client is likely to be involved in similar disputes in the future.

Arbitrators are more likely than judges to "split the difference" or require concessions from both sides. Finally, and perhaps most important, if the arbitration is unsuccessful, there is no appellate review for your client except in very limited and narrow circumstances such as a claim of fraud in the arbitration proceedings.

Whether you have voluntarily chosen arbitration or it has been mandated, the following six important steps will ensure that you take full advantage of this method to resolve the case in your client's favor.

Step 1: Know the Rules

Familiarize yourself with the rules of arbitration. The American Arbitration Association (AAA), a not-for-profit public service organization founded in 1926, provides its Commercial Arbitration Rules free as do afl other arbitration organizations. (American Arbitration Association, 140 West 51st St., New York, NY 10020, tel. [phone].)

The rules explain how to file the claim with the AAA. The AAA procedure advises the claimant to provide a written notice (often in letter form) of intent to arbitrate and a statement of the nature of the dispute, the amount involved, the remedy sought, and the hearing locale requested. Although only minimal information is needed to put the claim before the arbitrator, care should be taken in drafting the claim dearly and concisely as this is the first impression of the case the arbitrators will have. The filing fee depends on the dollar amount of the claim in dispute.

The Commercial Arbitration Rules also provide important material for managing the process. For example, Rule 10 allows the claimant to schedule a mediation hearing first, at no additional cost, to try to settle the case before going to arbitration. (Mediation is a nonbinding, less formal process where the parties submit their dispute to an impartial third person who helps them reach their own settlement.) This can be an important opportunity depending on the nature of the claim. If liability clearly favors your opponent, you may want to try mediation to reduce the damage award. It has been my experience that you can gain an initial discount simply by offering to forego arbitration and settle.

Rule 10 also allows the claimant to schedule an administrative conference or preliminary hearing to expedite the proceeding. At the administrative conference, the parties can agree on a schedule of production of documents, witnesses can be identified, and hearing dates can be set. Taking advantage of this initial conference date can save time and streamline the process, especially in complex commercial or construction cases. If the arbitration is expected to take more than a few days, I recommend the preliminary or administrative conference to give you an opportunity to size up the arbitrators before proceeding with your case.

Other important AAA rules are

* Rule 11, on selection of locale (hearings do not have to be held at one of the AAA's 35 regional offices if this is important to your client or the claim; they can be held at another mutually agreed on neutral location);

* Rule 20, on the filling of vacancies on arbitration panels (you can elect to continue or appoint a new person);

*o Rule 31, on admission of evidence (the arbitrator will be the judge of relevance and materiality, and conformity to legal rules of evidence is not necessary, thereby avoiding lengthy proceedings);

* Rule 32, on submission of affidavits as opposed to direct testimony and filing of post-hearing briefs (in certain limited situations, such as where a witness's factual statement is not disputed, using affidavits can save time and money); and

* Rule 33, on the arbitrators' ability to perform inspections and investigations (this is particularly useful in construction cases where you would like the arbitrator to view the quality of the work).

Step 2: Carefully Select the

Arbitrators

This is by far the most important step in a successful arbitration and the step attorneys most often ignore. Failure to carefully select an arbitrator can result in complaints from your client that arbitration is an ineffective process solely because the person conducting the hearing was ineffective. In arbitration, any ineptness is highlighted because the process is not protected by the formality and rules present in a trial. The success of the arbitration in terms of meeting the client's need for a quick, inexpensive, and fair solution is in large part dependent on the arbitrator's skill and experience.

A client's complaints could be accurate to the extent that the arbitration depends on the quality of the arbitrators, and, as experience has shown, there are some bad arbitrators. However, unlike the court system, you have a great deal of control over who will hear the case.

Under the AAA rules, the AAA administrator assigned to the case sends each party an identical fist of names and biographies of people chosen from the association's roster. Ten names are sent for a one-arbitrator panel where the claim is under $250,000; 15 names are sent for three-arbitrator panels where the claim is greater and the case more complicated. Each party to the dispute has 10 days to strike names, number the remaining names in order of preference, and return the list. In a single-arbitrator case, each party may strike three names and in a multi-arbitrator case, each party may strike five names on a peremptory basis. If the fist is not returned, all names are deemed acceptable.

Some factors about the arbitrators that should be reviewed are age, experience, knowledge and background in the field of the dispute, and legal background (affiliation and areas of practice). Age can be a factor in that an arbitrator can be seen by the client as too young or inexperienced for a certain type of case. For example, if your client believes it is important to a favorable decision that the arbitrator be thoroughly familiar with industry standards, you need to find someone with substantial experience.

Or you may not want someone who is young and has an active and hectic business schedule if you anticipate that your case will take 10 or more days. The result would be a hearing schedule spread over many months, defeating one purpose of choosing arbitration: quick resolution. With a lengthy case, it might be appropriate to look for a retired or semiretired arbitrator, provided, of course, that the person also meets the primary standard of being qualified for the case.

I represented a client in an employment and dissolution-of-partnership dispute. The arbitrator was so busy it was extremely difficult to schedule hearing dates, and the case dragged on for months. The result was that the two adversaries - who were forced to work together while the matter was being arbitrated and who had a great deal of animosity toward each other - were at each other's throats daily. My client was constantly calling me for advice on how to get through the daily disputes and pressing for a final resolution of the matter. The fairly simple case turned into a nightmare.

However, any rule of thumb is subject to exception. I represented a client in a lengthy, complex case and chose as one of the three arbitrators a retired man who had a great deal of experience in the construction industry. We had completed 22 of 24 hearing dates when he died. The AAA rules allow continuing with two arbitrators, but only if both sides consent. My opponent refused to do so, and we were forced to start the case over. Of course, this was an unusual and unpredictable development.

Other factors can be predicted more reliably. An important indicator is the person's field of employment. For example, if it is vital to your client to keep out certain prejudicial evidence, you may want to make sure that at least some rules of evidence are observed. If so, it is important that at least one arbitrator is a trial attorney. While all arbitrators have authority to accept evidence for "what it is worth" or "under advisement," we find that attorney arbitrators tend to apply at least minimal evidentiary principles and do not accept evidence that is completely irrelevant or duplicative of evidence already submitted and accepted.

If the case is technical, you want an expert in that field. If a decision will be based on technical issues, you want an architect, contractor, broker, or insurance agent on the panel. However, you also want to know what the person's experience is. For example, has a construction-lawyer arbitrator primarily represented contractors or owners and sureties? The people or entities represented win color the arbitrator's thinking and view of the case.

It is also important to go beyond the short biography of each prospective panelist the AAA provides. This information should be purely a starting point and used for peremptory challenges of people whom you feel would clearly disfavor your client's interests or with whom your client or your firm has a conflict of interest. Then, you should use the many tools available to further investigate the potential arbitrators.

Call people you know in this field to get an idea of the potential arbitrator's temperament and demeanor and any other information that would lead you to conclude the person would make a good or poor arbitrator. Read trade journals and do research to see if this person has written articles or been in the news. You can use LEXIS/NEXIS to research potential arbitrators. Use whatever tools are at your disposal to make sure that you have the best arbitrator or panel of arbitrators to hear your case.

Do not take lightly the opportunity to select who will be the judge and jury. Under no circumstances should the peremptory challenges be used solely to make sure that there is no conflict of interest, as that is just the tip of the iceberg. Since the selected arbitrators have a duty to disclose any conflict that they know of before commencing the arbitration, you need not use peremptory challenges this way.

Although I recommend thoroughly reviewing the qualifications of arbitrators, in recent years the AAA has instituted training procedures for all arbitrators. The result is that as a general rule they are all much better skilled today in the past.

Step 3: Hire a Stenographer 

Obtaining a stenographer is not required. However, unless it is going to be just a one-day hearing, you should have one. An arbitration may run longer than anticipated, especially in three-arbitrator panels where scheduling gets difficult. A transcript is also essential when it cannot be disputed that testimony will be forgotten if the arbitrators do not have a written record to review at the close of the proceedings. In addition, if the arbitration is long, reviewing a transcript is helpful before presenting further witnesses or cross-examining witnesses. A transcript is also an important tool in drafting a post-hearing brief.

Step 4: Request a Preliminary or

Administrative Hearing 

Every litigant has heard horror stories about an arbitration gone bad - endless, unfocused proceedings that spanned months and even years and that became inordinately expensive and very time-consuming. Therefore, it is vital to try to control the process at the prehearing or administrative conference.

You should identify and simplify the issues for the arbitrators. Make sure that they know what the real issues are. This effort does not prevent an arbitrator from hearing repetitive, worthless, and irrelevant evidence "for what it is worth," but often it can help to focus arbitrators on the real issues. The preliminary hearing also gives you a brief opportunity to size up what type of control the arbitrators will assert on the proceeding.

It is also important to furnish the arbitrators with (1) an outline of the key facts and legal issues and the amount claimed and (2) a prehearing brief presenting the facts and legal arguments, with supporting case law, at greater length. If possible, especially in complex cases, a joint stipulation of uncontested facts can help streamline the process and avoid testimony on basic uncontroverted matters. The parties should also exchange witness fists and other pertinent information like experts' reports, although this is not required. If it is possible to agree on the submission of certain basic documents, like the contracts and specifications in construction cases, this should be accomplished.

A hearing schedule, or at least the first three or four dates, should be established. Postponements should be made only for just cause (scheduling problems are the leading contributor of inefficiency in arbitration proceedings). However, if both sides consent, the arbitrators must adjourn scheduled hearings.

Finally, you should state your intent to submit a post-hearing memorandum of law and establish a deadline for this. (Under AAA rules, an arbitrator must submit a decision within 30 days of the close of hearings, and the close is extended to the date that post-hearing briefs are submitted.)

Step 5: Expedite Proof Effectively

In arbitration, the strict rules of evidence do not apply. Common sense prevails. In most cases, all testimony is admissible unless outrageous, and any relevant document is admissible. However, acceptance by the arbitrators of all evidence should never be presumed. You should treat the arbitration proceedings themselves like a trial and be thoroughly prepared for objections and challenges on the admissibility of evidence.

In a recent arbitration, my opponent assumed that afl evidence would be admitted and found himself in a quandary when my, objections were sustained by the arbitrator, a sophisticated trial attorney.

On the other hand, if the arbitrator takes a more laissez-faire approach, adapt quickly. Do not continue to object, but accept the fact that hearsay and speculative evidence will be admitted. Then, use the arbitrator's easy-going attitude to your advantage when presenting your evidence.

In preparing witnesses, make sure they understand that the testimony is informal (especially if they are familiar with court proceedings) and that you will not be able to protect them as you can in court via objections. It is important to have witnesses practice this style of testimony Prepare them for questioning from their opponent's attorney and the arbitrators (some arbitrators like to take over the questioning). You should also note that certain client weaknesses, such as talking about irrelevant or damaging issues, are more likely to show up in arbitration testimony than in the courtroom.

In general, with arbitration you have to be at your most creative and persuasive the first time (there are no appeals), which means that you should give an opening statement that is short, simple, and engaging. Arbitrators often ask attorneys to waive the opening statement, but unless the arbitrators insist, seize this opportunity to focus the case.

Your presentation and exhibits should be thorough and interesting. If the arbitrators are experts in the field, it will take more effort to educate them about your client's case and keep them interested as they are already familiar midi much of the basic information you are presenting. Use the summation to concisely recap the evidence presented and state why your client should receive an award.

No hard and fast rules direct expediting the proof because it is essential to adapt to the requirements of particular arbitrators. Again, this is why selection of arbitrators is so important. If the arbitration is run with some formality and application of some evidentiary rules, you can make that work for you. If it is run without any evidentiary rules, you can also make that work for you. The key is to be prepared as if formal rules of evidence are applicable, and then adapt.

Step 6: Submit a Post-Hearing Brief

Especially if the case has dragged on and a great deal of superfluous material or testimony has been allowed, it is helpful to submit a post-hearing brief. This will enable you to refocus the issues as outlined in your opening statement.

It is also helpful to supply case law supporting the proposition you want arbitrators to find in favor of. The brief does not have to be long or elaborate if it is a simple case or you are trying to save the client time and money. However, a short clear statement of facts with some case law is almost uniformly a good way to conclude the arbitration process.

The above six steps should put you on the right path to proceed and win at any arbitration.

Commercial Section: Demystifying

Business Litigation

ATLA's Commercial Litigation Section supports member attorneys who represent plaintiffs in business disputes. The commercial litigation area of law focuses on securities and franchise litigation; lender liability; intellectual property; and numerous other fraud, contract, and commercial claims.

One of the greatest obstacles that commercial litigators face today is corporate lawyers' persistent attempts to arbitrate or mediate cases, rather than to see them through to trial, said Peter Lagarias, the 1994-95 section chair.

Lagarias said attorneys are being bombarded with "an increasing amount of mandatory arbitration in all types of commercial litigation." Members, he added, are frustrated by "the corresponding inability to present matters at jury trials."

At ATLA's 1995 Annual Convention, July 15-19 in New York City, section leaders will offer a full day of programs and panel discussions, several of which will address arbitration and mediation.

Section Vice Chair Charles Goldberger, whose convention presentation will focus on arbitration hearings, believes alternative dispute resolution is here to stay. "It is a thing of the very near future for commercial litigation lawyers, which it was not some years ago. The more we as lawyers know about arbitration and mediation, the better off we'll be."

Other topics that will be featured on the section's convention program include contingency fee representation, automotive dealer litigation, securities litigation, and bankruptcy statutes.

For more information, contact Sections Coordinator Lynn Gewessler at [phone], ext. 312. To join the section, call the Membership Department at [phone], ext. 611. Dues are $25 a year.

Charles A. Goldberger is a partner with McCullough, Goldberger & Staudt in White Plains, New York. Patricia Wetmore Gurahian is an associate with the firm.