Covid-19 Toolkit: Maybe Exit Litigation and Go to Arbitration

As many folks know, I am not particularly fond of arbitration. I can offer numerous legitimate reasons why. Among them:

(1) No jury. I like juries.

(2) In certain parts of the country, the roster of available arbitrators is underwhelming. Try arbitrating a complex commercial dispute in Florida where the agreement calls for 3 arbitrators. Good luck finding 3 qualified arbitrators with the right expertise.

(3) Arbitrators have virtually unlimited discretion. When an arbitrator or a panel of arbitrators renders a decision, that’s it, case closed. Unless a party can establish outright fraud, courts are extremely hesitant to set aside an arbitration award. Unlike in court, there is no right to appeal (especially after Citizen Potawatomi Nation v. Oklahoma 10th Cir said parties cannot contract for de novo review and the Supreme Court denied review). 

But in these Coronavirus times, we have to consider all options. That includes arbitration.

For sophisticated parties that are presently involved in protracted litigation, arbitration may be an option. Let’s consider a hypothetical: Two parties have been involved in trade secret litigation for the past two years. There is $10 million at issue. Trial was originally set for October 2020. That trial date already has been pushed back to June 2021. In all likelihood, it will be pushed back again — probably until at least October 2021. Both sides want to get the dispute resolved and move on with their lives. The Parties have two options: (1) Continue with the litigation or (2) Go to arbitration.

Converting to Arbitration Mid-Case

To state the obvious: Not every case is a case you want to arbitrate. If much of your leverage comes from having a jury trial, then you do not sacrifice that to pursue arbitration. But there are some cases where a jury trial is not high on the parties’ list of priorities. In fact, in many complex commercial disputes between sophisticated parties, those parties prefer a bench trial to a jury trial. If that is the case, those parties should consider exiting litigation and pursuing arbitration.

At any moment, the parties to litigation can mutually agree to dismiss the case and go arbitrate. Perhaps it is somewhat counterintuitive, but there are certain advantages of agreeing to arbitrate mid-case. When parties agree to arbitration on the front end, it is generally a generic arbitration agreement. I’m often shocked by how little thought many sophisticated parties give to their arbitration provisions. It is usually just boilerplate. But in contemplating the switch to arbitration mid-case, parties can be far more specific and strategic.

Sure, the parties could simply agree to go arbitrate in X location under AAA rules in front of 1 or 3 arbitrators. But why default to boilerplate when you can get specific?

Either through ignorance or intellectual laziness, many parties (and the lawyers who draft their arbitration agreements) overlook the possibility of customization. Consider the following:

Parties can specify the specific arbitrators. Not just AAA. Certainly not just AAA in a jurisdiction with a relatively weak bench (e.g. Florida). The dispute is already live. The parties know exactly what they need out of an arbitrator or arbitrators in that specific case. Go get those specific arbitrators. Make sure they are available. Confirm their willingness to accept the matter. Why agree generically to go arbitrate when you can agree to arbitrate in front of X, Y, Z specific arbitrators?

Likewise, there is no need to agree to the standard process or timeline. If you are already two years into litigation, switching to arbitration and starting from scratch makes no sense. Parties usually default to standard rules and procedures in arbitration because it is easier. It’s ready made. But it’s not always best. Especially not now, when contemplating a move to arbitration mid-case. Don’t accept standard procedures and a standard timeline. The AAA Commercial Rules expressly provide that the parties can agree to alter the procedures set forth in the rules. So do it.

If discovery is ongoing, end it. If discovery is closed, don’t reopen it. If there are issues the parties want ruled upon in a certain order, jointly request it. If trial in court could last for 3 weeks, cap it at 5 days in arbitration. This is the sort of flexibility parties have. All that you really need is a competent arbitrator (or three).

If parties cannot find arbitrators through AAA or JAMS who are competent, willing to commit to arbitrating the dispute, and willing to embrace flexible, expedited procedures, there’s nothing to prevent them from looking even further. Anybody both sides trust, respect, and agree to can serve as an arbitrator— whether part of the AAA, JAMS, or not.

The point of all this: It all depends on your case. Maybe you are better off in litigation. So you stay there for another year or two, or more. Personally: In most cases, I would prefer to just stay in litigation no matter how long it takes.

But, maybe there are multiple factors that weigh in favor of switching to arbitration and obtaining a near-term resolution. Especially in a dispute between two sophisticated corporate parties that are capable of selecting the right arbitrator(s) and crafting the right procedures.

Jonathan Pollard Speaks to Urban League National Achiever’s Society

Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. He has extensive experience litigating complex non-compete, trade secret, and unfair competition matters. His office can be reached at 954-332-2380.