March 1, 2023
Recent Developments in Arbitration: Don’t Throw the Baby Out with the Bathwater (Part II)
[Last month’s blog post described the growing use of mandatory arbitration in employment and consumer disputes and expressed concern that the legitimate outcry over such requirements might obscure the benefits of voluntary arbitration. This blog post describes several ways in which voluntary arbitration practices could be improved.]
One of the benefits of voluntary arbitration is its finality. Unlike courtroom litigation, where there is always a right of appeal, the grounds for appealing an arbitration decision are exceedingly narrow under both federal and state law. (Several providers of arbitration services have created procedures for an appellate arbitration panel, but these are seldom used.)
Because of its finality, the stakes are in some ways even higher for getting arbitration “right” – i.e., addressing concerns and problems that cause people to hesitate to use arbitration. The following areas, in my view, need attention: (a) expanding the diversity of available arbitrators, (b) training arbitrators in bias-reduction techniques; (c) leveraging technology to contain the cost of arbitration; (d) improving arbitration case management; (e) utilizing arbitration hybrids; and (f) enhancing statutory support for arbitration.
A. Expanding the Diversity of Available Arbitrators
Data collected in 2020 and 2021 from the leading providers of arbitration services in the U.S. show a dramatic underrepresentation of women and people of color in the ranks of arbitrators. On average, 86% of arbitrators are White, and 14% non-White; 72% are men, and 28% are women.
The current president of the National Academy of Arbitrators, Prof. Homer La Rue, has spearheaded an effort to increase the participation of a wider diversity of individuals as arbitrators, mediators, and other dispute resolvers. The effort, known as the Ray Corollary Initiative (“RCI”), is modeled on similar initiatives in the National Football League (the Rooney Rule) and among major law firms (the Mansfield Rule). The RCI is named after the first black woman lawyer in the U.S., Charlotte Ray, who graduated from Howard University Law School in 1872.
The RCI calls for pledges from law firms, ADR providers, and companies that use ADR services to include in any panel of dispute resolution professionals no less than 30% “diverse neutrals.” That term is defined in a 2018 American Bar Association Resolution as “minorities, women, persons with disabilities, and persons of differing sexual orientations and gender identities.” A number of organizations have now signed the RCI pledge, but there is a long way to go before the ranks of professional arbitrators begin to resemble the demographics of the people we serve.
B. Training Arbitrators in Bias-Reduction Techniques
Like judges and mediators, arbitrators are ethically required to be unbiased. And, even if arbitrators believe that they have no biases, social psychology research during the past thirty years has demonstrated convincingly that we all have unconscious biases of one kind or another. These biases arise from subtle messages that surround us as we’re growing up and unavoidably shape our attitudes and beliefs. To some extent these biases can be measured with the use of fMRI imaging. Researchers have also used the Implicit Association Test to measure the strength of biased attitudes and stereotypes. Importantly, social psychology research has shown that even though biases are ubiquitous, they are also malleable.
So, what can be done to counteract and reduce these biases? There is currently a robust debate over the efficacy of mandatory diversity trainings, but the data regarding voluntary trainings appears to be consistently favorable. And along with trainings, there are a variety of techniques that arbitrators – indeed, all of us – can use to counteract unconscious biases. (These techniques – and the science behind them – have been discussed in a previous blog post.)
Some commentators have questioned whether focusing on unconscious bias as a problem lets individuals “off the hook” on the theory that they cannot be held responsible for biases that they cannot detect. But the research described above provides methods not only for detecting bias but also for reducing it. Accordingly, once we know about such techniques, we cannot avoid the moral imperative of using those techniques if we are committed to treating others in an unbiased manner. And, for arbitrators, this is also a matter of professional responsibility.
C. Leveraging Technology to Contain the Cost of Arbitration
One of the unanticipated side effects of the Covid-19 pandemic was the realization that arbitrations (like mediations and court proceedings) could be conducted remotely with videoconferencing. Not only were Zoom and other video platforms effective, they also were more efficient, since they reduced travel time and expense. In my own practice as an arbitrator, I found that in multi-session arbitrations, brief hearings involving only one or two witnesses could be sandwiched more easily into busy schedules because no time-consuming travel was needed. Some dispute resolvers have advocated for a continuation of video dispute resolution work even after the pandemic is over because of the reduced impact on climate change.
I have been hearing from a number of arbitrators that they are eager to return to their offices because video sessions impair their ability to make in-person assessments of the credibility of witnesses. While I understand that concern, I am impressed by the counterargument presented by Prof. Homer La Rue in this article about the advantages of video arbitrations, written a year before the pandemic. Quoting a decision by the Merit Systems Protection Board, Prof. La Rue notes that that there are many factors that influence credibility determinations:
(1) The witness’s opportunity and capacity to observe the event or act in question; (2) the witness’s character; (3) any prior inconsistent statement by the witness; (4) a witness’s bias, or lack of bias; (5) the contradiction of the witness’s version of events by other evidence or its consistency with other evidence; (6) the inherent improbability of the witness’s version of events; and (7) the witness’s demeanor.
It’s not that the witness’s demeanor is irrelevant, but it’s only one factor. And, in any event, an arbitrator’s assessment of demeanor may be affected by race, gender, ethnicity, and many other extraneous factors, in the ways described in Section B, above – thus suggesting the importance of relying on more objective factors, such as those numbered 1, 3, 5, and 6 in the previous paragraph.
Experience during the pandemic has taught us that arbitrations by video can raise novel questions, such as whether a witness is being coached in some manner electronically. On the other hand, there are advantages such as paperless management of exhibits and other documents, which can be distributed, displayed, and stored electronically more quickly than is sometimes possible in a conference room setting.
D. Improving Arbitration Case Management
One of the major complaints about arbitration in recent years has been that it has come to resemble litigation in complexity, formality, cost, and scorched-earth advocacy. This article by Prof. Thomas Stipanowich, “Arbitration: The ‘New Litigation,’” describes the critique. Effective case management is one of the most important factors in maintaining arbitration’s efficiency advantages over litigation.
However, one of the problems arbitrators face in case management is the provision in both the Federal Arbitration Act and the Uniform Arbitration Act that permits arbitration awards to be judicially vacated if the arbitrator fails to consider all “material” evidence. In order to protect the investment of time, money, and effort that the arbitrating parties make, arbitrators understandably tend to err on the side of allowing, rather than excluding, evidence. (There is a saying among arbitrators that our decisions are never overturned for errors in admitting evidence but the same cannot be said for excluding it.)
For this same reason, prehearing discovery disputes often find arbitrators erring on the side of permitting such discovery rather than shutting it down. However, the parties often share an interest in managing the time and expense of discovery, and therefore arbitrators can use prehearing conferences with counsel to help the parties negotiate stipulated limits on discovery (such as the number of depositions). I have often seen counsel work hard to impress the arbitrator with their reasonableness at this early stage of the process.
Another technique for efficient case management is the consideration of dispositive motions, which can (in appropriate situations) narrow the issues that must be decided. Bifurcation can also help: in one of my earliest cases as a newly minted lawyer, bifurcating the case in order to get a ruling from a special master (akin to an arbitrator) on liability enabled the lawyers to quickly settle the damages issues and efficiently resolve the matter.
And in the arbitration hearing itself, testimony can be streamlined by allowing the parties to present direct testimony by affidavit, and then devoting hearing time to cross-examination, re-direct testimony, etc. Also, expert witnesses for each side can be allowed to testify in each other’s presence and then allow the experts to pose questions to each other; using this technique, I have found that the experts often agree on many issues and can quickly identify the reason why they have reached different conclusions.
E. Utilizing Arbitration Hybrids
One of the big controversies in the arbitration field is whether an arbitrator should ever play the role of mediator. The Code of Ethics for Commercial Arbitrators states that “An arbitrator should not be present or otherwise participate in settlement discussions or act as a mediator unless requested to do so by all parties” (emphasis added). Thus, there is nothing unethical about an arbitrator switching hats in the middle of an arbitration, with the agreement of all parties. Some call this change in the process “arb-med.”
A major problem with such a procedure, in my view, is that mediation is likely to be less effective if the mediator does not engage in at least some “shuttle diplomacy” – i.e., meeting with each side in separate caucus sessions. And therein lies the problem, because it is a bedrock principle of arbitration that there should be no ex parte communications with the arbitrator. So, arb-med could mean less effective mediation (with no shuttle diplomacy). Or, worse, it could mean that the arbitrator will be subtly influenced by secret mediation discussions with each side, and thus make the arbitration vulnerable to a possible collateral attack even if the parties had agreed to the arbitrator’s dual role.
I have occasionally been asked to mediate cases in which I was the arbitrator, and I have declined each time. My conclusion: proceed with extreme caution.
However, I think there’s a more compelling argument for the reverse procedure, sometimes called “med-arb.” In a med-arb process, the parties ask the mediator, at the end of the mediation, whether s/he would be willing to serve as arbitrator. (For an article making the case for med-arb, click here.)
In deciding whether to use med/arb, the parties can discuss with the mediator, before giving her the power to decide the case, the extent to which the mediator has heard perspectives about the case in private that would influence her decision. If the parties choose to proceed with their mediator as their arbitrator, all ex parte communication would then end, in order to protect the integrity of the arbitration process.
There’s another important type of hybrid process involving arbitration that deserves mention – namely, multi-step dispute resolution arrangements in which arbitration is the final step. For example, a major construction firm, Granite Corporation, Inc., has implemented a four-step “Employee Dispute Resolution Program” in which the first two steps involve discussions with management, including HR managers, then to mediation (with an outside mediator), and then, if needed, to arbitration. In this program the mediators and arbitrators are appointed by the non-profit American Arbitration Association, with the costs paid by the company, and with the company also paying a portion of the employee’s attorney’s fees. KBR, Inc. and many other companies have found that such multi-step dispute resolution programs dramatically reduce the costs of employment-related conflict, and the majority of conflicts are resolved quickly and without the need for arbitration.
A similar multi-step dispute resolution process can be written into commercial contracts. Under such an arrangement, the disputing parties are required to try resolving the conflict by negotiation and then, if negotiation fails, by mediation. Arbitration is used only if the mediation is unsuccessful. Contract provisions of this kind have become increasingly common in the world of business, and there is abundant case law enforcing the mediation step as a prerequisite for arbitration.
F. Enhancing Statutory Support for Arbitration
In 2000, the Uniform Law Commission (“ULC”) substantially revised the original 1955 Uniform Arbitration Act (“UAA”) with the Revised Uniform Arbitration Act (“RUAA”). Under the RUAA, arbitrators are given explicit authority to manage discovery, order provisional remedies, award summary dispositions, and consolidate separate arbitration proceedings into one. The RUAA also explicitly imposes conflict-of-interest disclosure responsibilities on prospective arbitrators, and codifies the civil immunity for arbitrators that had previously been a feature of common law. In spite of these improvements in the clarity of what arbitrators can do in the management of their cases, only 20 states have enacted the RUAA, while 13 other states are still using the original UAA.
In 2016, the ULC responded to the increasing use of arbitration in family law cases (primarily divorce) by promulgating the Uniform Family Law Arbitration Act (“UFLA”), which has now been enacted in four states plus the District of Columbia. Widespread enactment of the UFLA would provide clarity about the extent to which divorce arbitration decisions are enforceable (e.g., with regard to child-related matters) and also the procedures for conducting such arbitrations (e.g., whether the arbitrator can issue temporary orders). Without the UFLA, courts have been required to figure out how to apply the Uniform Arbitration Act, which was explicitly written for commercial disputes, to family law cases.
In addition to providing clarity about the conduct of arbitration, enactment of these two model acts would contribute to the uniformity of laws in the U.S. And given the state-to-state mobility of businesses and families, such uniformity increases predictability in situations where companies and married couples want to specify in advance that any disputes will be handled by arbitration.
A side note about Massachusetts, where I practice: our legislature has not yet enacted the RUAA, the UFLA, and – in addition – has not yet enacted the Uniform Mediation Act and the Uniform Collaborative Law Act. Enactment of all four of these model laws would greatly enhance the practice of dispute resolution here.
The starting point for this two-part blog post was to respond to the shameful way in which mandatory arbitration has been used to shield villains like Harvey Weinstein from public accountability and to consider whether the use of mandatory (as opposed to voluntary) arbitration by major corporations is creating an unlevel playing field for employees and consumers. But the misuse of arbitration in some settings does not negate its value when the parties freely choose it. In situations where privacy, finality, and the ability to choose the decisionmaker are important, arbitration is often preferable to courtroom litigation. That said, there are a number of steps that can – and should – be taken to improve the practice of arbitration.
My hope is that, if you’ve read this far, you will share any reactions, including disagreements, with me at firstname.lastname@example.org or with a comment below. Thanks!!
[To read Part I of this blog post, please click here.]