Efficient Commercial Arbitration: Consider the Form of the Award
Not long ago, I was on a CLE panel addressing innovations in arbitration. We discussed a number of innovative techniques in arbitration, including “document only winnowing,” “separate common ground,” self-executing concessions, “hot-tubbing” of experts, and other exotic sounding things, many of which provide the promise in the right arbitration to save time and get to the issues faster and more efficiently. These are all worth looking into in the right case.
There was, however, one possible innovation I didn’t address, but should have. It has to do with the form of the award.
Traditionally, the form of the arbitration award can be standard, reasoned, or findings of fact and conclusions of law. But it is worth exploring alternatives in the right case.
Standard Award
Standard awards simply state whatever relief a parties are or are not awarded. They look like this:
WE, THE UNDERSIGNED ARBITRATORS, having been designated in accordance with the arbitration agreement entered into by the parties, effective as of April 1, 2013, and having been duly sworn and having duly reviewed the proofs and allegations of Claimant Company One and Respondent Company Two, hereby award as follows:
Company Two shall pay to Company One the sum of $257,787.
The administrative fees and expenses of the arbitration and the compensation of the arbitrator shall be borne by Company Two.
All other claims and counterclaims are denied.
This award is in full settlement of all claims submitted to this Arbitration. All claims not expressly granted herein are hereby denied.
Dated: April 1, 2016 __I. M. Arbitrator, Panel Chair
Or this:
THE UNDERSIGNED ARBITRATOR, having been designated in accordance with the arbitration agreement entered into by the parties, effective as of April 1, 2012, and having been duly sworn and having duly reviewed the proofs and allegations of Claimant Company One and Respondent, hereby award as follows:
Neither party shall recover on its claims or counterclaims
The administrative fees and expenses of the arbitration and the compensation of the arbitrator shall be borne as incurred.
This award is in full settlement of all claims submitted to this Arbitration. All claims not expressly granted herein are hereby denied.
Dated: April 1, 2016 I.M. Arbitrator_____________
In some cases, that is all anyone needs. Where there are fairly clear issues about what a contract means or whether or not something happened, this much information may be enough to let the parties understand why the case went the way it did. And some parties might just be interested in the outcome and don’t feel they need to be dazzled by brilliant legal analysis.
But in many cases, parties may want to understand the thought processes of the arbitrator or panel, particularly if there are a number of fairly complex issues, as there often are in commercial arbitration. And if the parties have an ongoing relationship, it might be critical to know exactly what was or was not decided and why if later disputes arise.
Reasoned Award
In those situations, the parties often want a reasoned award. The exact nature of a reasoned award can vary depending on the arbitrator or panel. Usually the reasoned award will look like a trial court memorandum or opinion, giving the factual background, the legal standard applied, and the reasons for the decision.
If the parties want a thorough understanding of how the decision was reached, a reasoned award is just the ticket. And an award of this sort has the added benefit of letting the parties know the decision was made carefully and thoughtfully.
Most arbitrators I know will tell you that the process of having to actually write down the reasoning behind the award ensures that issues aren’t missed and that the decision process is disciplined. In fact, some outcomes just “won’t write,” so the writing process itself helps inform a correct decision. Even in those cases where the parties have not asked for a reasoned award, arbitrators will often put pen to paper to outline the facts, issues and basis of decision on each issue. This helps to make sure the same rigor goes into the award that writing requires, even if the parties won’t ever see the outline.
Having a more detailed reasoned award also can be critical if a party seeks to apply issue preclusion or claim preclusion in future disputes. With just a standard award, one would need to dig deeper to see what was presented and decided. That could be expensive, and disputes might well remain about what was actually presented and decided.
But creating a reasoned award increases expense. Arbitrators take pride in their work. Any good writing requires editing, clarifying, checking cites, finding typos, and so forth. That all takes time, which costs money. If a panel is involved, arriving at a decision all panel members can agree to and live with, or at least a majority can, may add to the time.
In larger cases, this is likely worth the money and effort. But when less is at stake, parties should question what is really needed to resolve the matter and look for ways to save on expense.
Of course, if a party wants to have any hope of overturning the award, a reasoned award is a must. It is very hard for a court to review a decision without a statement of reasons for the decision. Yet, the standard of review of arbitration decisions is so strict that this may not be a justifiable expense even in some larger cases. If, however, the parties have opted for an arbitral appeal (as discussed in earlier articles), they will need a reasoned decision to give the appellate arbitrators something to review.
Findings and Conclusions
It is somewhat rare for an arbitrator – or even a court in many jurisdictions – to issues findings and conclusions. Parties generally don’t ask for them in arbitration. Findings and conclusions serve the same purpose as a reasoned award, but have a different, numbered format. Similar considerations apply to these as apply to a reasoned award in terms of costs and benefits.
An alternative
Another alternative was suggested to me by a comment a federal judge made a few years ago. We were in court talking about the difference between jury trials and court trials. The judge said he would be happy to have more court trials, but noted they take more time and judicial resources because of the need to draft an opinion or findings and conclusions. He noted that, if the Court could just answer the questions on a special verdict form as juries do, that would be a different story.
That gave me an idea. Why not create the equivalent of a special verdict form and have the arbitrators answer the questions? In fact, in most cases, the arbitrators often do draft up an outline of the questions and issues to be decided. Sometimes they even share the outline with counsel to be sure everyone is addressing the same issues.
This could give everyone as much information as they need, make sure that all issues are addressed, and help assure the parties that the thought process is structured and rigorous. And it would save everyone time and money.
Let’s take the example of a case involving alleged failure to pay royalties under an patent license agreement. The form might look like this:
Are the following products within the definition of “licensed product” (“products covered by one or more claims of U.S. Patent Nos. 6,785,495 or 6,896,921”) under the April 1, 2013 license agreement
J1000 Lazer Troller
_____ yes _____no
Special 2056 Lazer Winger
_____ yes ____no
Lazer 9000 Super Troll Flyer
_____yes ____ no
2. Did Respondent prove by clear and convincing evidence that the asserted claims of U.S. Patent Nos. 6,785,495 or 6,896,921 are invalid for obviousness
‘495 patent, Claim 1
____ yes _____no
Claim 13
_____yes _____no
‘921 patent, Claim 6
_____yes _____no
3. What amount, if any, does Respondent owe for royalties for these products?
J1000 Lazer Troller: $______________
Special 2056 Lazer Winger $_______________
Lazer 9000 Super Troll Flyer $_______________
4. Are fees to be awarded? If so, to whom, and how much? ______________________________________________
5. Are costs to be awarded? If so, to whom and how much? _______________________________________________
You get the idea, even though in many cases there would be more claims and questions. The award would be made based on the answers to these questions. Thus, if the patents are found infringed and not invalid, there would be an award in dollars respondent for those products found to infringe. If not, the award would be in favor of the respondent.
This could be all the parties really need. They likely are very familiar with each other’s positions on the issues presented. Simply having them decided one by one may tell them all they need to know about the reason for the decision. This will depend on the case, but is well worth considering.
The hard part, based on my experience of trying this a time or two, is getting the parties to agree what the questions should be. In the sample case above, that should not be too hard. The issues are pretty standard and straightforward for this type of case. But where there are more issues and they are framed differently by the parties, that can be a challenge.
On the other hand, having a session in which the arbitrator frames the issues he or she plans to decide, presenting that to the parties, and then seeking their input can be a benefit to everyone in focusing and defining the issues. If there are to be closing briefs or arguments, doing this first can help focus the presentations in a useful way.
Flexibility
As mentioned in earlier articles on this topic, flexibility is one of the key advantages of arbitration. In the right case, having the panel or arbitrator answer specific questions may be just the thing to make things more efficient while still providing enough detail to allow the parties to understand the basis for the decision.