October 21, 2014

Awarding Punitive Damages in Arbitral Disputes

By Gerald M. Levine

Awarding punitive damages may be available as a remedy in arbitral disputes but the question is: Who gets to decide the issue, court or arbitrator? There have been a number of cases recently in New York on this point. The "who" depends on which law applies, the Federal Arbitration Act or CPLR Article 75. In In re Flintlock Construction Services, LLC v. Weiss, 2014 NY Slip Op 05818 (1st Dept. August 14, 2014) and Cusimano, et al v. Schnurr, 2014 NY Slip Op 05702 (1st Dept. August 7, 2014) (discussed in last week's blog) the courts first have to decide which law applies before they reach the ultimate issue. Cusimano dealt with "waiver" (for the court) and "statute of limitations"(for the arbitrator).

Who decides depends to a large extent on both the factual matrix and the parties' agreement. On the issue of arbitrability, for example, the U.S. Supreme Court has held that "Courts should not assume that the parties agreed to arbitrate arbitrability unless there is 'clea[r] and unmistakabl[e]' evidence that they did so." First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). If the parties have incorporated Rule 7 of the Commercial Rules of the American Arbitration Association, for example, they will be deemed to have agreed that "[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim."

If the evidence is not clear and unmistakable, the question of arbitrability is reserved to the court--- and "presumptively" so according to the court in Werner Schneider v. Thailand, 688 F.3d 68(2d Cir. 2012). But where parties "agree to include claims ... within the issues to be arbitrated, the FAA ensures that their agreement will be enforced according to its terms even if a rule of state law would otherwise exclude such claims from arbitration," Mastrobuono v. Shearson Lehman Hutton, 514 US 52, 58 (1995). Mastrobuono dealt specifically with a New York case,Garrity v. Lyle Stuart, Inc., 40 NY2d 354, 356 (1976), that reserved the decision on punitive damages to the court. The Supreme Court rejected the reasoning of the 7th Circuit that New York law prevented the arbitrator from ruling on punitive damages.
The explanation for this reasoning lies in the concluding clause in Mastrobuono---"even if a rule of state law would otherwise exclude such claims from arbitration"---the court is obliged to look at both the applicable law and the parties' agreement for the scope of the arbitrator's jurisdiction. Moreover, if the issue arises under the FAA, federal law applies even though the arbitration clause contains a choice-of-law provision.

In re Flintlock Construction Services, LLC v. Weiss, 2014 NY Slip Op 05818 (1st Dept. August 14, 2014)clarified how these disparate elements are reconciled. As in Mastrobuono, the issue in Flintlock Construction concerned who gets to decide punitive damages. If the claim includes a request for punitive damages and the dispute involves interstate commerce, it is properly before the arbitrator. Over a vigorous dissent the court rejected application of the Garrity rule.

The parties' operating agreements in Flintlock Construction provided that they "shall be construed and enforced in accordance with the law of the State of New York." The key terms "construed" and "enforced" would appear to apply to both the substantive and procedural law of New York. As the New York Court of Appeals explained in the Matter of Diamond Waterproofing Sys., Inc. v. 55 Liberty Owners Corp., 4 NY3d 247 (2005), the choice of language is critical. Diamond Waterproofing involved the application of the statute of limitations, a question which would ordinarily be reserved to the court (CPLR 7502[b]). But because the parties' agreement did not provide that New York law shall govern the enforcement of the parties' agreement, the court held that the issue was reserved to the arbitrator under the FAA. The parties have to employ the correct lexical formula to assure the application of New York law, and, if they do, it is sufficient to override other principles.

Petitioners in Flintlock Construction (and the dissent) argued that the issue of punitive damages was for the court relying on Garrity's statement that New York law arbitrators "ha[ve] no power to award punitive damages, even if agreed upon by the parties." The argument for a court determination further urged that Mastrobuono "is not dispositive on this issue" because it dealt only with a general choice-of-law provision, i.e.,"[it] shall be governed by the laws of the State of New York," which is a different lexical formula. In Flintlock Construction, the parties included in their agreement the proper lexical formula as directed by the Court of Appeals in Diamond Waterproofing.

Given that the parties properly expressed their intention, why did they not get what they asked for? Although the dissent's argument was unpersuasive to the majority, it cannot be said to be unreasonable.
The majority in Flintlock Construction offered three reasons for denying petitioners' application to prevent the arbitrator from deciding the issue of punitive damages. First, a New York choice-of-law provision does not constitute a manifestation of unequivocal intent sufficient to invoke the Garrity rule. "Merely stating, without further elaboration that an agreement is to be construed and enforced in accordance with the law of New York" does not make it so. "The Supreme Court has made clear that in order to remove the issue of punitive damages from the arbitrators, the agreement must 'unequivocal[ly] exclu[de]' the claim" (Mastrobuono at 60).

The second reason stems from the rule against rendering an advisory opinion. Here, the arbitration panel "had denied the motion to dismiss the punitive damages claim without prejudice to renewal upon a complete record." Because it "remains to be determined whether, on this record, the contracts evidence a 'transaction involving commerce' such that the FAA, and not state law, applies," it would be premature to weigh in on the issue.

The third reason for denying petitioners' application rests on CPLR 7503(b), which authorizes motions to stay arbitration by parties "who ha[ve] not participated in the arbitration." In this case, "[p]etitioners participated in the arbitration process for nearly eight months - selecting arbitrators, participating in preliminary proceedings - before registering an objection to the arbitrability of respondent's claim for punitive damages." The objection took the form of a motion to the arbitrator to dismiss the claim, thereby
"squarely placing the issue of the arbitrability and availability of punitive damages before the arbitrators." In doing that, the court explained, petitioners "chartered their own course ... and cannot now avail themselves of the mechanisms set forth in CPLR 7503(b).

Since Flintlock Construction is a 3-2 decision the appellate court's reasoning may not be the last word on the application of the Garrity rule although petitioners may well have "chartered their own course." Having done that, the issue of punitive damages is squarely before the arbitration panel, at least until it makes a ruling, at which time (if it awards punitive damages) the issue will presumably return to the court.

Gerald M. Levine is a member of Levine Samuel, LLP. He practices in New York City and is on the list of neutrals of the American Arbitration Association. Mr. Levine runs an ADR blog on domain names and cybersquatting at http:www.iplegalcorner.com. He is the author of a forthcoming book to be published in March 2015 on domain name arbitration under the Uniform Domain Name Dispute Resolution Policy.

ABA Mediation Week and 13 Top Reasons for a Failed Mediation

By Jeffrey T. Zaino, Esq.

Last week (October 12th-18th) marked the American Bar Association Section of Dispute Resolution's 5th Annual Mediation Week campaign. The American Arbitration Association (AAA) and other ADR providers promoted mediation during this important week by offering free educational programs.

The goal of ABA Mediation Week is to raise the awareness of mediation to the general public at large - including mediation users, businesses and the public. The theme for this year's ABA Mediation Week is "Stories Mediators Tell--From Rookie to Veteran, Exploring the Spectrum of Mediation."

The AAA scheduled 16 programs nationwide during the week of October 12th titled: "Stories Mediators Tell: Best Practices and Tips for a Successful Mediation." The program held in New York City on October 14th had Neal Eiseman, Susan Mackenzie and Richard Silberberg as panelists. The following is taken from part of Neal Eiseman's remarks regarding the 13 top reasons for a failed mediation:

1. The wrong person is at the bargaining table--one who lacks ultimate authority to settle the case.
2. Failing to get the parties' commitment to a fair and candid mediation process.
3. In the rush to save time and money, the parties mediate prematurely.
4. Failing to vet potential mediators to insure that the mediator possesses expertise in the subject matter of the parties' dispute.
5. In their pre-mediation submissions, the parties fail to identify the key issues that must be resolved for the mediation to succeed.
6. The parties believe they must "win" the mediation because they were not properly prepared for the mediation session by their counsel and/or the mediator.
7. A non-party to the mediation has his or her "own agenda" and clouds a party's evaluation of the case and the probability of success in court or arbitration.
8. Refusing to reveal information or positions that need to be addressed.
9. Lack of civility to the point where, out of principle alone, the parties become entrenched in their positions.
10. Insisting that the mediator tell you the "right" settlement number.
11. Totally unrealistic and/or insulting offers, counteroffers and demands.
12. The mediator inadvertently reveals information to one party that was communicated confidentially by the other party.
13. Allowing settling parties to leave the room without a written, executed settlement agreement.

Jeffrey T. Zaino, Esq., is Vice President for the Commercial Division of the American Arbitration Association in New York

2015 AAA Higginbotham Fellows Program - Applications Now Being Accepted

By Jeffrey T. Zaino

The American Arbitration Association (AAA) is now accepting applications for the 2015 AAA Higginbotham Fellows Program. The training component of the Program will be hosted in New York during the week of May 4, 2015 in order to coincide with the AAA's Annual Meeting. During the Program, Fellows will engage with leading ADR practitioners for an intensive week of training, seminars, and networking events. Fellows will also have the opportunity to attend the AAA's Annual Meeting Luncheon and Discussion of Initiatives. Interested candidates can visit www.adr.org/diversity to download a copy of the Program Guidelines and Application or to apply online. Applications should be received no later than January 16, 2015.

The American Arbitration Association launched the AAA Higginbotham Fellows Program in 2009 in order to provide training, mentorship and networking opportunities to up and coming diverse alternative dispute resolution professionals who have historically not been included in meaningful participation in the field of alternative dispute resolution. The AAA Higginbotham Fellows Program is a one-year program designed to offer the full breadth of the AAA resources for emerging diverse alternative dispute resolution professionals.

Questions about the program may be directed to AAAHigginbothamFellows@adr.org.

Jeffrey T. Zaino, Esq., is Vice President for the Commercial Division of the American Arbitration Association in New York

October 7, 2014

Choice of Law: Characterization of Facts Determines the Outcome

By Gerald M. Levine

Although there may be no disagreement about the facts, what law applies often depends on how the facts are characterized. An illustration of this is seen in the Cusimano, et al v. Schnurr decisions from the motion court, 40 Misc.3d 1208 (2013) and appellate division, 2014 NY Slip Op 05702 (1st Dept. August 7, 2014). The dispute turns on the nature of the economic activity of the parties' enterprise. For Justice Ramos,"[a]s [a] result of plaintiffs' flagrant forum shopping, [the] issue of statute of limitations defense was for court, rather than for arbitrators to decide."

An equally important but secondary issue in Cusimano--what level of litigation activity will result in a waiver--is for the court under New York law, although it may also implicate the rules of the arbitration forum. For example, the American Arbitration Commercial Rules provide that:

[a]ny party who proceeds with the arbitration after knowledge that any provision or requirement of these rules has not been complied with and who fails to state an objection in writing shall be deemed to have waived the right to object (Rule 41).
The motion court found "that the totality of the economic activity in question has no affect on interstate commerce, and thus, the FAA does not apply to the claims asserted by the Cusimanos in the Arbitration." The appellate panel disagreed. It explained that the phrase "involving commerce" is to be broadly construed (Decision at 4). It is the "equivalent of 'affecting commerce,' a term associated with the broad application of Congress's power under the Commerce Clause" (Id.). This brings the dispute within the ambit of the FAA which assigns the limitations defense to the arbitrator. Cusimano had reached the appellate division after plaintiff filed a demand for arbitration that Justice Ramos denied because he had already previously given plaintiffs leave to replead their complaint.

The dispute in Cusimano involved three separate real estate properties, one located in Florida and two in New York. Justice Ramos found "the totality of the economic activity in question has no affect on interstate commerce, and thus, the FAA does not apply to the claims asserted by the Cusimanos in the Arbitration" (Decision at 17). Veering to arbitration after commencing an action, he ruled, is a flagrant example of forum shopping - dressed up as a professed concern for judicial economy - to get a second bite at the apple in arbitration. The Court will not and does not accept such a gaming of the litigation process, and any right that Rita may have had to insist on arbitration of her claims against the accountants has been waived by her resort to, and aggressive participation in this litigation. (Id., at 19).

The appellate panel characterized the facts differently and not as "a flagrant example of forum shopping":

Each of the agreements concerns transactions that affect commerce, and all of the entities are involved in the rental of commercial property.... Because [these properties] ... can affect interstate commerce, the ownership of and investment in the commercial buildings here, one of which is occupied by an international chain hotel and another which houses a national chain drug store located out of state, renders the FAA applicable to these agreements (Decision at 5).

Therefore, the timeliness issue was for the arbitrator to determine.

However, the secondary issue of waiver was held to be properly before the court although plaintiffs argued it too was for the arbitrator. Whether there is a waiver is informed by state and federal policies favoring arbitration. The appellate panel held that "waiver should not be 'lightly inferred' under the FAA," citing federal decisions. The answer of how much litigation bars arbitration turns on what has actually been done and whether what has been done is prejudicial to a party to have to defend itself anew in the arbitral forum. "A party does not waive the right to arbitrate simply by pursuing litigation, but by 'engag[ing] in protracted litigation that results in prejudice to the opposing party'" (Kramer v. Hammond, 943 F2d 176, 179 [2d Cir 1991]). Justice Ramos viewed the filing for arbitration as a "gaming of the litigation process." (Id.)

The appellate panel commenced its analysis with a caution:

there is no bright line rule. Rather, the court should consider three factors: (1) the amount of time between the commencement of the action and the request for arbitration; (2) the amount of litigation thus far; and (3) proof of prejudice to the opposing party."
Costs could be a factor but it is not alone "sufficient to establish prejudice."

Litigation becomes too much where the party opting for arbitration seeks to relitigate issues lost before the motion court. However, in Cusimano:

the motion court gave plaintiffs leave to replead with specificity, effectively giving plaintiffs "another bite at the apple," at least as to the sufficiency of the pleadings. Thus, plaintiffs have not received any greater advantage by filing a statement of claim in an arbitration than they would have obtained had they filed an amended complaint.
Further, as the appellate division noted, defendants
point to no case finding waiver solely because a party filed an arbitration demand after limited motion practice, particularly where, as here, only one year had passed and no discovery had been exchanged. (Id. at 6-7).
The resolution of this tension between court and arbitrator depends largely on the posture of the case. Since Cusimano started in court, certain determinations are within its jurisdiction depending on the applicable law. Although both waiver and limitations determine an outcome, only waiver prevents a party from proceeding with arbitration. On the other hand, where a case reaches court after an arbitrator's ruling on waiver his determination is likely to be respected.

Gerald M. Levine is a member of Levine Samuel, LLP. He practices in New York City and is on the list of neutrals of the American Arbitration Association. Mr. Levine runs an ADR blog on domain names and cybersquatting at http:www.iplegalcorner.com. He is the author of a forthcoming book to be published in March 2015 on domain name arbitration under the Uniform Domain Name Dispute Resolution Policy.

September 15, 2014

A New Search Tool For Selecting The Right Arbitrator

By Jeffrey T. Zaino, Esq.

Without a doubt, one of the most critical phases of an arbitration process is selecting an arbitrator. Sometimes the parties come to the process with a mutually agreeable arbitrator. In most cases, however, the initial phases of an arbitration case are contentious and parties do not agree on much, let alone who will serve as the arbitrator. Neutral administrative providers, like the American Arbitration Association (AAA), are then called upon to generate a limited list of arbitrators and the parties strike and rank the names on the list until an arbitrator or panel of arbitrators is selected. Recently the AAA introduced a new online tool called Arbitrator Search Tool that is changing and improving how parties select arbitrators.

Unless advised otherwise, the AAA will follow the appointment process the parties have provided in their arbitration clause. Additionally, the AAA also has a default process of a list of names (either 10 or 15) for the parties to rank and strike so that an arbitrator or panel can be appointed if no appointment process is included in the arbitration clause. Arbitrator Search Tool is another option for the parties to use by mutual agreement and it basically provides the parties with the complete listing of all AAA arbitrators online coded for their specific case type and region. In many cases this could be dozens of arbitrators and the parties can then easily narrow and define their searches.

Having the flexibility of multiple selections keeps the case moving if there are disclosures and challenges made to any one of the arbitrator selections. The tool helps the parties and AAA review and consider from a large group of AAA panel members. This tool permits parties to search the AAA panel database prior to AAA sending a limited list of 10 or 15 names. If the time limit passes however, under the Rules or as extended by the parties jointly or by the AAA, the AAA will submit a more limited list of recommended names for the parties to rank and strike names and will then begin the appointment process for an arbitrator or panel.

Suggested uses of the Arbitrator Search Tool are:

• Parties may agree on names and submit them to the AAA for appointment;

• Parties may establish a method of how to select a final panel, from either names found on the AAA panels or any other arbitrators they wish to appoint;

• Parties may submit names confidentially to the AAA whom they feel are qualified and acceptable and will combine those names with some suggested names and submit a rank and strike list in accordance with the Rules;

• The AAA case administrator may go through the database with the parties in a joint consultation about potential arbitrators;

• The parties can use the database to find an arbitrator whom they want to appoint as a party-appointed neutral arbitrator under Canon 9 of the Code of Ethics for Arbitrators in Commercial Disputes; and

• If the parties have appointed party-appointed arbitrators already and want those two to appoint a third arbitrator as chair of the panel from the database, the AAA can make the search tool available to the party-appointed arbitrators and assist them with that appointment.
Whether derived from their search of the database or by a list from the AAA, neutral arbitrators will still be required to execute the same disclosure forms and process so that the parties will be aware of any disclosures made and will have an opportunity to challenge the appointment.

The biographies contained in the online tool with over 7,000 arbitrators include education, legal and professional experience, alternative dispute resolution practice experience, publications and speaking engagements, licensing, locale and rates charged.

This tool is proprietary property of the AAA and is only available to parties that file a case with the AAA. The use of the tool is part of the administrative service fees paid the AAA and there are no additional costs. The parties are provided an access code that typically expires within ten days but can be renewed if needed.


Jeffrey T. Zaino, Esq., is Vice President for the Commercial Division of the American Arbitration Association in New York.

July 15, 2014

Consumer Clause Registry

By Jeffrey T. Zaino, Esq.

The American Arbitration Association (AAA) will implement and maintain a publicly available Consumer Clause Registry (Registry) as of September 1, 2014. The Registry was created to provide more access to information about the AAA's consumer arbitration services. In particular, the Registry will contain a list of businesses that have submitted their consumer arbitration clauses to the AAA and after review the AAA has determined that the clause substantially and materially complies with the due process standards of the Consumer Due Process Protocol (Protocol). The main principles of the Protocol are:

• Fundamentally Fair Process
• Access to Information Regarding ADR Program
• Independent and Impartial Neutral
• Independent Administration
• Quality and Competence of Neutrals
• Reasonable Cost
• Reasonably Convenient Location
• Reasonable Time Limits
• Right to Representation
• Mediation
• Access to Information
• Arbitral Remedies

By accessing the Registry, parties will be able to search businesses by name to determine if the AAA has reviewed their consumer arbitration clause and will administer their consumer arbitrations. If a business has not registered its consumer clause prior to the filing of a consumer case, the AAA will require that the business register its clause at that time. In addition, the Registry will include on-line access to the arbitration clause reviewed by the AAA and may also include other documents related to the arbitration clause.


Jeffrey T. Zaino, Esq., is Vice President for the Commercial Division of the American Arbitration Association in New York.

Arbitrators Acting Within and Exceeding Their Powers

By Gerald M. Levine

Finding that an arbitrator has exceeded his or her powers is exceedingly rare. An arbitrator's interpretation of the parties' contract prevails even if there is "arguably a better [one]." American Postal Workers Union, AFL-CIO v. United States Postal Service, __ F.3d __ (2d Cir. June 6, 2014) (reversing the judgment). Exceeding powers is not satisfied by poor reasoning or bad logic. It requires showing the arbitrator has acted "outside the scope of his contractually delegated authority." Oxford Health Plans LLC V. Sutter, 133 S.Ct. 2064, 2068 (2013).

In American Postal Workers Union, the plaintiff moved to vacate the award on the basis that the arbitrator exceeded his powers by applying the doctrine of collateral estoppel against plaintiff. However, the parties' contract contained an issue preclusion provision. In the district court's view "[i]f one were to draw any inference from [the provision], it would be the converse inference that, because the [provision] explains where principles of preclusion do apply, those principles do not apply elsewhere" (emphasis in original). While the Circuit panel may have agreed that the district court's interpretation made more sense and was better reasoned, it nevertheless concluded that it erred in substituting its own judgment for that of the arbitrator and remanded the matter with instructions to confirm the arbitral award.

That different arbitrators may interpret the law and facts differently goes without saying. That one may find for the claimant and another for the respondent is not impossible, but neither does it require a conclusion that either exceeded his or her powers. In Aerotel, Ltd. v. IDT Corp., 13-3085 (2d Cir. June 3, 2014) the Court of Appeals noted that "[t]he District Court properly concluded that while another panel might have reached a different conclusion, the panel in this case, whether correctly or not, was unquestionably applying the governing law."

What does it take for a finding that an arbitrator exceeded his or her powers? To judge from a variety of decisions from different circuits the answer is that it is exceedingly difficult. The "showing required to avoid confirmation is very high," D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95 (2d Cir 2006). In Bain Cotton Company v. Chestnutt Cotton Company, 531 Fed.Appx. 500 (5th Cir. June 24, 2013) (Unpublished) (which involved issues regarding the management of an arbitration), the Court emphasizes an important overriding principle: it observed that "[t]his appeal presents a quintessential example of a principal distinction between arbitration and litigation, especially in the scope of review. Had this discovery dispute arisen in and been ruled on by the district court, it is not unlikely that the denial of Bain's pleas would have led to reversal; however, under the "strong federal policy favoring arbitration, judicial review of an arbitration award is extremely narrow." Id., at 500-501.

To clear the bar for exceeding powers, the movant must offer proof that the arbitrator "abandoned [his] interpretative role." Oxford Health Plans, supra. In distinguishing Oxford from Stolt-Nielsen S. A. v. AnimalFeeds Int'l Corp., 559 U. S. 662, 684 (2010), the Supreme Court held the arbitrator had "construe[d] the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration." Section 10(a)(4) "permits courts to vacate an arbitral decision only when the arbitrator stray[s] from his delegated task of interpreting a contract, not when he performed that task poorly." Id. This standard grants arbitrators a wider space for their choices and decisions and supports a "narrow[er]" role for the court.

For this reason, if the only argument the losing party can muster is that the arbitrator was mistaken in construing the contract, there is no basis for vacating the award. This was made clear in American Postal Workers Union, supra, i.e., even though a different interpretation would have changed the result in favor of the losing party, the arbitrator's judgment is paramount. "The crux of the excess-of-powers standard is 'whether the arbitrator's award draws its essence from the [agreement]," citing St. Mary Home, Inc. v. Serv. Emps. Int'l Union, Dist. 1199, 116 F.3d 41, 44 (2d Cir. 1997). If the evidence does not support movant's contention that "the arbitrator act[ed] outside the scope of his contractually delegated authority." Oxford Health Plans, supra., there is no legal basis for vacating the award.

Gerald M. Levine is a member of Levine Samuel, LLP. He practices in New York City and is on the list of neutrals of the American Arbitration Association. Mr. Levine runs an ADR blog on domain names and cybersquatting at http:www.iplegalcorner.com. He is the author of a forthcoming book to be published in Fall 2014 on domain name arbitration under the Uniform Domain Name Dispute Resolution Policy.

June 23, 2014

Guidelines and Best Billing Practices for Arbitrators

By Jeffrey T. Zaino, Esq.

A primary objective of arbitration is to reduce the costs of dispute resolution. Arbitration costs can include administrative fees of an alternative dispute resolution (ADR) service provider and the arbitrator's fees. It is imperative that ADR service providers, neutrals and advocates work together to ensure that no one is precluded by cost from using an arbitration process. At the same time, ADR service providers and arbitrators deserve to be fairly compensated for their time and services.

Arbitrators should keep in mind the need for simplicity in their fee structure but rates for serving on AAA panels, for most case types, are at the complete discretion of the arbitrator. There are, however, certain best billing practices for an arbitrator. This article will provide some guidelines and best practice recommendations made by AAA Neutrals Services. It should be noted that these guidelines and best practices for billing are important regardless of the ADR forum. Also, many ADR providers likes JAMS and CPR also have similar high expectations with respect to arbitrator billing practices.

Per Diem/Hourly Fees

Arbitrator fees should be all inclusive. Per Diem fees are expected to include a full day's hearing time (7 hours). With either per diem or hourly fees, no billing should be submitted for (a) time spent discussing the case with AAA staff; (b) written, telephonic, faxed, and electronic communications with case management staff; (c) local travel time and expenses; (d) personal administrative assistants; or (e) stamps, local calls, copying of materials, etc.

If the arbitrator intends to charge for any of these costs separately from the hourly or per diem fee, the arbitrator must so state in the fees section of the AAA panel biography.

Study Time

If the arbitrator intends to be compensated for study time, it must be listed as a separate fee on the panel biography. A detailed billing sheet documenting the specific activity and actual time spent should accompany the fee request on each case on which the arbitrator serves.

The possibility and extent of study time must also be discussed with the Case Manager at the time of appointment or following the first preliminary hearing. Parties have a right to know in advance the approximate amount of your charges.

Cancellation Fees

Since many AAA arbitrators are busy practitioners, they do not charge a cancellation for postponements of hearing dates or cancellation because of settlement. If an arbitrator requires a cancellation fee, it must be listed as a separate fee on the resume, it should be for unusual circumstances, and it should require no more than 48 hours notice. Notice of postponements or cancellations may be received from a Case Manager by telephone or by e-mail. Any request for postponement or cancellation fees must be accompanied by a statement that the arbitrator was unable to reschedule or make professional use of the billed time.

Expenses

In most cases, no additional expenses will be incurred as hearings will be held locally. If the arbitrator serves as an arbitrator on a case outside of his or her locale, it should be clarified before the hearing that reasonable, necessary air travel, hotel room accommodations and meals will be reimbursed. Entertainment costs and personal expenses are not reimbursable. An arbitrator may be required to submit receipts for expenses.

Post-Award Activity

If a request or remand by the court to modify an award is necessitated by an error by the arbitrator, the arbitrator should dispose of the request or remand without additional compensation.

If a request or remand for modification does not require a great deal of effort, such as the omission of a word in a company name, the arbitrator should dispose of the request or remand without additional compensation.

If a request or remand for modification is not the result of an error by the arbitrator or requires significant effort on the arbitrator's part, then it is appropriate to be compensated for such activity. AAA will attempt to collect such compensation in advance.

Billing Language

The language used in describing fees and expenses should be clear and detailed, not summarized, as for example, "for services rendered".

Every effort will be made to collect arbitrator compensation before the hearing date. If the compensation has not been deposited, pursuant to the rules the arbitrator will be given the option to suspend or terminate the proceeding.

Jeffrey T. Zaino, Esq., is Vice President for the Commercial Division of the American Arbitration Association in New York.

Mediation in E-Discovery

http://nysbar.com/blogs/ResolutionRoundtable/


By Steven C. Bennett


Commentators have increasingly remarked on the possibility for use of "Alternative Dispute Resolution" (ADR) as a means to resolve discovery disputes, especially those in the growing field of "electronic discovery" (e-discovery) in litigation. The volume of "electronically stored information" (ESI) and ever-changing communications, storage and other applications technologies present a great challenge for courts, which may not have the resources and expertise to tackle the project management issues that often arise in e-discovery.

Cooperation and transparency are essential elements of modern e-discovery practice. Because the parties best know their own needs and capabilities, negotiation, rather than motion practice and judicial supervision, has become a key to efficient litigation. Yet, counsel sometimes shirk their responsibility to gain an understanding of their clients' capabilities, and may assert overbroad demands and objections to discovery. Where parties do not confront their issues in good faith, and early in the discovery process, a case can become tied up in motion practice, sideshow requests for sanctions, and "do over" inefficiencies.

Under federal rules, a "special master" may be appointed to supervise all or a portion of the e-discovery process. Typically, the master's appointment terms are negotiated between the parties, and "so ordered" by the court. The master's fees are generally paid by the parties. Due to expense, masters are not routinely used. Most courts rely on magistrate judges to supervise more complicated discovery projects in federal litigation. Several districts have adopted mediation programs, which could be adapted to the e-discovery context. In many cases, a judge may perform "triage" to determine what particular issues, or what forms of discovery, may best contribute to efficient resolution of the case.

In New York's state courts, judges may appoint special "discovery referees" to oversee complicated or contentious cases. The courts also may draw upon retired judges as "judicial hearing officers." Several of the Commercial Division courts have developed programs for more organized referral of cases, where judges spot problems brewing in the discovery process. With such resources, a neutral may help set a "tone" of civility in the discovery process, which can facilitate resolution of problems, without the need for motion practice. Courts might also benefit from access to technology professionals, assigned to the court, to help judges address e-discovery issues.

In many cases, organized discussion of e-discovery problems can produce negotiated solutions. A neutral need not resolve all e-discovery disputes in a single session. The process may proceed in "steps," toward resolution of significant issues. Where problems remain, moreover, the process of review by a referee provides increased clarity of understanding, such that resolution by the court may be made more efficient.

The 2012 report on commercial litigation in New York courts recommended, among other things, development of a cadre of qualified referees and other resources to assist in management of the discovery process. Not all these efforts necessarily require additional resources from the courts. One particular suggestion is that judges focus early on discovery efforts that may help to settle a case. Many of the best practices of the Commercial Division judges could be extended to litigation in other areas.


Steven C. Bennett is a partner at Park Jensen Bennett LLP, in New York City. The views expressed are solely those of the author, and should not be attributed to the author's firm, or its clients.

May 22, 2014

Excluding Third Party Actions in Your Arbitration Clause

By Jeffrey T. Zaino, Esq.

Third party court actions involving a party that is also subject to the arbitration process can be problematic and create significant complications and delays for the parties to the arbitration agreement, i.e., the need to respond in the third party action in court, while being required to assert rights against the other contracting party (under the indemnity provision or otherwise) in arbitration. This can result not only in having to participate in two separate arenas and jurisdictions to address the same matter (e.g., breach of representation), but also the possibility of ultimately producing inconsistent results. It is therefore worth considering a contractual "carve out" for third party actions when drafting your arbitration clause. The following arbitration clause provides an example of one approach taken by practitioner Sidney Bluming of Meister Seelig & Fein, LLP:


(a) In the event of any dispute which arises solely between the parties hereto, arising under, relating to or in connection with this Agreement or the enforcement or interpretation of any provision hereof, or the breach or alleged breach by either party of its obligations hereunder, such dispute will be submitted to binding arbitration pursuant to the Commercial Arbitration Rules then obtaining of the American Arbitration Association, in New York, New York. The arbitration award shall be final and binding upon the parties and judgment on any award may be entered in any appropriate state or federal court within the County of New York, State of New York, or any other court of competent jurisdiction. All arbitration proceedings, and all documents, pleadings and transcripts associated therewith, shall be kept strictly confidential by all parties, their counsel and other advisors, employees, experts and all others under their reasonable control.

(b) In the event that a third party brings an action or other proceeding against either party to this Agreement or asserts a cause of action in any action or proceeding initiated by either party to this Agreement against it (a "Third Party Action"), then the party to this Agreement against which or whom such Third Party Action is brought or asserted, may in such Third Party Action, or separately in any court of competent jurisdiction, litigate any related claim which it may have against the other party to this Agreement, including, without limitation, by way of a claim, indemnity, cross-claim, counterclaim, interpleader or other third party action without being obligate to arbitrate the same as otherwise provided in Paragraph (a) hereof. In any such case, the matter which is the subject of such Third Party Action (including any related claims, indemnity, cross-claim, counterclaim, interpleader or other third party action, which either party hereto may have against the other) shall not be subject to arbitration, but shall be resolved exclusively within such Third Party Action or, at the election of the asserting party, in such separate action[, and for such purposes of inclusion in the Third Party Action, each party hereto expressly consents to the jurisdiction and venue of the court or other legal body in which such Third Party Action is pending, and in such separate action, to the jurisdiction of the designated state or federal court within the County of New York, State of New York].

Jeffrey T. Zaino, Esq., is Vice President for the Commercial Division of the American Arbitration Association in New York.