Arbitration is one of the preferred mechanisms of dispute resolution in the construction industry. Understanding how an arbitration will unfold is useful in managing a dispute. Most domestic construction disputes are referred to arbitration through, and according to the rules, of the American Arbitration Association (AAA), but other organizations that follow different rules and processes do exist. For AAA arbitrations, the following steps provide a rough outline of a typical proceeding.
1. ARBITRATION DEMAND
If commercial discussions between two parties are unable to resolve a dispute, the next step is for one party to file an arbitration demand. The AAA demand form can be found online and should usually include a brief statement of the party’s claim, a description of preference for the arbitrator’s experience (e.g., construction litigator with at least 10 years of experience), and a filing fee, which will vary based on the size of a claim.
Once a demand is served, the responding party can answer and submit counterclaims. Instead of filing an answer, some respondents may challenge whether the dispute should be arbitrated by submitting an objection directly to the AAA and/or filing a parallel lawsuit. Challenges may be based on state venue requirements or disagreement on whether the dispute is covered under the parties’ contractual arbitration provision.
After an answer is received and any challenges are addressed, the AAA administrator will typically provide the parties a list and resumes of potential arbitrators. The parties review this list, rank their preferred arbitrators, and strike any objectionable arbitrators. The AAA administrator will appoint an arbitrator based on the party’s preferences
(Note: In disputes requiring a panel of arbitrators, the AAA may appoint all three, the parties may each appoint one arbitrator with the two “wing” arbitrators then selecting the chair, or the parties may follow some other process).
2. THE SCHEDULING ORDER
After appointment, the arbitrator will convene a scheduling conference with the parties to discuss setting a hearing date and key dates for discovery. The arbitrator may utilize a form scheduling order or ask the parties to coordinate and draft the order. Key dates on the scheduling order may include deadlines for submitting more detailed statements of claims, filing requests for production, completing depositions, disclosing experts, and filing dispositive motions. Arbitrators may also use the scheduling order to outline the scope of and limits on discovery and requirements for pre-trial submissions (e.g., witness statements, witness lists, exhibit lists, exhibit exchanges, etc.).
Traditionally, construction arbitrations have provided for more limited discovery than might be available in a litigation proceeding. However, increasingly, arbitrators are permitting broader discovery, including more expansive use of depositions, which can be expensive. For some smaller disputes, to limit expenses, the AAA offers fast track rules which substantially restrict discovery and the scope of submissions to the arbitrator.
The deadlines in a scheduling order may serve as useful sign posts for settlement negotiations between parties. For example, parties know once discovery begins, they can expect substantial legal fees and costs, so they may try again to resolve a dispute at that time, and, similarly, expert reports or completion of expert depositions provide an opportunity for parties to evaluate the strengths and merits of their case and may allow for a return to the negotiating table.
After the scheduling order is issues, parties will complete discovery, which may include the exchange of documents, depositions, and expert reports. Other written discovery, like requests for admission or requests for interrogatories are used more sparingly in arbitration, but they may be available in some circumstances. Like most judges, arbitrators expect parties to try to resolve discovery controversies between themselves, but arbitrators will utilize the AAA Rules and applicable law to resolve any discovery spats.
4. THE HEARING
Once discovery is complete, the parties will prepare for the hearing. They will prepare exhibits, witness lists, and any required pre-hearing memoranda. Parties may also agree to file witness statements or affidavits in lieu of providing direct testimony from witnesses.
During the hearing, the parties may or may not submit opening statements depending upon their agreement and/or the preference of the arbitrator. Then, examination of witnesses will begin with the claimant putting on its case first with the respondent to follow. Arbitrators may allow witnesses to appear out-of-order to accommodate travel or other needs of the parties. Once each side has presented their case, the arbitrator may allow for brief closing arguments and then adjourn the hearing.
If requested by the parties and agreed to by the arbitrator, post-hearing briefs may follow the hearing. After receiving post-hearing briefs, the arbitrator will close the record of the proceeding, which starts the time period for an arbitrator to issue a final decision. Where attorneys’ fees and costs are also at issue in a dispute, arbitrators may provide for supplemental briefing on those costs prior to closing the record.
The arbitrator will then issue a final decision. If requested, an arbitrator will issue a reasoned decision, which will provide more detail on the legal and factual basis for the arbitrator’s decision. The decision is enforceable in court, and the losing party will be required to make payment in accordance with the decision’s terms.
The adjournment of the hearing and the submission of post-hearing briefs are both useful milestones for settlement negotiations. While each party will likely be more cemented in their positions at this stage, each side will also have better insight on how the arbitrator is likely to rule. With any dispute, it is important
to pay attention to these and other settlement opportunities, which may help avoid legal expenses and the uncertainty associated with final awards.
The above outline should help you navigate the arbitration process and provide tools to manage and anticipate expenses, as well as identify settlement openings along the way.