Arbitration procedures are designed to be simplified and streamlined. They are frequently conducted under the Construction Industry Arbitration Rules promulgated by the American Arbitration Association (AAA). The AAA also maintains a panel of neutral arbitrators with expertise in given areas. The AAA handles the administrative tasks of putting the parties together with the arbitrators and monitoring the progress of the proceeding.
One of the advantages for arbitration is the reduction in the cost due to its streamlined and informal procedures. However, the absence of rules may allow parties to complicate and delay the process, and to fill the record with too many documents, witnesses and experts. As we all know, many lawyers (and some clients) don’t know when to stop talking. Try to agree to limitations of evidence and the time which an arbitration will last.
In a recent arbitration, the parties limited themselves to 45 minutes per side. The lawyers for the parties then deliberated with the arbitrator to answer any questions that arose and the matter was resolved in time for lunch. This may not be a solution for everyone, but it shows the benefits of creative thinking.
Another advantage cited for arbitration is quicker resolution. Again, this may not occur as envisioned. Arbitrators usually have other jobs and may be unavailable for extended periods of time required for complicated cases. This often results in splitting into multiple sessions which then allows each party to regroup and bring the panel more volumes of documents and more witnesses, resulting in overkill.
The expertise of the panel is another benefit of arbitration. This is the major reason why contractors should strongly consider including arbitration requirements in their contracts. Arbitrators available through the AAA have experience in construction. This saves considerable time and expense in educating the finder of fact and reduces the chances of a poor decision caused by an incomplete understanding of the construction process.
Discovery is usually the most expensive part of a lawsuit. It is the process by which the parties exchange documents related to the case and learn prior to trial the evidence the other side will use. In arbitration using AAA rules, for claims less than $50,000 discovery will occur only in extraordinary cases when the demands of justice require it. For claims over $50,000, but less than $1,000,000, the arbitrator may direct the production of documents and identification of any witnesses to be called. The parties are required to exchange copies of all exhibits at least two business days prior to the commencement of the hearing. In claims of more than $1,000,000, discovery is at the discretion of the arbitrators.
In most instances, there is no explanation of the decision made by the arbitrator. This hampers the ability to appeal the decision and will impact the acceptance of the decision by the parties. The parties can agree in advance that the arbitrator will provide an explanation of the decision, but this will increase costs because of the additional time required by the arbitrator.
Both Florida courts and federal courts recognize and enforce agreements to arbitrate. They also enforce the arbitrator’s decisions, except in instances where there is fraud or misconduct by the arbitrator or if there was a refusal to hear evidence material to the controversy.
Litigation is a resolution of disputes through the judicial system. An action is commenced by the filing of an initial pleading, usually a Complaint, setting out a claim. The defendant answers, states defenses and may counterclaim against the plaintiff. The defendant may also bring other potentially responsible parties into the action through a Third Party Complaint. Those parties have the same rights as a defendant to bring claims and add parties.
The next step is the motion practice. Here the legal sufficiency of the claim or counter-claim is tested. There is also the opportunity, by way of Motion for Summary Judgment, to allow the court to decide issues about which there is no material dispute.
Either after or during the motion practice part of the suit, discovery commences. During this process, all documents relevant to the action may be obtained by the other side. The fact that it is considered to be personal or private will not prevent the other side from seeing it. For this reason you should be aware that anything you write down during a construction project may be seen by people other than the intended recipient. In addition, depositions of all persons having knowledge of the matter may be taken. Assembling, reviewing and categorizing documents and preparing for depositions is often extremely expensive.
This process is the most expensive, the most time consuming with the least amount of control, but there are some ways to reduce the financial impact. Most cases settle prior to trial. This is usually because each party becomes educated about the other’s case and can, therefore, more realistically evaluate its own position. Often there are certain “linchpin” issues, resolution of which creates a momentum that leads to complete resolution of the case.
Essentially, a lawsuit should be litigated to settle. By directing pre-trial activity towards determination of the linchpin issues, the litigation process can be used to enhance the possibility of settlement. Use a rifle shot rather than the shotgun approach. Be careful of fishing expeditions where every single document generated on a job is reviewed. This will substantially increase the costs.
After you have experienced the joys of locating documents, answering interrogatories and facing cross examination in your deposition, the matter will be sent into an alternate dispute resolution program. This may be in the form of a mini trial, non-binding arbitration, or most often, mediation. If settlement is not achieved trial will commence, followed by appeals and mounting attorney’s fees. It is not a cost-effective way to settle a dispute.
Disputes seem to be a natural part of the construction process. However, very little gets accomplished when you are involved in resolving a dispute. The loss of your productive time is your greatest cost. Try to resolve any problems as early as possible.
This article first appeared in the Contractor’s Advantage, May/June 1997 issue, published by Knight Images, Inc. for Scotty’s Contractors School.