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Small Business B-2-B Arbitration Part II.B.2(C): Other Structural Aspects of Pre-Dispute Arbitration Agreements—Who will the Arbitrators be?  

November 13th, 2014 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitrator Selection and Qualification Provisions, Drafting Arbitration Agreements, Making Decisions about Arbitration, Nuts & Bolts, Nuts & Bolts: Arbitration, Small Business B-2-B Arbitration, United States Supreme Court Comments Off on Small Business B-2-B Arbitration Part II.B.2(C): Other Structural Aspects of Pre-Dispute Arbitration Agreements—Who will the Arbitrators be?   By Philip J. Loree Jr.

In Part II.B.2(A) we identified three key structural aspects of pre-dispute B-2-B arbitration, and discussed the first two in that and a subsequent post. This Part II.B.2(C) wraps up our discussion of arbitration-agreement structure by briefly examining a topic that is at least as important as the scope of the agreement: who the decision makers will be and how they will be selected.

As one renowned jurist put it, “selection of the decision maker by or with the consent of the parties is the cornerstone of the arbitral process.”[1] Arbitration allows the parties considerable input into the selection of who the decision makers will be, something that can make it a very attractive alternative to litigation for one or both of the parties. Parties who do not opt out of the court system are left with the luck of draw.

Savvy users of arbitration—and for that matter, most persons with dispute resolution experience in judicial or arbitral forums or both—know that decision makers, whether randomly assigned or selected, are not fungible commodities. Were they fungible, let alone commodities, there would likely be little or no controversy surrounding appointments to the United States Supreme Court.

But differences in judicial philosophy do not have to be based on so-called “liberal,” “moderate” or “conservative” views to be important, and perhaps even outcome-determinative. For example, the composition of a three-judge appellate panel can in many cases significantly influence the outcome of an appeal in many civil cases involving any number of legal and policy issues that are not the subject of discussion, let alone controversy, in the mainstream media.

Presumably many lawyers who argue appeals before three-judge panels (including the author) would scream “halleluiah!” had they the opportunity to select even one member of a three-judge appeals panel—or even if each party got to select one, leaving those two to select a third.

But time and time again, we see situations where parties who could have that opportunity—in the arbitration context, that is— had they negotiated it, or who could have at least participated meaningfully in the selection of one or more arbitrators had they exercised their contract rights with due diligence, end up having little if any meaningful input into the selection process. That type of lost opportunity usually redounds to their detriment, especially when their counterparts not only negotiate arbitrator selection provisions that suit their purposes, but also fully and wisely exercise their arbitrator selection rights.

Attorneys and parties with B-2-B arbitration savvy know how important arbitrator selection is and how to go about it. Even when their position on the merits would be a harder sell to most judges, their knowledge, skill and guile can help increase the odds that the appointed arbitrator or panel of arbitrators will be more sympathetic to their positions than one would expect a randomly-selected judge to be.

Their less arbitration-savvy counterparts may otherwise be intelligent people and good advocates on the merits, but they all too often shoot themselves in the proverbial foot by assuming that arbitrator selection, like judicial assignment, is basically luck of the draw.

Some might think that unfair, but it is a risk not unlike so many others associated with entering into business contracts. And if and when things go south for a party who took the risk, the “unfairness” plea will—and should—fall upon deaf judicial ears (at least absent extraordinary circumstances).

The parties’ intent with respect to decision-maker selection is embodied in and implemented by arbitration-agreement provisions dealing with the number of arbitrators, their qualifications and selection and appointment procedures. These provisions can be designed and structured in many different ways, and there is generally no “one-size-fits-all” solution to arbitrator selection and appointment.

Sometimes the parties designate one arbitrator, or a panel of arbitrators, who will decide all disputes that may arise between the parties at any time during the course of the legal relationship to which the agreement to arbitrate applies. Other times, arbitration agreements provide for the selection of an arbitrator or panel for the sole purposes of hearing a particular dispute, and it is the dispute that sets the appointment process in motion.

We could probably go on ad infinitum on the complex and nuanced topic of arbitrator selection and appointment, but for present purposes, it is  enough to say that persons who are considering arbitration should pay careful attention to decision-maker selection issues, and whenever appropriate, should seek informed advice on that topic, to answer the many questions that may arise, including:

  1. Should the parties agree to a single arbitrator or a panel of three?
  2. Should arbitrator selection take place each time a dispute arises, or should the parties designate a permanent arbitrator or arbitration panel?
  3. What are the upsides and downsides to having a panel of three arbitrators versus a single arbitrator?
  4. If we agree to a panel of three arbitrators, should all three neutral or should the party appointed arbitrators be allowed to act as advocates of sorts for the appointing parties?
  5. Should the parties agree to an arbitration-provider-sponsored method of selection or craft their own?
  6. What qualifications should the arbitrators have?

The next segment of this multi-part post will begin discussing B-2-B arbitration risks.

 

[1]Levkovitz v. Wagner, 395 F.3d 773, 780 (2005) (Posner, J.).

 

Links to Previous Segments of this Multi-Part Small Business B-2-B Arbitration Post:

Part I

Part II.A

Part II.B.1

Part II.B.2(A)

Part II.B.2(B)

         

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