Introduction: The Preliminary Hearing Is Not the Trial—but it Can Shape the Arbitration
Your business has answered the arbitration demand, participated in selecting the arbitrator, and now the American Arbitration Association (“AAA”) says the arbitrator wants to hold a preliminary hearing. What is that hearing, what will likely happen, and how should the business prepare?
The short answer is that the preliminary hearing ordinarily is not a trial on the merits. It is a case-management conference at which the arbitrator and the parties establish how the arbitration will proceed. But calling it a scheduling conference understates its importance. Decisions made there can determine how much discovery will occur, whether dispositive motions may be made, when the evidentiary hearing will take place, how and when witnesses and exhibits will be presented, and, ultimately, how much time and money the arbitration will consume.
This article picks up where our recent small-business articles on responding to an AAA arbitration demand and selecting an arbitrator from an AAA list left off. It assumes an ordinary business-to-business arbitration governed by the regular AAA Commercial Arbitration Rules and Mediation Procedures (the “AAA Commercial Rules”)—incorporated by reference by the terms of the contract—rather than the Expedited Procedures or the Procedures for Large, Complex Commercial Disputes. The parties’ contract may also modify the Rules, so counsel should always start with the arbitration agreement, reading it together with the contract’s incorporation of the Rules.
What Is an AAA Preliminary Hearing?
AAA Commercial Rule R-22 says that, depending on the size and complexity of the arbitration, the arbitrator should schedule a preliminary hearing “as soon as practicable” after appointment. AAA Commercial Rules R-22(a). The parties and their representatives should be invited and the conference may be in person, by videoconference or phone. AAA Commercial Rule R-22(a).
The purpose is practical. Rule R-22(b) directs the arbitrator and the parties to “be prepared to discuss and establish a procedure for the conduct of the arbitration that is appropriate to achieve a fair, efficient, and economical resolution of the dispute.” AAA Commercial Rules R-22(b). Preliminary Hearing Procedures P-1 and P-2 of the AAA Commercial Rules address the issues to be considered at the preliminary hearing. See AAA Commercial Rule R-22(b); AAA Commercial Rules, Preliminary Hearing Procedures P-1–P-2.
Preliminary Hearing Procedure P-1(a) makes the same point about fairness, efficiency, and economics. P-1(b) urges that “[c]are must be taken to avoid importing procedures from court systems, as such procedures may not be appropriate to the conduct of arbitrations as an alternative form of dispute resolution that is designed to be simpler, less expensive and more expeditious.” Preliminary Hearing Procedures P-1(a) & (b).
Arbitration flexibility can be a major advantage, but only if the business and its counsel use it intelligently and not treat it as what some have referred to as “arbigation.” In the author’s experience, attorneys and businesses that have been involved in specialized, industry arbitration (such as reinsurance, maritime, FINRA, and others) tend to understand this better than persons who have more experience handling court litigation. Be that as it may, a well-conducted preliminary hearing can and should promote arbitration flexibility and informality.
What Will the Arbitrator Want to Discuss at the Preliminary Hearing?
AAA Preliminary Hearing Procedures P-2(a) contains a lengthy checklist. Not every item will matter in every case, but the subjects fall into several practical groups.
Claims, defenses, governing law, and threshold issues. The arbitrator may ask whether the claims and defenses need clarification or amendment, what arbitration rules and substantive law apply, and whether threshold issues should be decided early. Those issues can include jurisdiction or arbitrability, contractual preconditions, consolidation, bifurcation, and other matters that might narrow the case. See Preliminary Hearing Procedure P-2(a)(ii)-(vii).
Document exchange and other information. The parties should expect to discuss what documents will be exchanged, how electronic information will be searched and produced, whether special procedures are needed to obtain relevant and material information, how unusually expensive searches will be handled, and whether confidentiality protections are needed. See P-2(a)(viii)-(xi); AAA Commercial Rule R-23. Do not assume that federal-court-style discovery is automatic or even likely to be permitted. The scope and mechanics of information exchange are matters the arbitrator is expected to manage with efficiency and proportionality in mind.
Motions. If a party expects to seek early dismissal or summary disposition of a claim, the preliminary hearing is the time to raise that issue. Under Rule R-34, a dispositive motion may be allowed only if the arbitrator determines that it is likely to succeed and dispose of or narrow issues, and the arbitrator must consider the time and cost of briefing. A business that believes an early motion could materially reduce the scope of the case should therefore be prepared to explain why the motion will simplify rather than complicate the arbitration.
Witnesses, experts, exhibits, subpoenas, and the final hearing. P-2 also addresses expert reports, witness identification and statements, pre-marking of exhibits, pre-hearing submissions, subpoenas, the hearing date, whether testimony will be live or remote, and whether there will be a stenographic transcript. See Preliminary Hearing Procedure P-2(a)(xiii)-(xvii). These are not merely lawyer details. They can affect business operations, employee availability, expert costs, travel, and the overall budget.
For example, and as we’ll address in a future post, the lack of a transcript can in certain circumstances undermine a party’s ability to challenge an award, especially on procedural misconduct grounds. See 9 U.S.C. § 10(a)(3).
The principal AAA Rule on the procedure for arranging an official transcript and the cost allocation is R-29. AAA Commercial Rule R-29. All else equal, we believe all proceedings associated with an arbitration should be officially transcribed, including the preliminary hearing. If an agreement to share transcription costs can be secured then that is ideal. We’ll address the details in a future post.
Mediation and the form of the award. The checklist also asks whether mediation or another non-adjudicative resolution process might be useful and what form the award should take. See P-2(a)(i), (xx). One caution: if the business wants a reasoned award, do not assume the preliminary hearing is the first time to address it. Rule R-48(b) states that “[t]he arbitrator need not render a reasoned award unless the parties request such an award in writing prior to appointment of the arbitrator or unless the arbitrator determines that a reasoned award is appropriate.” AAA Commercial Rule R-48(b).
How Should the Business Prepare?
Counsel shouldn’t simply walk into the preliminary hearing with a calendar, a copy of the Rules, and an unsubstantiated hope that a favorable case management plan, agreed upon by all parties, will somehow emerge from the hearing. Counsel and the business should be thoroughly prepared and have in hand a working plan for managing the case. Working off of that counsel can guide the course of the discussion toward a case management order that works best for the business.
That means identifying the issues likely to drive the dispute; the documents and electronic systems in which relevant information is located; the employees, former employees, experts, and third parties who may have material evidence; any confidentiality or cybersecurity concerns; realistic hearing dates; and the business’s budget and settlement objectives. Counsel should also know and be prepared to address whether there is a threshold issue that the business believes should be decided early, whether discovery should be narrow or more substantial, and whether the business needs testimony or documents from nonparties.
Remember that this is probably the first time the parties have had a substantial, substantive discussion about the case with the arbitrator. If counsel is prepared, confident, knowledgeable, and proactive he or she will send a positive message to the arbitrator and communicate to the opposing party that the business is serious, highly-prepared, and competent.
Having at the hearing a knowledgeable business representative can be especially useful. Rule R-22(a) contemplates participation by the parties as well as their representatives. AAA Commercial Rules R-22(a). Counsel may handle the legal discussion, but a client representative may know whether a proposed production schedule is realistic, how burdensome an electronic search will be, when key employees are unavailable, or whether a proposed hearing date falls in the middle of the company’s busiest periods. An attending client representative may also have a well-honed understanding of the facts attending the dispute and may even have personal knowledge of some or all of them. Whether a particular representative should attend, and if so, what role he or she might play, is a matter to discuss with counsel, but the business should at least be actively involved in preparing and reviewing the positions counsel will present at the hearing.
Do Not Agree to a Schedule Your Business Cannot Meet
The flexibility of arbitration does not mean that schedules are optional. After the preliminary hearing, Preliminary Hearing Procedures P-2(b) requires the arbitrator to issue a written order memorializing the decisions made and agreements reached. AAA Commercial Rules, Preliminary Hearing Procedures P-2(b). That order will ordinarily become the procedural roadmap for the case.
AAA Commercial Rule R-24 gives the arbitrator meaningful authority to enforce procedural and information-exchange orders. AAA Commercial Rule R-24(a)-(e). Depending on the circumstances, the arbitrator may impose search parameters, allocate production costs, protect confidential information, exclude evidence, draw adverse inferences for willful noncompliance, or make special cost allocations. Rule R-60 separately authorizes appropriate sanctions for failure to comply with the Rules or an arbitrator’s order. AAA Commercial Rules R-60.
The lesson is simple: negotiate the schedule carefully before it becomes an order. If the company needs six weeks to collect and review electronically stored information, do not agree to do it in two. If a key witness is unavailable during a particular period, identify that problem before the hearing date is fixed. Efficiency is valuable, but an unrealistic schedule can become expensive very quickly.
Preliminary Hearing: a Checklist for the Business
- Review the arbitration agreement and the applicable AAA Rules and Preliminary Hearing Procedures with counsel.
- Identify threshold issues, potential dispositive motions, and any anticipated amendments to claims or defenses.
- Map the important document sources, electronic systems, custodians, witnesses, experts, and likely third-party evidence.
- Decide what information the business genuinely needs from the opposing party and what discovery would be disproportionate.
- Identify confidentiality, cybersecurity, trade-secret, insurance, or third-party-funding issues that may need procedural treatment.
- Give counsel realistic dates for document production, expert work, witness availability, and the evidentiary hearing.
- Consider mediation and other settlement opportunities in light of projected arbitration costs and business objectives.
- After the preliminary hearing, review the arbitrator’s written order promptly, calendar every deadline, and make sure the people responsible for compliance know what is required.
- Arrange for official transcribing of all proceedings, including the preliminary hearing itself.
Conclusion
The preliminary hearing may last only an hour or two, but it can influence months of arbitration activity and a substantial portion of the case budget. For a small business, that makes preparation worthwhile. The objective is not to turn the arbitration into full-scale litigation. It is to work with experienced arbitration counsel to obtain procedures that give the business a fair opportunity to present its case while keeping discovery, motion practice, and hearing preparation proportionate to what is actually at stake.
Handled well, the preliminary hearing can be one of arbitration’s best cost-control tools. Handled casually, it can lock the business into deadlines, discovery burdens, and hearing procedures that it will spend the rest of the case trying to manage.
This article is for general informational purposes and, like all other Arbitration Law Forum articles, is not legal advice. It also does not purport to be an exhaustive recitation of all applicable or potentially applicable law that may bear on the issues discussed. In any event, the applicable law and deadlines, and their interpretation and scope, depend on the agreement, award, forum, and the facts, and are subject to judicial or other decision-maker interpretation.
Contacting the Author
If you have any questions about this article, arbitration, arbitration law, or arbitration-related litigation, then you may contact the author, Philip J. Loree Jr. at (516) 941-6094 or PJL1@LoreeLawFirm.com.
Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has more than 35 years of experience representing a wide variety of domestic and international corporate, other entity, and individual clients in trial-court and appellate matters arising under the Federal Arbitration Act—including matters arising under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. He also has significant experience arbitrating and litigating insurance- and reinsurance-related and other commercial disputes, and in advising clients and co-counsel in arbitration-law-related matters.
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Tags: AAA arbitration, AAA Commercial Arbitration Rules, AAA preliminary hearing, arbitration case management, arbitration discovery, arbitration scheduling order, business-to-business arbitration, Commercial Arbitration, dispositive motions, Document Production, electronic discovery, preliminary hearing, Rule R-22, small business arbitration
