DRAFTING EFFECTIVE ARBITRATION CLAUSES
FOR CRITICAL BUSINESS TRANSACTIONS
California State Bar Section Educational Institute, January 25, 2004
Checklist to consider in drafting business related ADR clauses:
Broad verses Narrow Clause?
“Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the _______ Association under its Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.”
Ø “Risks” of self-administered arbitrations
Multi-step clause with mediation then arbitration?
· Should all disputes be arbitrable?
Ø What, if anything, should be excluded?
Ø Injunctive/Provisional relief for federal issues?
Ø Who decides arbitrability issues?
Will court action be necessary to “clarify” scope of what is arbitrable?
· Will the clause be self-enforcing?
Ø Is it merely an “Agreement to Agree?”
Participation in the proceedings constitute a waiver of non-self-enforcing clause?
· Will the clause clearly state what arbitral rules will apply?
Ø Are all the rules appropriate for “your” dispute?
Ø Specialized rules of the arbitral provider?
Should the rules be tailored?
· How/who will decide the number and composition of the arbitration panel?
Ø Pro/Cons of using/providing a “named” arbitrator in the clause—sunset/unavailability provision?
Ø Do “you” only want 1 arbitrator?
Ø Subject matter expertise important?
Ø Due-Diligence on arbitrator selection?
Ø Party-Appointed Arbitrators?
Neutral verses non-neutral arbitrators
· Any “significant” procedural issues that should/not be addressed in clause?
Ø Class Actions or additional parties?
Ø Discovery permitted and, if so, permitted scope?
ü Clients want less discovery by selection of arbitration? See 2003 AAA “Dispute-Wise Management®--Improving Economic and Non-Economic Outcomes In Managing Business Conflicts” Report
Ø Who can/should sign/issue subpoenas for discovery?
· Where will the arbitration take place—venue?
Ø Will the specified venue control?
Ø Will/should the arbitral association make a binding decision on locale?
ü Will enforceability of venue provision be an issue?
Ø Will any State statute “control” venue question notwithstanding contract provision providing for venue? See, e.g. Cal. B&P Code §20040.5
Role of Federal Arbitration Act (FAA)?
· Fees, Costs, Attorney Fees Recovered?
See Leamon v. Krajkiewcz,
(F038025, Calif. Ct. of Appeals, Fifth District, filed 2/24/2003), compliance with contractual pre-arbitration provision, i.e. mediation, required in order to obtain attorney fees?
Choice of law for contract verses choice of law for arbitration provision
· Should/does the clause “require” the arbitrator to “follow the law?”
Ø “Manifest Disregard of the Law” standard?
Grounds for appeal in contract?
· Other drafting concerns.
Ø Bar punitive damages?
Ø Prohibit joinder of parties?
Reasoned award required from arbitrator(s)?
· Any clause enforcement issues?
Ø Applicability of Contract defenses
Does the California Judicial Council Arbitration related rules on disclosure/disqualification, etc. “trump” the FAA?
(See Jevne v. Cal. Superior Court (JB Oxford Holdings, Inc.) - filed November 19, 2003, Second District, Div. Seven and ”Stock Answer to Ethics Spat,” ABA Journal, March 2003, page 14)
· Specific concerns in drafting that are unique to the nature/business of dispute?
Baseball Arbitration desired to “ensure” negotiated/mediated solution?
See American Arbitration Association “Drafting Dispute Resolution Clauses—A Practical Guide.” Also, visit the AAA website at www.adr.org.