Designing the Ultimate Dispute Resolution Clause
for Enhanced Subcontractor Relationships
Charles E. Rumbaugh
NCMA Congress 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
Ø “All claims/controversies between the parties”
Ø “Any transaction involving the parties prior to____ or subsequent to____ and arising in connection with_____.”
Ø Mock arbitrations
Ø Non-binding arbitrations
Ø Multi-step clause with mediation then arbitration or litigation?
“Aerospace/Defense Industry Dispute Resolution Commitment”
CPR Corporate Policy Statement on ALTERNATIVES TO LITIGATION©
American Arbitration Association’s Dispute-WiseSM Report
· Should all disputes be arbitrable?
Ø What, if anything, should be excluded?
Federal court issues?
Ø Injunctive/Provisional relief for federal issues?
Ø Who decides arbitrability issues—court or in ADR clause?
“Validity, etc.” of the arbitration clause within the jurisdiction of the arbitrator?
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?”
Ø Participation in the arbitration 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?
Ø Should the rules be tailored?
Ø Risk and costs of “self-administered arbitration”?
Ø What version/date of the selected arbitral rules will apply?
Those in effect at time of “demand” or at time of execution of ADR agreement?
· 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 Complex case involving 3 arbitrators?
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?
Clients want less discovery by selection of arbitration? See 2003 American
Arbitration Association’s Dispute-WiseSM Report www.adr.org
Who can/should sign/issue subpoenas for discovery?
Motions for Summary Judgment impacted by having a discovery provision in the
· 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?
Will enforceability of venue provision be an issue?
Is “Unconscionability” 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?
Ø Is there a need for compliance with contractual pre-arbitration provision, i.e.
mediation, in order to obtain attorney fees?
· Choice of law for contract verses choice of law for arbitration provision
Ø Will the arbitration law of a particular state apply or will the FAA apply?
Ø Generic verses Specific choice of law
· Grounds to Appeal an Award—should/can it be in the contract?
Ø Should/does the clause “require” the arbitrator to “follow the law?”
“Manifest Disregard of the Law” standard?
· Other drafting concerns.
Ø Limit remedies of the parties?
Ø Bar punitive damages?
Ø Prohibit joinder/consolidation of parties?
Prime contractor and all subcontractors?
Reasoned award required from arbitrator(s)?
· Any clause enforcement issues?
Ø Applicability of Contract defenses
For example, does the California Judicial Council Arbitration related rules on
disclosure/disqualification, etc. “trump” the FAA?
Rules of NASD
· Specific concerns in drafting that are unique to the nature/business of dispute?
Subcontract disputes—continue performing notwithstanding a dispute?
Payment or Letters of Credit
· Use of Baseball Arbitration
"The parties shall exchange with each other and submit to the Arbitrator their last best offer(s) to the other.
The Arbitrator shall select one or the other of such two offers and shall award such selection."
WHY DOES IT WORK?
THE POWER OF “BATNA!”