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W hen attorneys think of arbitration, they most likely think of the

American Arbitration Association (AAA), the largest and most


widespread organization that administers arbitration proceedings.
The AAA, however, is not the only option. A non-administered arbitra-
tion, where no administering agency is involved in procedural aspects
and all matters are handled either by the arbitrator or the parties
themselves, offers a form of alternative dispute resolution that is truly
faster and more cost effective.

The Alter nat ive t o


Alternative
Dispute
RESOLU
ACC Docket 52 July/August 2010
TION By George R. Jurch III,
Mark I. Wallach
and Molly A. Drake

ACC Docket 53 July/August 2010


History of the American Arbitration $12,500, plus .01 percent of the amount
Association (AAA) GEORGE R. JURCH III is
general counsel for The
of a claim over $10 million (though the
The AAA is a nonprofit organization Americas for Continental initial filing fee is capped at $65,000).5
Automotive, Inc. He is
founded in 1926 — following enactment of responsible for overseeing In addition, a case service fee is incurred
the Federal Arbitration Act — that func- the law, patent and license function if the case proceeds to the first hearing.
for Continental Automotive in the
tions as a large conflict management and Americas. Jurch previously served as The case service fee also gets progres-
dispute resolution services organization.1 general counsel in the United States sively more expensive as the amount of
and Canada for Continental Automotive
The AAA offers administrative services, and as assistant general counsel for the claim increases, starting at $200 for
including assisting in the appointment of Food Lion. He can be contacted at cases under $10,000 and going as high
george.jurch@continental
mediators and arbitrators, setting hearings, corporation.com. as $6,000 for cases over $10 million. If
and providing users with information on MARK I. WALLACH is a
your company asserts a claim worth $20
dispute resolution options.2 partner at Calfee, Halter million under the standard fee schedule,
& Griswold LLP, co-chair
Many contracts include an arbitration of its litigation practice, your initial filing fee will be $65,000,
clause naming the AAA as the organization and a member of the Federal Court Panel plus a $6,000 case service fee if the case
for ADR Procedures. He has 35 years of
that will administer arbitration between the experience litigating complex business proceeds to the first hearing.
parties, or specifying the AAA commercial disputes nationwide on behalf of plain- In response to complaints about these
tiffs and defendants. Wallach can be
arbitration rules to govern the proceedings. contacted at mwallach@calfee.com. onerous fees, the AAA recently launched
The AAA does not arbitrate disputes itself, MOLLY A. DRAKE is an
a “cost-saving alternative” in the form
but rather provides administrative support associate with Calfee, of its “Pilot Flexible Fee Schedule.”
Halter & Griswold LLP.
to arbitrations before a single arbitrator or She represents private The pilot program was offered to par-
a panel of three arbitrators. The arbitrators and public business in ties filing cases through May 30, 2010.6
complex corporate and commercial
are chosen in accordance with the parties’ litigation, and is a graduate of Case In general, the arbitration demand was
agreement or, if the parties do not agree, Western Reserve University School made, and officially deemed filed, upon
of Law. Drake can be contacted at
in accordance with AAA rules. Under its mdrake@calfee.com. payment of an initial fee — about $1,000
rules, the AAA may appoint an arbitrator for most cases. The parties then have 90
in some circumstances, for example, when days to confer and choose an arbitrator
the parties cannot agree on an arbitrator or a party fails to or arbitrators by agreement. If the parties are successful
exercise its right to appoint an arbitrator.3 in conferring and choosing an arbitrator, the parties re-
The process of administered arbitration through the ceive a 50 percent discount applied against the proceed
AAA begins when a case is filed with the AAA.4 The fee, which is due at the expiration of the 90 days. The
parties involved may file their cases via the AAA’s online proceed fee also gets progressively more expensive as
filing system or through the AAA’s offices. Once a case is the amount of the claim increases. A final fee is incurred
filed, parties may select from the AAA’s roster of 8,000 for all claims and/or counterclaims that proceed to their
arbitrators, often referred to as “neutrals.” The AAA’s neu- first hearing.
trals consist of both attorneys and non-attorneys, and are Therefore, if your company were to assert a claim for
considered to have expertise in their respective fields. $20 million, your initial fee would be $2,500 under the
flexible fee schedule. If you and your opposing counsel are
Problems with AAA arbitrators successful in choosing an arbitrator, your proceed fee will
Though conventional wisdom touts arbitration as a only be $32,500, but if you are not successful, the proceed
faster and less expensive alternative to traditional litiga- fee is $65,000. The final fee is the same as the standard
tion, administered arbitrations have become increasingly fee schedule: $6,000. In the situation where an arbitrator
slow and costly for the parties. has not been pre-selected and appointed by the expiration
For instance, the AAA requires parties to pay an of the 90 days, you could end up paying more under the
administrative fee based on the amount of the claim or flexible fee schedule than under the standard fee schedule.
counterclaim at the time the arbitration demand is filed. In addition to the potentially exorbitant filing fee,
These fees can be particularly high when compared with parties still must compensate the arbitrator(s). This can
the filing fees of courts, and the fees increase in steps with become a severe burden, especially when the parties
the amount of the claim. are required to have more than one arbitrator, either
Under the AAA standard fee schedule, for example, by agreement of the parties or rules of the AAA. Often
the initial filing fee starts at $750 for claims under you have to pay a fee based on the estimated hours that
$10,000, but gets progressively more expensive as arbitrators will spend, well in advance of them starting
the amount of the claim increases. The fee can reach to work on the case. According to the “AAA’s Procedures

ACC Docket 54 July/August 2010


for Large, Complex, Commercial Disputes,” if the parties Benefits of non-administered arbitration
are unable to agree upon the number of arbitrators, and a One of the most significant benefits of non-admin-
claim or counterclaim involves at least $1 million, then the istered arbitrations is flexibility. With no administering
AAA requires three arbitrators to determine the case.7 agency involved in the procedural aspects of arbitration,
Moreover, administered arbitrations were once consid- the parties are free to administer the arbitration at the pace
ered a quick alternative to litigation, and now the process they agree to. This means that the parties can resolve the
can be almost as slow as traditional litigation. Contributing dispute as fast as possible, setting a schedule with which
to this, and perhaps one of the biggest disadvantages to both sides are comfortable. Parties also have greater flex-
pursuing administered arbitrations under the AAA, are the ibility in choosing the arbitrator and the hearing location.
limitations placed on communications with the arbitrator Another benefit is speed. When both parties agree on a
or arbitrators. The AAA’s rules provide that “no party and schedule for the arbitration, they condition the hiring of an
no one acting on behalf of any party shall communicate ex arbitrator on that schedule.
parte with an arbitrator or a candidate for arbitrator con- Cost control is a third major benefit. By agreeing on a
cerning the arbitration. . . .”8 With the AAA, the adminis- single arbitrator, which is much simpler than trying to find
trator acts as an exclusive channel for all communications three who are agreeable to both sides, arbitrator fees are
between the parties, frustrating and unduly burdening a automatically reduced by two-thirds. In addition, restrict-
process that is intended to be informal and more accessible ing the operation to one arbitrator reduces the opportu-
than traditional litigation. nities for “gaming” the process by trying to sneak in an
Furthermore, if you add in the costs of the administra- arbitrator who will favor one party.
tive fees along with the costs of the arbitrators, one could Finally, convenience may be the benefit that counsel
argue that arbitration is at least as expensive as traditional appreciate the most. All it takes to discuss issues that arise,
litigation in the court system. or to cope with unexpected developments, is a quick three-
way conference call. No appointments with unavailable

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case administrators. No multiple arbitrators with shifting suit, while the parties arbitrate their dispute privately. Few
schedules to juggle. judges can resist the likelihood of a dismissal on the merits
in exchange for merely staying a lawsuit for a limited pe-
How to arrange a non-administered arbitration riod of time to allow this sort of disposition.
If your company plans to be a plaintiff, it may be dif- If, on the other hand, your company is a defendant,
ficult to arrange a non-administered arbitration until after your first call to opposing counsel should be a dual
your complaint is filed — unless you have an established request for an extension of time to answer, while the two
relationship with counsel for the soon-to-be defendant. of you discuss the possibility of arranging to arbitrate the
Making arrangements for dispute resolution too early will dispute. Once again, it would be a rare court that would
unnecessarily tip off your opponent to your intention to file, not give you the time for those discussions to take place.
and may give them the opportunity to file first and control Once the conversation is under way, there are several
the choice of forum. agenda items that need to be pursued. Whether the parties
The filing of a complaint, however, offers a good op- can agree on an acceptable arbitrator is probably the most
portunity for either you or your outside litigation counsel urgent. Since a group is not administering an arbitrator for
to reach out to the defendant’s counsel — sometimes even you, you and opposing counsel need to pursue the ques-
before service is affected — and propose staying the law- tion of whom you both trust. In most cities, that is not as
hard to answer as you might think. Just as litigators know
who the other sophisticated trial lawyers are in town, they
know who they would trust to be fair and impartial in
An Example of Non- arbitrating their disputes.
Administrated Arbitration Yes, each lawyer will hope or think that she has special
insight into the history and proclivities of possible arbitra-
An acquisition was split into two closings, for tax pur- tors, and will try to obtain a favorable decision-maker.
poses. After the first closing, the buyer decided to seek a But, more often than you might imagine, more than one
substantial reduction in the purchase price and threatened to mutually acceptable name will emerge from exchanges
abort the second closing. between counsel.
Counsel for both parties negotiated an escrow to hold the When counsel agree on an arbitrator, the next step is
disputed portion of the purchase price, and agreed to arbitrate to agree on the approximate time frame for discovery and
the issues regarding the demand for a reduction in price, the ultimate hearing of the dispute. These dates need to be
which allowed the second closing to go forward as scheduled. firm — not the expected-to-be-moved-a-couple-of-times
As part of the agreement, they selected a retired judge dates that typically come out of preliminary case manage-
as an arbitrator, who both counsel were familiar with, and ment conferences in court. This discussion will involve
agreed to limit depositions to three per side, with the arbitra- reaching agreement on how much discovery the parties
tion to take place no more than six months from the date of want to permit. In a non-administered setting, this is
the agreement. entirely a matter of mutual agreement. Again, that isn’t as
The arbitrator agreed to the schedule and set a firm hard to reach as the clients probably expect, when litiga-
date for the hearing. All discovery was completed without tion counsel are experienced and acting in good faith.
incident, and the arbitration was held as planned in the ar- With these three preliminary agreements in hand — a
bitrator’s office. The entire proceeding took three days, and proposed arbitrator, a proposed time frame and a pro-
the parties agreed with the arbitrator that no post-hearing posed scope for discovery — counsel need to contact the
briefing was necessary. proposed arbitrator without delay, in an attempt to get the
Within 30 days after the hearing, as he had committed arbitrator to agree to handle the matter in the agreed upon
to, the arbitrator issued his ruling, which denied all but a time frame. Of course, rates, locations and duration of the
fraction of the reduction sought by the buyer. expected hearing also should be addressed in the initial
Since the parties had agreed that the arbitrator’s deci- conversation with the proposed arbitrator.
sion would be final, the funds were promptly distributed Normally, all parties and the newly-designated arbi-
from escrow according to the arbitrator’s ruling. trator will agree to resolve any discovery disputes on a
In a subsequent dispute between the parties on unre- telephone call to the arbitrator, with no need for motions
lated issues, they agreed to conduct a similar non-adminis- or briefing unless it is at the arbitrator’s request. Most
tered arbitration, with equally satisfactory results. of the time, the preliminary agreement on timing and
scope of discovery prevents any disputes from requiring
arbitrator intervention.

ACC Docket 56 July/August 2010


While discovery is ongo-
ing, the arbitrator has a Once the conversation is under way, there are several
limited role, and normally
isn’t required to take an agenda items that need to be pursued. Whether
active part in the process.
Freed of the need to clear
the parties can agree on an acceptable
every decision through arbitrator is probably the most urgent.
AAA administrators, most
sophisticated litigation
counsel can negotiate discovery scheduling, resolution arbitrations is the increased risk of damage from a bad
of any immediate legal disputes and other miscellaneous decision. This shows up in several ways: a poor selec-
issues in short order. Since both sides have explicitly de- tion of an arbitrator, for example, hurts more when there
cided to resolve their disputes in this very cost-effective is only one. Not using the AAA vetting process means
way, neither side has an incentive to delay discovery, or you are relying even more heavily on litigation counsel’s
multiply disputes. judgment. And the absence of appeals means that a poor
Hearings in non-administered arbitrations tend to go decision in the case will not be simply fixed on appeal.
quickly. With a single arbitrator, who owes his allegiance These disadvantages don’t mean you shouldn’t try a
to the parties who selected her, and not to AAA, there non-administered arbitration — just that you need to ex-
is little to no delay in proceeding. Even fairly complex ercise considerable care in selecting the right case and the
disputes often can be heard in only one or two days by right outside counsel to use in that case.
avoiding otherwise common issues associated with having
a three-arbitrator panel — at least one member disappear-
ing for periods of time on the telephone because she has to
deal with real or contrived emergencies — and by keeping “How-to” Guide to Non-
witnesses available by phone when possible. Administered Arbitration
It is useful for the parties and the arbitrator to agree
(either at the outset or at the hearing) both how long the 1. If your company is a plaintiff: File the complaint, then
arbitrator may take to issue a ruling in the dispute, and reach out to defendant’s counsel and propose staying
whether or not a reasoned decision — as opposed to a the lawsuit while the parties arbitrate privately.
one-paragraph summary ruling — is required. No en- 2. If your company is a defendant: Reach out to opposing
forcement mechanism exists, but the fact that the parties counsel, then request an extension of time to answer
and their counsel actually selected the arbitrator acts as a and discuss the possibility of arbitrating the dispute.
powerful incentive for most arbitrators to do the kind of 3. File an agreed order with the court, staying the case
job agreed on in the time the arbitrator committed to. pending the arbitration.
Once the ruling is obtained, since no appeal is nor- 4. Agree on an acceptable arbitrator.
mally allowed (unless the parties have agreed otherwise in 5. Agree on the time frame for discovery and the ultimate
advance), all that remains is to return to court, if a lawsuit hearing of the dispute.
actually was filed. Let the grateful judge know that it is 6. Contact the proposed arbitrator and attempt to get
time to mark the case settled and dismissed, and collect the arbitrator to handle the matter in the agreed upon
that disposition credit on the docket. time frame. Discuss rates, locations and duration of the
expected hearing in this initial conversation with the
Disadvantages to non-administered arbitrations proposed arbitrator.
Though there are many advantages to non-adminis- 7. Agree with opposing counsel and arbitrator on methods
tered arbitrations, there are a couple of potential issues for resolving discovery disputes.
to consider. For instance, non-administered arbitrations 8. Discuss with arbitrator how long she will take to issue a
only work well when both sets of litigation counsel are ruling in the dispute and whether or not a reasoned deci-
able to work together professionally, especially in selecting sion — as opposed to a one-paragraph summary ruling
an arbitrator and a time frame. Also, if your opponent is — is required.
not likely to obey the rules or one of the party’s goals is to 9. Proceed with the arbitration schedule agreed to
delay the proceeding on which you have mutually agreed, by the parties.
perhaps a non-administered arbitration is not for you.
Another potential disadvantage of non-administered

ACC Docket 57 July/August 2010


Non-administered arbitration resources Privately funded judicial proceedings
There are several national and international organiza- Privately funded judicial proceedings are a related
tions that provide self-administered alternative dispute form of alternative dispute resolution that provide many
resolution resources, for those parties that need help of the benefits of non-administered arbitrations. The
in locating an appropriate arbitrator. The International concept of a private judging system was first introduced
Institute for Conflict Prevention & Resolution (CPR) is a in 1976 in California.11 Private judging allows parties to
nonprofit organization that serves as an appointing author- remove their dispute from the traditional court system
ity for parties in need of neutrals.9 CPR maintains a roster and refer the case or issue to a retired judge, or, in some
of arbitrators and mediators, with specialization in 17 instances, to another neutral third party. Parties have
practice areas. Most biographies of CPR’s neutrals are only the freedom to choose the private judge they feel is best
available to CPR members. Fees are customarily based on suited to try their dispute. The parties are then respon-
the neutral’s own normal time charges. CPR receives no sible for compensating the private judge.12 The private
part of the panelist’s fees. judge has the full authority of the court, and his decision
Judicial Arbitration and Mediation Services (JAMS) is is enforceable and appealable in the public courts.
another organization providing non-administered arbitra- In 1984, for example, the Ohio General Assembly
tion services. Founded in 1979, JAMS is a large private enacted Ohio Revised Code 2701.10, authorizing par-
alternative dispute resolution provider.10 JAMS offers a list ties to consent to a form of alternate dispute resolution
of 250 full-time neutrals, including many former judges frequently referred to as “private judging” or “rent-a-
and distinguished attorneys. judge.”13 Generally, O.R.C. 2701.10(B)(1) provides that

ACC Extras on…Alternative Dispute Resolution


ACC Docket to prevent EEOC charges and includes how to obtain a no
• Unchartered Waters: Ten Considerations to Crafting the probable cause determination.
International Mediation Clause (Oct. 2008). International www.acc.com/quickref/mediation_jan07
dispute resolution is crucial as companies expand across • Drafting Effective Employment Arbitration Agreements (Jan.
borders and this article provides tips to consider. 2007). This outline addresses pre-drafting considerations,
www.acc.com/docket/intl-mediation_oct08 additional areas of concern and specific clauses to consider.
www.acc.com/quickref/empl_arbit_jan07
InfoPAKSM • Drafting the International Arbitration Clause (March 2006).
• Alternative Dispute Resolution (April 2006). This InfoPAK, This quick reference provides a checklist to create an
sponsored by American Arbitration Association, contains international arbitration clause. Also includes a sample
materials useful to in-house counsel using ADR. The international arbitration clause.
materials include useful and practical information about www.acc.com/quickref/intl_arbit_mar06
the use of arbitration, mediation and other modern dispute
resolution methods. www.acc.com/infopaks/adr_apr06 Program Materials
• Alternative Dispute Resolution Mechanisms (June 2009).
Quick References Find tips on the pros and cons of ADR and how it can be
• Arbitration Resources (June 2009). This material provides used to help your corporate client.
resources for domestic and international arbitration www.acc.com/adr_mech_jun09
including the basics, disadvantages, strategies and • Drafting and Negotiating an ADR Clause that Works (Oct.
checklists. www.acc.com/quickref/arbit_res_jun09 2007). Learn broad negotiation strategies and specific
• Arbitration Agreement Drafting Guide (May 2009). This contract clauses to help you save you time, money and
reference provides a starting point for parties who want to effort in your next dispute. www.acc.com/draft&neg_
resolve their disputes through binding arbitration. It also adrclause_oct07
includes a list of important drafting considerations.
www.acc.com/quickref/arb_agree_may09 ACC has more material on this subject on our website. Visit
• When to Select Mediation (Jan. 2007). This quick reference www.acc.com, where you can browse our resources by practice
identifies when to select the EEOC’s mediation program. area or use our search to find documents by keyword.
It also identifies effective grievance complaint programs

ACC Docket 58 July/August 2010


parties to a civil action or proceeding in an Ohio Court of
Common Pleas may choose to have the action or proceed-
Private judging allows par-
ing referred to a voluntarily retired judge of their choos- ties to remove their dispute
ing for adjudication.14 Under the Ohio Revised Code, a
“voluntarily retired judge” refers to “any person who was from the traditional court system
elected to and served on an Ohio court without being
defeated in an election for new or continued service on and refer the case or issue to a
that court.”
In addition to California and Ohio, other states such as
retired judge, or, in some instances,
Texas, New York, Alabama, Florida, Indiana and Colo- to another neutral third party.
rado also have adopted some form of private judging.15
In those jurisdictions, private judging helps to ameliorate
overburdened systems and gives litigants yet another 6. www.adr.org/sp.asp?id=22440#pilo.t
7. www.adr.org/sp.asp?id=22440#A9.
alternative to the traditional courts. Proponents of private
8. www.adr.org/sp.asp?id=22440#R18.
judging argue that it: 9. www.cpradr.org.
• is cost-effective, 10. www.jamsadr.com.
• provides tailored expertise, 11. John W. Whittlesey, Note, Private Judges, Public Juries: The
• preserves appellate review, Ohio Legislature Should Rewrite R.C. § 2701.10 to Explicitly
• is convenient, Authorize Private Judges to Conduct Jury Trials, 58 Case W. Res.
• protects private information, and L. Rev. 543, 543-574 (2008).
12. Id. at 544.
• helps to alleviate congested dockets.16
13. Id.
Despite the many advantages of the system, private
14. O.R.C. 2701.10.
judging also raises some issues. For instance, some critics 15. Id.
argue against secretly resolving these disputes out of the 16. Whittlesey, supra note 15, at FN5.
public forum. Another potential downside for parties that 17. Id. at 545.
opt for this type of alternative dispute resolution is that, 18. State ex rel. Russo, Judge vs. McDonnell, Judge, 110 Ohio St.3d
by doing so, they are sometimes required to waive their 144 (2006).
Seventh Amendment right to a jury trial. Of course, many
companies will regard both of these issues as advantages.
In 2006 the Ohio courts addressed the issue of whether Resources
a retired judge, adjudicating a case or issue by stipulation
of the parties pursuant to O.R.C. 2701.10, has the author- • www.adr.org : The official website of the American
ity to preside over a jury trial. In State ex rel. Russo, Judge Arbitration Association, providing information regard-
vs. McDonnell, Judge, 110 Ohio St.3d 144 (2006), the ing the organization, dispute resolution services, filing
Ohio Supreme Court held that the statutory authority for a case, education programs, AAA’s neutrals and others
cases or issues submitted to retired judges requires that resources.
all such matters be heard and determined by the judge — • www.cpradr.org : The official website of the Interna-
meaning that the retired judge is not authorized to preside tional Institute for Conflict Prevention and Resolution,
over a jury trial, even with the consent of the parties.18 providing information regarding the organization,
Non-administered arbitrations, like anything else, ben- membership, news and articles, CPR neutrals, training
efit from experience. Talk to your litigation counsel, look events, practice areas and other resources.
for an appropriate case and give it a try. You have nothing • www.jamsadr.com : The official website of Judicial
to lose except ridiculous filing fees, extraordinary arbitra- Arbitration & Mediation Services, providing informa-
tor costs, and lots of delay and frustration. tion regarding the organization, JAMS’ neutrals, rules
and clauses, locations, alternative dispute resolution
Have a comment on this article? Email editorinchief@acc.com. services and other resources.
• Glen H. Spencer, Administered vs. Non-Administered
NOTES Arbitration, 54-FEB DRJ 42, 67-71 (1999): Journal article
1. www.adr.org/aaa_mission. discussing the pros and cons of full administration, lim-
2. www.adr.org/about. ited administration and no administration arbitrations.
3. www.adr.org/sp.asp?id=22440.
4. www.adr.org/about_aaa.
5. www.adr.org/sp.asp?id=22440#standard.

ACC Docket 59 July/August 2010