To Arbitrate or Not to Arbitrate: That is the Question

Managing litigation risks includes thinking about the process and forum by which commercial disputes will be resolved. Yet, there is no consensus among business transactional and trial lawyers on whether arbitration provisions are advantageous in most commercial transactions. In this episode, Dorsey Partner Richard Silberberg and Dorsey Partner/Podcast Host Kent Schmidt tackle the topic of arbitration provisions and discuss how to approach the question of whether and how to agree to an arbitration.

Read the ABA Litigation Journal article mentioned in this episode of SharkCast: Debunking Misperceptions: The Upsides of Commercial Arbitration by Richard Silberberg and Neal Eiseman.

This podcast is not legal advice and does not establish an attorney-client relationship or create any duty of Dorsey & Whitney LLP or those appearing in this podcast to anyone. Although we try to assure that the content of this podcast is accurate, comprehensive, and reflects current legal developments, we do not warrant or guarantee those things. The opinions expressed in this podcast are the opinions of those appearing in the podcast only and not those of Dorsey & Whitney. This podcast is considered attorney advertising under the applicable rules of certain states.

Transcript

Voiceover
Welcome to another episode of the SharkCast on Litigation Risks Management, where we explore why businesses are so frequently sued and how to mitigate and navigate the dangers lurking in these risky waters.  Join us now as we welcome our host, Kent Schmidt, Litigation Partner at the law firm of Dorsey & Whitney.

 Schmidt
I’m pleased to be joined in this episode of SharkCast by my partner, Richard Silberberg. Rich is an exceptional trial lawyer, resident in our firm’s New York office, and so Rich, I’d like to welcome you to the SharkCast microphone. It’s a pleasure to have you here.

Silberberg
Thanks, Kent. It’s great to be here with you today.

Schmidt
Well, Rich, we’ve worked together now for well over 20 years and I’ve learned a lot from you over these two decades, including second-chairing cases with you out here in California as well as some work in New York and elsewhere around the country. And, in addition to your storied career as a litigator, I’ve always known you as an accomplished arbitrator, of course, you’ve never been an arbitrator for any of my cases. That, that would create a very significant conflict. But, I value the opportunity I’ve had many, many times to call you up about arbitrations that I have and to pick your brain about potential arbitrators in the selection process as well as the nuances of some very, very complicated arbitration questions that we grapple with from time to time. So, thank you for all of that and all of the contributions you’ve made to my work and I thought it would be great to have you as a guest to talk about arbitration in general.

Silberberg
Yes, I recall that we recently collaborated on an LLC derivative proceeding in arbitration that was pending before an American Arbitration Association three-arbitrator panel. What I remember most about that is that there were some particularly thorny procedural issues.

Schmidt
Well, that was not too long ago and we won’t get into some of those nuances today. Instead, what I’d like to focus our attention on today is the process of arbitration and perhaps a little more specifically, the decision that lawyers and those that are involved in negotiating agreements face on whether to arbitrate a particular decision and how to craft arbitration provisions in a commercial agreement, anticipating a dispute down the road. And that is something I know you’ve written about and talked about at length and you have some views on, so, we’ll get into that. But before we do, just for our audience, can you give me an estimate of how many arbitrations you have been involved in as a panelist, not including ones in which you’ve been a lawyer, an advocate for one side, but on the panelist side? How many arbitration do you think you’ve done over your career?

Silberberg
I would say that over the last 30 years or so, I have arbitrated approximately 350 cases and they are approximately split down the middle; 50% of them have been sole-arbitrator cases and about 50% have been as a member of the three-arbitrator panel.

Schmidt
And, so what, what percentage would you say, in relative recent years, is your practice comprised of arbitration as a panel, or, or I guess including that as a mediator?

Silberberg
I would say, in the last few years, it’s been approximately 30% of my practice.

Schmidt
Okay, well, that’s a significant amount of experience, so you speak with some authority when you talk about arbitration. I recently read an article that you co-authored with Neil Eisman entitled, “Debunking Misperceptions: The Upside of Commercial Arbitration.” I guess that gives away some of your bias, in favor of, of arbitration. You’re a fan of arbitration as a way to adjudicate and resolve commercial disputes. So we’re going to get into that. But, as a preview from that article, or from your own experience, can you summarize for us some of the common misconceptions and objections that you hear from clients or other practitioners about commercial arbitration?

Silberberg
I’d be happy to. Just a word at the beginning about what prompted the article that Neil and I wrote for the ABA Litigation Journal. Back in 2015, there was a series of front page articles in the New York Times that were very critical of arbitration. And, a lot of those of us who arbitrate cases on a regular basis were dismayed regarding a lot of the factual errors that were contained in those articles. And those articles were actually the forerunner to additional pieces that ran in the mainstream press about the secrecy of arbitration and about other disadvantages, at least perceived disadvantages, of arbitration. So, Neil and I thought that it was time to try to set the record straight with respect to some of the more obvious misperceptions about arbitration and we succeeded in having that article published. It still stands as one of the few pieces of any consequence that talk about the upsides of arbitration as opposed to the narrative that you sometimes see in the press. And I should make the point, Kent, that some of the most significant criticisms of arbitration are leveled not so much at commercial arbitration, which is what I do, but at consumer arbitration and employment arbitration. The reason for that is that in recent years, there have been some procedural mechanisms that parties have injected into arbitration agreements, in the consumer and in the employment context, which make it very difficult for consumers and employees to arbitrate cases jointly. These arise from what we call class action or class arbitration waivers. That problem doesn’t exist in commercial arbitration, where you are essentially looking at a dispute between two businesses. So, commercial arbitration is sometimes referred to as business to business or B2B arbitration. And there a lot of the types of criticisms that appeared in the New York Times and elsewhere really don’t apply. Similarly in employment and consumer arbitrations one of the criticisms is that the arbitration takes place behind closed doors in secret. Well, that’s not as much of a concern for commercial parties, because commercial parties are not really interested in having third parties become knowledgeable about their private transactions.

Schmidt
I was just going to interject. It’s not only not a concern, it’s one of the main attractions that that commercial parties tend to, in my experience, tend to like about arbitration is keeping things off of the PACER docket.

Silberberg
Well, that’s exactly right, Kent. And if we were creating a plus and minus chart for advantages and disadvantages of commercial arbitration for commercial parties, preserving confidentiality would be on the plus side of that chart.

Schmidt
Right. Well, I’ve had also the experience of, assuming that you’re going to be able to get things filed under seal even in state court, and that the courts are going to sign off on that, but in recent years, I’ve experienced courts being very stingy with their sealing orders and essentially saying that look, the public has a right to know you’re using taxpayer dollars to litigate a claim in either state or federal court. And, other than the secret sauce, highly proprietary type of information, all of this is gonna come in and it causes a lot of heartburn among the business unit.

Silberberg
That’s exactly right. As a matter of fact, I once arbitrated a case involving a presidential campaign. And in my award, I specified that to the extent that the matter had to be referred to a court for any purpose, it ought to be filed under seal, and when the matter arrived in court, the clerk of the court did seal the document. But when it appeared before the judge later that day, the judge began the hearing by saying, I don’t believe that things should be secret. I’m lifting the sealing of this document.

Schmidt
Remarkable. So the judges are Richard who?

Silberberg
Essentially yes.

Schmidt
Richard Silberberg’s gonna tell me that I gotta seal this.

Silberberg
Essentially, Kent, I think that you might have had a source within the courtroom because that’s by and large what was said.

Schmidt
Yeah, well, judges don’t like to be told what to do by lawyers or outside arbitrators, I guess is the take away there.

Silberberg
Exactly. You do not wear the robes.

Schmidt
That’s right. Well, you’ve summarized some of the objections to arbitration in this article, and I commended it to our listeners to take a look at. But let me throw out another hesitation that sometimes I hear and I, and I’ve actually raised this in discussing with clients, whether or not to arbitrate, and that is that there’s a perception that the arbitration process is easier because it can be a little more casual in terms of the pleading requirements and access to getting to the resources, to getting the case off the ground, and you don’t have to, you know, dot the I’s and cross the T’s on filings and all the forms that are required to get a case filed and off the ground in state or federal court. And so by making the process easier for a party, particularly a party that’s maybe predisposed to be a little more litigious and assert claims, are you paving the way for claims to be filed by making, by agreeing that it would be subject to arbitration?

Silberberg
I don’t think so and I’ll tell you why. Perhaps this will be a common theme of our conversation going forward here. If you craft your arbitration clause properly, you can protect against a lot of the perceived disadvantages of arbitration, and this is one of them. So you can, in dealing with what you are concerned may be a litigious counterparty, insert a clause in your arbitration provision stating that the prevailing party shall be entitled to recover its attorneys’ fees. So if you are of the belief that your counterparty may be prone to bringing meritless claims, seems to me that the risk of perhaps having to pay the other side’s attorneys’ fees acts as an effective deterrent against filing claims that don’t have merit.

Schmidt
Are there other provisions that can be inserted into an arbitration clause to address the particularly litigious counterparty, if you are going to agree with arbitration?

Silberberg
Yes. Let’s say you are concerned about a counterparty that is going to act during the arbitration in a way that’s going to expand your legal costs. So you can deal with that by being specific in terms of what discovery is allowed and what discovery will not be allowed. For example, you could state in your arbitration clause that discovery shall be limited to document production. You could say in your arbitration clause that there shall be no depositions. And make no mistake about it, arbitrators are bound by that. If the arbitrator thinks that, well, I think depositions might have been helpful in this case. If the parties have stipulated in their arbitration agreement that there shall be no depositions, the arbitrator doesn’t have any discretion to vary from that agreement. The arbitrator’s authority stems solely from the arbitration agreement itself. So, those are some of the things that you could do to deal with a particularly litigious party. Another thing you could do is put a time limit on the duration of the arbitration. You could say that the period between the filing of the case and the final hearing shall be no more than X months for example.

Schmidt
Mm-hmm.

Silberberg
So, there are a number of things that you could do to try to protect against what a particularly litigious counterparty might do to expand your costs.

Schmidt
Those are, those are helpful. One of the other topics that you addressed in the article has to do with cost of arbitration, is it really more cost effective? I think your answer you just gave about shortening the process is helpful, but what about these arbitration fees that could be very, very significant. I had an arbitration recently, I think you’re aware of this, in which one of the panel members and the three-arbitrator panel was at an hourly rate of I think $1400. Thankfully it wasn’t the arbitrator that we chose in the three-arbitrator panel, so we weren’t on the hook for that but accomplished, well-respected arbitrators could have a very significant hourly rate and if you move to a three-arbitrator panel, you are paying essentially one and a half of those arbitrators’ time. And AAA I think has recently instituted a policy, where at least the default requirement is that you estimate how long the arbitration hearing is going to be. It might be nine months or a year from now, and the parties post their amount with AAA and it can be a very, very significant amount. You can end up having to post an amount of six figures or more, depending on the arbitration costs. So how can those costs be addressed in order to respond to that concern?

Silberberg
Several ways. Number one, you mentioned in your example, Kent, that if you are paying the compensation of three arbitrators, and you have to pay it in advance, it could create a cash flow crunch for the client, for the party. And, what I would suggest, is that parties revisit the notion that they actually need three arbitrators. There have been some studies done that have shown that the cost of having three arbitrators is not three times the cost of one arbitrator. It’s five times the cost of one arbitrator. Because it’s not just the time that those arbitrators are devoting to shared activities like appearing at a hearing, speaking on the phone about a discovery issue, or what have you, it’s also the time that it takes to arrange conferences, differentials in the amount of time that is spent by arbitrators and preparing. Some arbitrators prepare more fulsomely than others. So I would argue that one good arbitrator is just as good, if not better, than a panel of three arbitrators. So that’s one way to cut your cost. A second way to cut your cost is to indicate in your arbitration agreement that you want certain limitations placed upon the arbitral process. It may be that there are certain issues that you don’t want arbitrated, that should be outside the scope of the clause. It may be that you, as we discussed before, limit the amount of discovery. It won’t surprise you, I’m sure, to learn that arbitrators’ biggest contribution of time during the course of the proceeding is sometimes dealing with discovery disputes, just like magistrate judges and to the extent that you can cut back on that, it’s going to result in lower cost. The other thing I would say though, is that with regard to deposits, you can often work out a staggered payment plan with the arbitral provider, whether it’s the AAA or otherwise, to have those payments track the stages of the case. So it’s not necessarily true that the payment for the hearing needs to be made at the beginning of the case. So I would encourage parties to pursue those discussions as well.

Schmidt
One of the points that you just mentioned that really resonates with me as a litigator, is a more streamlined process for resolving discovery disputes. You know, here in California the State Court motion to compel requirements are so onerous, I think they’re intentionally so to discourage those motions. They have all of these separate statements required and declarations and so forth, when the process that’s typical of the arbitration equivalent of a motion to compel is a letter brief. It gets right to the point without all of the bells and whistles that the State Court rules require and you know, magistrate judges that you’re matters in federal court can be just as efficient sometimes if they are creative, but not all of them are. But that’s something I see a lot, that the letter brief is so much easier for all parties and therefore reduces the litigators billable time on those cases.

Silberberg
Agreed, and my personal practice is that when I issue a comprehensive case management plan at the beginning of the case, I say with respect to discovery that you should meet, confer in good faith and only then seek my intervention. But if you need to do that, you should send me a letter. In which each side presents its side of the issue. Now I will tell you that there are cases when I don’t even require that.

Schmidt
Mm-hmm.

Silberberg
There are cases that are very complicated, involve huge amounts of money, and that these letters, if I were to permit them would go on for 25-30 pages. So what I do is, I, in those situations, I ask the parties to send me an e-mail in which they, with a broad brush, tell me what the issues are and then we get on the phone, or the video, and we may talk for an hour and a half or two hours, but at the end of that two-hour investment, every issue has been resolved, sometimes through compromise, sometimes by ruling. But you cannot compare the cost of a 2-hour Zoom session with the kind of multi-layered submissions that are required in court on a standard motion to compel.

Schmidt
Very good, and I’ve experienced that first hand as well with a very good and creative arbitrator. And I, by the way, I want to interject here that I don’t want our listeners to think that because I’m the one raising all of these issues and objections to arbitration that I am predisposed against arbitration. I’m a believer in efficient and well thought out arbitration processes, but I do like playing devil’s advocate with you, Rich, and so let me come at you with one more objection. So you and I practice together a long time and we, your practice, like mine, is more often on the defense side than the plaintiff’s side just by the nature of our work and our firm, and I know that, like me, when you get a new case in the door, one of the first things you think about on the defense side is can I take a run at a motion to dismiss, and if not a motion to dismiss, can I take a run of defensive motion for summary judgment. That’s a big part of our practice, this dispose of claims early at the pleading stage. In my experience it’s very difficult to get an arbitrator to throw a case out early in the process. I’ve been most recently on the happy side of that of being a claimant and avoiding a motion to dismiss by a three-arbitrator panel. But it’s just sort of the reality in my experience that if you’re on the defense side, you pretty much have to plan on going to an evidentiary hearing rather than getting the case tossed. If that’s the mindset of a party anticipating they’d be on the defense side rather than affirmative claim side, is that a basis to not agree to an arbitration provision?

Silberberg
Again, I would say no and for the following reasons. Number one, I think it’s important to distinguish between a pre-answer motion to dismiss in arbitration and a motion for summary determination which would be equivalent to a motion for summary judgment in court. Let’s talk about the pre-answer motion first. I would agree that most arbitrators are reluctant to grant a pre-answer motion to dismiss because those types of motions attack pleadings, and there are no required pleading elements in arbitration. You can start an arbitration literally with a one-page form, in which you fill out certain specific information about the names of the parties, the names of the adversaries and their counsel, and e-mail it or upload it to a website. But if you do have something on the face of the pleading, such as it is, such as a date of the transaction which is outside the statute of limitations, then I think an arbitrator will entertain that as part of a pre-answer motion, and if the case is stale I think the arbitrator will throw it out. Now let me move to the other type of dispositive motion, which would be the equivalent of the motion for summary judgement. I will concede that years ago there was a fair amount of antagonism toward the notion of granting summary judgment motions and arbitration. There was a general feeling that everybody is entitled to his or her quote day in court, even though it’s not a courtroom, and that everybody should get a hearing. That is no longer true. All of the arbitral providers’ rules now recognize that dispositive motions can be entertained in arbitration. Just as an illustration, the AAA applicable rule is Rule 34, and that rule states that if a prospective movement establishes to the arbitrators satisfaction that the motion has legs, that it’s likely to prevail and that it will narrow or completely eliminate the issues to be tried, then the arbitrator is likely to entertain that motion, and if it’s supported amply, grant that motion. There was a time when I rarely saw dispositive motions and arbitration. I will tell you that I cannot remember the last time that I did not see a dispositive motion in arbitration. I get them in every case. So, I think there’s been a sea change with regard to that issue, but let me add one other point and I think that that is relevant to a lot of what we’re discussing. If you have a concern about whether an arbitrator is going to be willing to even look at a dispositive motion, there is a way to flesh that out, and I think most parties and most litigants are not aware of this. And that is if you are searching for an arbitrator, if both sides are charged with the obligation to select one, let’s just say for this example, you can interview that arbitrator together and you can ask questions that are not devoted to the merits of the case but are devoted to the arbitrators practices. For example, you could ask an arbitrator could you tell me whether you have any predilection against ruling on dispositive motions. And if the arbitrator is being candid, he or she will say I don’t like them, or if it’s a good motion I see no reason to require the parties to go to hearing. And I think that issue about interviewing arbitrators carries over to a lot of other concerns that people may have. This is the one overriding advantage of arbitration and that is you get to select your decision maker. You can’t do that in court.

Schmidt
I’ve never had the opportunity to call up a Federal District Court judge and try to interview them on what they’re gonna be like on the case going forward, even if I had the power to choose another judge. In contrast, that’s a great point about the, an advantage of arbitration and the selection process, which is a very, very important process in arbitrating any case. Well, let me throw out one other objection to arbitration that relates to this dispositive motion, and I do this with some trepidation because I don’t want any of you or your brother and sister arbitrators out there to take offense or think this is coming from me necessarily, but I’ve heard this objection that ties with the dispositive motion objection and that is follow the money. So you imagine an arbitrator next fall is looking at a six-week arbitration and he or she has started thinking about what the fees are gonna be and they’re thinking about their budget and what the summer home they want to be building and so forth or whatever their financial plans are. And in the meantime they get an arbitration motion for summary judgment or motion to dismiss to throw the whole case out. And think about that in contrast to a judge who’s doesn’t necessarily have a financial incentive, but if there’s any incentive the judge has on a dispositive motion, it’s to avoid having to overcrowd a docket, get one more case cleared from his or her docket. Is there any basis in your view as to this concern that financial incentives for arbitrators will result in fewer opportunities to throw cases out on the defensive side rather than having the proceeding go to a protracted hearing that could be very financially advantageous for the arbitrator?

Silberberg
So let me make two points in responding to that question, which I think is a fair one. Number one, there are good arbitrators and there are not so good arbitrators, and it’s certainly possible that an arbitrator might approach a dispositive motion that way and feel that the motion will short circuit the case in a way that will result in less fees. I think that to the extent that that exists, it’s in a very, very small percentage of cases. And I think the more important point to be made here is that the arbitration community is a very small one, and those of us who serve as arbitrators are often asked about whether we have recommendations for arbitrators to serve in cases that we are unavailable for, litigants who have experience before certain arbitrators, or certainly consulted by their partners and associates about experiences that they’ve had with particular arbitrators, and word gets around when an arbitrator is perceived as putting their personal interests over the needs of the case. And those arbitrators tend not to get reappointed. They tend to go way down the list when arbitrators are selected. So I think it’s a natural selection process, and to the extent that it has occurred, I think it’s shameful, but it doesn’t happen very often.

Schmidt
I think that’s a good answer. Obviously, we can’t speak to every single arbitrator out there, but if you go through the process carefully in this selection process of arbitrators, you can avoid those types of issues, and that’s a very important process. We discussed a number of issues and objections that have been raised on arbitration. I think a common refrain that I hear in your answers is the importance of crafting an arbitration provision with a knowledge and understanding of how to address some of these concerns and mitigate some of these risks. I hear that as a frequent refrain. What are some creative arbitration provisions that you’ve seen a transactional lawyers, perhaps with input from their litigator friends, add into commercial agreements that end up being very smart and helpful, perhaps some that we haven’t mentioned already?

Silberberg
So, Kent, I’m gonna answer that from the back end moving forward, and that is you referenced transactional lawyers speaking with litigators or in particular litigators who have served as arbitrators in crafting an arbitration clause. I wish that happened more frequently. I believe it happens in a small minority of cases. There have been situations in which I’ve been consulted by my corporate colleagues and we discussed the client’s needs and concerns, and we craft a very specific arbitration clause to meet those needs. However, I believe that more frequently, and this conclusion is based upon what I see in arbitration provisions every time I open a new agreement in a new case, is I see an arbitration provision that looks like its placement was the result of a transactional lawyer saying to an associate 15 minutes before the agreement is completed, go get me an arbitration clause.

Schmidt
Or maybe saying to ChatGPT in our [UNINTELLIGIBLE].

Silberberg
Correct, correct, exactly. And the arbitration clause that the associate or ChatGPT comes back with is perfectly fine. It’s what we call the standard plain vanilla clause. It’s got about five lines to it. But the problem with it is that when the dispute arises, it’s actually inadequate to deal with the particular concerns that the client has. So the time to start thinking about the type of arbitration issues that we’ve been talking about is when you’re drafting the clause. And some of the things that you should give attention to in drafting it are things like the confidentiality of the proceeding. It might surprise your listeners to know that arbitration is not by definition confidential. It is private, meaning that it takes place outside the public eye, but it is not by definition confidential unless the parties agree that it should be. So for example, if one party wanted to go out on the street corner and get on a soapbox and hold an impromptu press conference about what’s going on in the arbitration, that party can do that without fear of retribution or reprisal or penalty. So I think one thing that commercial users in particular should be sensitive to is the idea of preserving confidentiality through the agreement, particularly if there are trade secrets involved or IP or transactional policies and procedures that that company would like to maintain out of the public eye. Another is what we touched on earlier, the number of arbitrators. If you don’t say anything about the number of arbitrators, then the governing rules will apply, and if those happen to be, for example, the American Arbitration Association rules, those rules prescribe when you get one arbitrator and when you get three. If you want to change that up and countermand it, you need to provide specifically for the number in your clause. Same thing with the venue of the arbitration.

Schmidt
A lot of cost tied to those issues as we’ve already addressed, if you’re concerned about cost, that’s a line item to focus on.

Silberberg
Exactly right. The venue with the arbitration is another. If you don’t agree, then there’s gonna be a dispute later on about what the proper place is. Is the proper place where the parties have their principal place of business? Well, suppose they have their principal place of business in two different places. Suppose the transaction that gives rise to it occurred in a third place. So you’re gonna have a dispute that costs money. The mode of hearing, we haven’t talked about this specifically, but you know since COVID a lot of hearings have been held either completely remotely or virtually and others have been conducted in a hybrid fashion, that is partly in person and partly by video conference. If you wanna preserve the opportunity to do one or the other, say so in the agreement. That gives the arbitrator a guidepost and it takes one other thing off the table for the arbitrator to decide. We talked about the specific limits on discovery that you could put in a clause. I won’t belabor that. Same thing with the exclusions of certain issues that you might wanna carve out for a court determination or a prevailing party attorneys’ fees provision. There are others, but these are illustrations of the things that one should consider in drafting a clause.

Schmidt
Well, and you also think about the dynamics of a relationship and usually when parties are getting ready to do a deal together, the seas are calm, the champagne is clinking, hey, we’re about ready to sign this very significant commercial deal, and that’s the time to start thinking about these things rather than when the parties are adverse to one another and getting ready to head into arbitration and then in that instance, you know, the posture is well, if you want this, then I definitely don’t want that. And the acrimonious nature of the core underlying dispute then spills over into everything from venue to mode of hearing, and it becomes difficult to reach an agreement. Is that your experience as well?

Silberberg
That’s precisely right.

Schmidt
It strikes me that transactional lawyers and litigators need to be collaborating on these issues more and more. A big part of your practice, does it involve getting involved in the transactional side of things and advising on arbitration provisions?

Silberberg
It is not uncommon for excellent litigators in excellent firms not to be terribly experienced with arbitration, and arbitration is a very different animal than litigation. And what I find myself doing with some frequency is consulting with my litigation partners with regard to procedural issues, as well as substantive issues that arise in the arbitration context.

Schmidt
I wanna return to this theme of using the arbitration and pre-arbitration process as a way to slow parties down who are heading toward pulling the trigger on costly adversarial proceedings. In some instances, I’ve seen arbitration provisions that do not specify the administrator JAMS or AAA or the forum to, by which the arbitration is gonna be heard, and instead leave that open, hoping that perhaps in the process of discussing and meeting and conferring on the proper arbitrator and even the venue, there will be discussions that lead to a resolution. What do you think about those provisions that leave that open rather than designating JAMS or AAA or some other forum for the arbitration administration?

Silberberg
I’m not a big fan, and I’ll tell you why. Number one, if those kinds of issues, namely the identity of the agency that’s going to administer the arbitration are left open and the parties have to go to court in order to have clarity with regard to the selection of such a provider, generally speaking, the courts don’t like to be handed that kind of a dispute. There are a lot of reasons for that. Sometimes judges don’t wanna be in a position of being perceived as showing favoritism toward one arbitral provider over the other. Sometimes a judge will say, you know, what do I know about the differences between one provider and another? You guys work it out. You selected arbitration, you decide. So I’m not sure that that’s a very efficient way of holding things at bay, and if that is the object, I am a much bigger fan of what is sometimes referred to as a step arbitration clause, or stated better a step dispute resolution clause.

Schmidt
Alright. What’s that? What, what’s that provision?

Silberberg
A step dispute resolution clause would start with a provision that indicates that within a certain number of days of the dispute being raised between the parties, that senior level executives of the two businesses will exercise good faith to try to reach a resolution by themselves. And the second step that the provision would address is in the event that the negotiation is unsuccessful, that the parties will go to non-binding mediation, and then and only if the mediation is unsuccessful will the parties go to arbitration. So if the goal is to have some kind of a cooling-off period right after the dispute arises, I think that’s a much more efficient way of approaching the issue. And let me add that it’s a particularly good approach if there is a possibility that the relationship between the parties is going to continue beyond the resolution of the dispute. So, for example, if a dispute arises in the midst of a supplier/dealer relationship and the parties simply can’t resolve it, they are much better off with a step dispute resolution clause which holds out hope that a mediated or negotiated settlement can be reached then if they were to just go straight to arbitration, because once you go to arbitration, as you know, people’s positions tend to become more rigid and the ability to continue to deal with each other, subsequent to the issuance of an award, that one party will see as a win and that the other party will see as a loss is compromised.

Schmidt
Yeah, I can see that. I’ve experienced that, those type of dynamics in dealing with clients, and I do like these ideas of ways, the metaphor that comes to mind is that it’s like throwing a log on a train that’s heading down track to try to slow things down so that you have to stop and pause and get the log off before you head to litigation, and many times that, as you say, cooling-off period can result in the case being resolved and save both sides a great deal of money and time and attention, that better use to advance their business. Well, we…

Silberberg
Kent, let me, let me, if I may, your comment made me think of another tool that arbitrators use who create that same opening for resolving a case before an award that will perpetuate ill feeling. And that is that arbitrators will often implement something called the mediation window in the case management plan. So at the beginning of the case that case management plan is issued. It’s akin to a Rule 16 scheduling order in federal court, and sometime in that plan, and it can come at different times, but in mine it comes sometime after document production, there is a gap, and that gap is intended to enable the parties to think about whether they should seek a mediated resolution of the case. And it’s not a requirement that they mediate ‘cause an arbitrator cannot direct parties to mediate, but it’s a time period that is not populated with other deadlines and is intended as a cooling-off period in which parties can assess the strengths and weaknesses of their case based upon the documents that have been produced and allow the parties to at least approach each other if it seems appropriate to do that.

Schmidt
This seems like a very helpful tool to encourage resolution, or at least the exploration of a potential resolution. That’s about all the time we have to talk shop, Rich. But we’re now to the point in the episode that we like to call the Deeper Dive, and in the time that remains, we’d like to learn a little bit more about you as a person. One question that I’m fond of asking colleagues from time to time is if you weren’t a lawyer, what career path do you think you would have chosen. And the answers are often journalism, a lot of people had studied journalism before they went to law school. A number of people that thought about perhaps pursuing an MBA or becoming a CPA, those other type of professions that I would say are adjacent to the legal profession. But I think based on my prior knowledge, your answer is a little different than the typical profession that is similar to the practice of law. So, Rich Silberberg, if you weren’t a lawyer today, what profession do you think you would have chosen?

Silberberg
Well, I can tell you that I did have that discussion with myself a very long time ago prior to the time that I applied to law school, and the choice that was facing me at that time was whether I should try to pursue a career as a professional tennis player. Believe it or not, when I was a junior player, that is when I was 16, 17, 18 years old I was pretty good, good enough to travel around the country and to Canada to play competitive tennis.

Schmidt
So this is in college years?

Silberberg
I did.

Schmidt
Okay.

Silberberg
I played in college, and I also taught at private tennis academies during the summers between my college years. And that was all a product of the fact that when I was growing up as a kid, I found myself on the tennis court, you know, seven or eight hours a day.

Schmidt
So where did you grow up? I know you’re in New York now. Did you grow up in [UNINTELLIGIBLE]?

Silberberg
I grew up on, I grew up on Long Island…

Schmidt
Okay.

Silberberg
…and my parents were a member of a tennis club and basically I was there from 8:00 in the morning till 8:00 at night every day during the summer, and you can’t help but, you know, develop some skills if you put in that much time. So bear in mind this was at a time when the US Open was played on grass and tennis rackets were made of wood. But be that as it may, I did consider pursuing that, and I’m glad in the end that I did not, because the names that you see in televised tennis matches, and even one level below that visibility if you follow tennis, they are less than 1% of the players that are trying to make ends meet as tennis players. The overwhelming preponderance of tennis players who are devoting their lives to that as a profession, are those that are living week to week, tournament to tournament, trying to cover their expenses, to travel from one place to another.

Schmidt
That’s a grind.

Silberberg
So like anything else, it’s a grind. But I did face that decision at one point.

Schmidt
And has tennis been a part of your recreational life since then? Do you still play or have you played, you know, over your career as a lawyer?

Silberberg
Hardly at all, interestingly enough. I’ve taken up golf in more recent years because a client, actually the CEO of a major client, once told me in response to my telling him that I was a tennis player, he frowned at me and he said tennis is not good for developing business because you are competing with the person on the other side, and if that person is a prospective client, you can’t win. So he steered me in the direction of golf, which he said is very collaborative.

Schmidt
Well, you know, I hate to disagree with a very senior client, or senior person in management at a client, but golf has not been good for my client development career, and it’s for one reason. I’m constantly, whenever, whenever, I used to take clients golfing a fair amount, and whenever I’m on the golf course with the client I had this recurring thought in my mind. I hope that the client doesn’t think that my golf game is some sort of proxy or indication of how effective I am as a litigator and as a lawyer and a trusted advisor. Because if that’s the case, then I will have one less client by the time I finish this round of golf. So you know, I think there’s a natural tendency to think this is a winner or this is a loser, and so when I’m with clients golfing I have that pressure I put upon myself. It’s not the client, it’s me, but apparently your golf game, or perhaps your thought process doesn’t inhibit you from enjoying golf with clients.

Silberberg
Well, I have to say I share the same concern that you have, Ken, and I do feel pressure every time I get on a golf course with a client to at least make a credible showing.

Schmidt
And I’m sure you do. Well, our time is up for today, but turning back to the question of arbitration. To arbitrate or not to arbitrate, that is the question. What is the one take away, Rich, that you’d like to leave with our listeners today on the topic of arbitration?

Silberberg
I believe that arbitration is a viable alternative to litigation, and should be considered by parties when they are deciding upon an appropriate dispute resolution process for an individual situation. There are a lot of common misperceptions about commercial arbitration. I believe that some of them are simply non-meritorious. But some have some validity, and those can be addressed by the disputants in a well-crafted arbitration clause, rather than simply selecting a plain vanilla clause off the shelf that may not be suitable for the particular context of the dispute.

Schmidt
Rich, that’s a great word for us. We’ll leave it there. Thank you so much for being a guest on SharkCast. I’ve enjoyed our conversation and really appreciate you taking the time.

Silberberg
It’s been great to be with you, Ken. Thanks very much.

Schmidt
That’s all the time we have for today. Thank you for listening. I’m indebted to the extraordinary team at Dorsey for making this podcast and episode possible. For many more resources on this and other litigation related topics, please go to the website litigationrisks.com, where more information can be found, including a book on managing litigation risk written by yours truly. Until next time, my friends, this is yet another reminder that there are a lot of sharks swimming out there in the murky waters, so swim safely.

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