Arbitration is an alternative dispute resolution (ADR) process wherein disputing parties agree – often through an agreement to arbitrate – to resolve a dispute by empowering one or more neutral “arbitrators” to adjudicate it: that is, render a merits-based decision on the case like a judge, but in a typically simplified, bench trial-like format.

Because arbitration can “look” like litigation, parties sometimes mis-suppose that they have little say in how their arbitration will proceed. This is incorrect. Arbitration is, in fact, a highly customizable dispute resolution process. All it requires is that parties carefully use their power of choice.

Choice of Arbitrator

Unlike at trial, parties can choose who will rule on their dispute in arbitration. When making this choice, parties often appoint as their arbitrator(s) retired judges and seasoned attorneys with relevant subject-matter knowledge and practice-area experience litigating and trying related disputes. Parties will often strike and rank potential arbitrators from a list prepared by an ADR case manager, weighing each prospect’s representative case experience.

The ability to choose your arbitrator is a powerful, compelling quality-assurance advantage of arbitration. In court, a judge is assigned to the case, and jury selection can be mired in uncertainties. “In arbitration, however, arbitrator selection is entirely within the parties’ power,” said Hon. Stuart A. Nudelman, (Ret.), senior mediator and arbitrator at ADR Systems. “This way, parties can be confident that whoever will rule on their case is qualified to do so, giving proper weight to testimony from lay and expert witnesses and having familiarity with the substantive law, issues, arguments and even terminology of niche industries or practice areas.”

Choice of Rules and Procedure

When arbitrating, parties can choose the rules that will govern the dispute and tailor procedures to serve their financial and logistical goals. They can curtail motion practice, limit discovery, relax rules of evidence and set clear deadlines. They can even choose to modify the rules to tailor them to their dispute.

Parties’ choice of rules and procedures can significantly influence the duration and cost of the proceeding as a whole. Rules and procedures directly impact preparatory arbitral costs: that is, those involved in readying the case for the arbitration, including the legal fees generated by counsel preparing the case. Looser rules on deadlines and discovery and a lack of limits on motion practice and the form of witness testimony grant counsel greater latitude while arbitrating a dispute, but greater latitude comes with a cost — literally, resulting in more litigation-like arbitration experiences, or what has been called “arbigation.”

When drafting an arbitration agreement that all parties agree on, counsel must be mindful of the multiplying effect of their rule and procedure decisions. They are not simply guideposts or rebar that give a future arbitration structure. They have economic ramifications for clients if a dispute arises.

Choice of Law Governing an Arbitration Agreement

Arbitration is not without procedural law issues: namely, disputes arising from the interpretation of and enforceability of a contract’s arbitration agreement. This can result in litigation and motion practice to compel or stay arbitration, which negates the point of arbitration. Parties can reduce or wholly obviate those risks by wisely and explicitly choosing the law that will govern their arbitration, and/or giving the arbitrator the authority to rule on his or her own jurisdiction.

Unless explicitly stated otherwise in an arbitration agreement, the Federal Arbitration Act (FAA) is, in almost all instances, “presumed to preempt” any state arbitration law—even if the FAA is not mentioned in the arbitration agreement or the contract. Absence is not negation, so parties must, as a best practice, often explicitly state that the FAA does not govern their arbitration agreement if they want a state arbitration statute to control. Jurisprudence on this matter is rooted in the doctrine of preemption and the Supreme Court’s broad interpretation of the meaning of the FAA’s applicability to disputes “evidencing a transaction ‘involving interstate commerce.’”

The broad reach of the FAA’s governance of arbitration agreements, therefore, can significantly impact how an arbitration agreement is interpreted and how disputes over the arbitrability of disputes are decided — especially if parties did not realize that it would play a role in the resolution of such disputes. Choice of law governing an arbitration agreement, therefore, is an important preliminary decision that can help parties mitigate meta-conflict arising from a future dispute itself.

Choice of Scope of an Arbitration Agreement

As Judge Nudelman has said repeatedly, “an arbitration is a private court system,” and every court has a kind of jurisdiction. In an arbitration agreement, parties decide how general, limited or subject-matter-like their arbitral tribunal’s jurisdiction will be; that is, which disputes arising from their contract are arbitrable or not.

Parties usually limit or generalize the scope of an arbitration agreement for practical reasons during drafting. They may desire to limit its scope or carve certain section of their contract out of the arbitration agreement’s jurisdiction because they want the option to resolve them in court or mediation. This may especially be useful to parties transacting business in a highly regulated or technical industry. Disputes of that sort may be best resolved by those with precise technical knowledge, and the parties are usually best qualified to decide who has the knowledge they need to rule on their case.

Conversely, parties may agree to a broad arbitration agreement to simplify the whole dispute resolution process for any disputes that arise from the contract, creating significant built-in predictability and efficiency. This may be especially useful for parties involved in time-sensitive business relationships, where procedural simplicity can help them resolve disputes more quickly and return to business.

“This is a very strategic, personal choice for the parties,” said Judge Nudelman. “The nature of the parties’ contractual relationship, the legal landscape surrounding it, the degree of technicality in the relevant law, the volume of regulations and the parties’ tolerance for risk all factor into this decision.”

The Power of Choice in Arbitration

Arbitration is a buyer’s choice process, whether during the writing of an arbitration agreement before any disputes arise or when parties contract to arbitrate a dispute that has newly arisen. Arbitration agreements are common in many commercial and professional contracts. In Illinois, courts have lauded arbitration’s expeditious and efficient qualities, and both the Federal Arbitration Act and Illinois Uniform Arbitration Act uphold the enforceability and general irrevocability of arbitration agreements, which parties have executed to intentionally simplify and customize the resolution of a dispute. Parties have the power to choose much about their arbitration and, therefore, how their dispute is decided. They can design the process, and when done well, that can make all the difference.

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Hon. Stuart A. Nudelman, (Ret.) is a senior mediator and arbitrator at ADR Systems, specializing in commercial, personal injury and professional malpractice matters, among many others.  He is experienced in high-value, multiparty mediations, and has resolved more than 1,500 mediations and arbitrations throughout the United States. As a mediator, he settled the largest embezzlement case in US history in a marathon 17-hour mediation. Judge Nudelman is known for his ability to skillfully manage emotionally charged, complex cases.

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