Dispositive Motions in Arbitration: Contrary to the Rationale for ADR?

The following article is taken from New York Law Journal. Click here to go to the original article.

By Geoffrey A. Mort | April 17, 2019 at 02:30 PM

Lawyers who are used to litigating their cases in federal court—and are comfortable with attempting to dispose of the great majority of them through summary judgment or, to a lesser extent, motions to dismiss—have sought to use dispositive motions as a primary tool in arbitrations.

When the Federal Arbitration Act (FAA), which provides for federal facilitation of private dispute resolution through arbitration, was enacted in 1925, its proponents argued that arbitration was desirable because it allows resolution of disputes more quickly and at less cost than court proceedings. In the more than 90 years since the FAA became law, the notion that arbitration is a more efficient and streamlined way of resolving cases has become widely accepted. Arbitration today is more prevalent than ever; between 1996 and 2002, for example, total arbitration filings reported by the American Arbitration Association, or AAA, more than doubled. Lawrence Mills and Thomas Brewer, “Nuts & Bolts, A courtroom Lawyer’s Guide to Arbitration,” 31 Litigation 42, Spring 2005, at 45.

A parallel trend in recent decades has been the increasing use of dispositive motions—particularly motions for summary judgment—in the federal courts. So commonplace has summary judgment become that the ABA Section of Litigation’s Vanishing Trial Project found in 2005 that only 1.8 percent of civil cases go to trial, and in the 12-month period ending on June 30, 2015, the average federal district judge had 626 pending civil and criminal cases but had conducted only 17 civil or criminal trials. Richard T. Seymour, “Navigating the Discovery and Evidence Roadmap in Arbitration” 5-6 (2016).

As a result, lawyers who are used to litigating their cases in federal court—and are comfortable with attempting to dispose of the great majority of them through summary judgment or, to a lesser extent, motions to dismiss—naturally have sought to use dispositive motions as a primary tool in arbitrations.

Summary Judgment in Arbitration

These trends have given rise to an ongoing debate about whether dispositive motions, and particularly summary judgment motions, are appropriate in arbitration. In fact, neither the FAA nor the Uniform Arbitration Act expressly provide for dispositive motions. The AAA’s Commercial Arbitration Rules also do not specifically permit arbitrators to grant dispositive motions. On the other hand, Rule 18 of the JAMS Comprehensive Arbitration Rules and provisions in the AAA’s Employment Arbitration Rules and Construction Industry Rules both give arbitrators express authority to entertain dispositive motions. In many, perhaps a majority, of cases, AAA arbitrators permit summary judgment motions.

However, arbitrators in some arbitral forums do not have unfettered discretion to entertain and grant summary judgment motions. AAA Employment Rule 27 permits arbitrators to allow the filing of a dispositive motion, but only if the arbitrator first determines that “the moving party has shown substantial cause that the motion is likely to succeed.” JAMS Comprehensive Rule 18 and Employment Rule 18 contain the same standard.

The FINRA (Financial Institution Regulatory Authority) rules are even more restrictive. FINRA Rule 12504(a) states that “parties have a right to a hearing in arbitration” and dispositive motions prior to hearings “are discouraged and granted only under limited circumstances.” Those limited circumstances are: dispositive motions may only be filed where the non-moving party has released its claims, the moving party was not associated with the conduct at issue, or the same dispute was previously litigated and decided.

Thus, whether a party seeking to file a dispositive motion may do so depends in large part on the arbitral forum and its rules regarding such motions. Clearly, the ADR community remains divided about whether such motions should play a role in arbitration and, if so, to what extent. A widely accepted perception is that arbitrators as a rule remain reluctant to hear and grant dispositive motions. Edna Sussman and Solomon Ebere, “Reflections on the Use of Dispositive Motions in Arbitration,” New York Dispute Resolution Layer, Spring 2011, at 28-29.

Arguments For and Against

The arguments advanced in opposition to allowing dispositive motions in arbitration are numerous, and have changed little over time. The fundamental principle underlying many of them is that arbitration is and should remain an informal process, unburdened by many of the trappings and processes of the judicial system. Opponents of dispositive motions in arbitration are quick to point out that while courts routinely and freely entertain them, parties against whom such motions are granted have the right to appeal those decisions—which is not the case in arbitration. Further, although Rule 56 of the Federal Rules of Civil Procedure provides fairly detailed guidance on what evidence is to be considered in deciding a motion for summary judgment, there are no such regulations in arbitration.

More importantly, dispositive motions are viewed by their critics as undermining the basic presumption that in arbitration cases will proceed to a full and fair evidentiary hearing. Indeed, one of the few grounds set forth in the FAA for vacating an arbitration award is that the arbitrator “refus[ed] to hear evidence pertinent and material to the controversy.” 9 U.S.C. §10(a). Because parties whose cases are dismissed on summary judgment have arguably been denied the chance to present their cases in full to the arbitrator—who, for example, has no opportunity to judge the credibility of witnesses—some contend that dispositive motions violate the letter, or at least the spirit, of the FAA.

Yet another objection to dispositive motions in arbitration stems from the fact that discovery is restricted, often significantly, in arbitral proceedings. Without the opportunity to uncover all relevant evidence in a case as allowed by full-blown discovery, a non-movant can be at a distinct and unfair disadvantage in attempting to demonstrate disputed issues of material fact. Mills and Brewer, supra, at 45.

Finally, critics of dispositive motions point out that they run counter to the notion that arbitration is intended to be an expedited and simplified process. Allowing summary judgment motions can easily extend the life of an arbitration by four or more months, extending a process that might have taken just six or seven months to over a year—particularly if the motion is denied, which in arbitration many are. Thus, allowing such motion practice can easily lead to the kinds of delays encountered in court that arbitration is intended to avoid.

On the other side, the primary argument advanced in favor of permitting dispositive motions in arbitration is that they in fact promote efficiency. According to this logic, going through a lengthy hearing on the merits with the arbitrator deciding in the end that the claim fails as a matter of law or is supported by scant evidence is a massive waste of time. Allowing summary judgment motions is thus an efficient way to cull out those cases that are not meritorious without conducting long and unnecessary hearings. Additionally, in those cases where a party is likely to lose as a matter of law, dispositive motions allow the parties to avoid the expense of going forward with a hearing only to end up with the same result. David Allgeyer, “Efficient Arbitration: Dispositive Motions,” ADR Community (Sept. 28, 2015).

Courts’ Approach

Court challenges to arbitration decisions based on dispositive motions have, with few exceptions, failed. Such challenges frequently assert that an arbitrator erred by denying a claimant an evidentiary hearing, and rely on such factors as the importance of hearings in arbitration, the weakness of affidavits as a basis for granting summary judgment and the importance of being able to present live testimony.

In upholding arbitration decisions based on dispositive motions, courts frequently refer to the history of federal courts affirming arbitration awards where the arbitrator ruled on a motion for summary judgment. Where an arbitration agreement authorizes the filing of a summary judgment motion, courts will often see no need to do more than point out the existence of the provision allowing such motions.

In In the Matter of Arbitration Between Griffin Indus. Inc. and Petrojam Ltd., 58 F. Supp. 2d 212, 220 (S.D.N.Y. 1999), the court declared that under the FAA, “arbitrators are not compelled to conduct hearings in every case.” The U.S. Court of Appeals for the Sixth Circuit, in Louisiana D. Brown 1992 Irrevocable Trust v. Peabody Coal Co., 2000 U.S. App. LEXIS 1909, *17 (6th Cir.), denied a challenge to a grant of summary judgment and declared that “the standard of review of arbitration decisions is merely whether a party to arbitration has been denied a fundamentally fair hearing” and that “[f]undamental fairness requires only notice, an opportunity to present relevant and material evidence and arguments to the arbitrators, and an absence of bias on the part of the arbitrators.”

A California appellate court succinctly summarized the view of most federal and state courts to consider challenges to arbitration decisions based on granting dispositive motions. In Latham & Watkins v. Ess Tech., 2011 Cal. App. LEXIS 3759, *14 (California Ct. of Appeal, 1st District), the court concluded that “a hearing does not necessarily include an opportunity to present live testimony or be subject to cross examination.”

Conclusion

Arbitrators to date have been reluctant to grant dispositive motions, although they often are allowed. Some arbitrators have approved requests to engage in such motion practice, but only after a hearing has been held. In view of the widespread use of such motions in federal court, however, that may change. Arbitrators today are probably more likely to entertain and grant such motions than they were 20 or even 10 years ago.

At the same time, it is difficult to deny that the arguments made by some that dispositive motions are inappropriate in arbitration do not have some merit. Certainly, one of the reasons that secret, private proceedings with essentially no right to appeal are seen as legitimate is that they do assure claimants a full and fair opportunity to present their cases in hearings. One sensible compromise may be for FINRA’s rule confining dispositive motions to cases where there is a release, the movant is not connected to the conduct in dispute or the claim has been previously litigated to be more widely adopted. Doing so would assure that most cases are decided on the evidence presented at a hearing while providing a mechanism for those lacking in merit to be disposed of at an earlier stage.

Geoffrey A. Mort is of counsel at Kraus & Zuchlewski.