A "Switch-Hitter" Looks At Current Arbitration Issues

Wednesday, August 5, 2009 - 00:00

Editor: Mr. Oberman, will you give our readers some idea of your professional background?

Oberman : My resume, for these times, is concise. After graduating from Columbia College and Harvard Law School, I clerked for Judge Milton Pollack in the Southern District of New York. I then joined Kramer Levin in September 1973, and I have happily been here ever since.

Editor: Please describe your practice over the course of your career.

Oberman: My practice has focused on complex civil and commercial litigation as well as copyright litigation. Many of my commercial cases have involved a business relationship that did not work out as the parties hoped it would, leading to claims such as breach of contract, breach of fiduciary duty, and/or tortious interference. I've represented a number of plaintiffs but more often defendants in a wide array of industries, both in court and in arbitration. Last year, I was lead trial counsel in the successful defense against a claim of breach of a distribution agreement seeking over $125 million in damages that consumed 20 days of arbitration hearings; the 149-page award was just confirmed. I have also defended securities law class actions and derivative actions. Most of the copyright cases have related to musical works, but I have also had cases involving video games, motion pictures, visual works of art, and computer software. I've served four terms on the Copyright & Literary Property Committee of the New York City Bar, served since 1989 on the Executive Committee of the Commercial and Federal Litigation Section of the N.Y. State Bar Association ("NYSBA"), served on Chief Judge Kaye's Commercial Courts Task Force that created New York's Commercial Division, and am a member of the Dispute Resolution Sections of the ABA and NYSBA. And, of course, most pertinent to this interview, I have extensive experience in ADR, not only as an advocate but also as a neutral. I think of myself as a "switch-hitter" in ADR.

Editor: Please tell us about the value of your experience as a neutral in connection with advocating on behalf of a client.

Oberman: There is tremendous value. Once you serve several times as an arbitrator, you develop a better sense of what is likely to be persuasive when you act as an advocate and someone else is the arbitrator. I am certain that I can prepare a far more effective set of proposed findings and conclusions, having learned by training and experience how to write awards as an arbitrator. There is also a comfort level in appearing as an advocate in a familiar setting. And service as a mediator has enhanced my ability to settle cases as an advocate, by allowing me to view a dispute with the tools of a mediator.

Editor: And what is the value of serving as an advocate for your work as an arbitrator?

Oberman: I constantly ask myself when serving as an arbitrator how I would like the case to be conducted were I the advocate, and I strive to shape the procedures accordingly. I can empathize with the advocates, having recently played their role. And I've been able to fashion procedures which are helpful to the arbitrator and are appreciated by counsel. The Metropolitan Corporate Counsel (Aug. 2003) published my article "Mini-Summations Yield Benefits in Complex Multiday Cases," discussing a technique of asking counsel to summarize on a daily basis what they believe they accomplished the prior day on direct and cross-examinations.

Editor: Are there any hot topics in arbitration at the moment?

Oberman : I participate in a lot of discussion about the scope of discovery and the role of dispositive motions. There are also issues concerning the Federal Arbitration Act ("FAA") and the scope of review of arbitration awards. And there have been a few notable decisions recently about allocation of expenses.

Editor: What is being discussed about discovery in arbitration?

Oberman : Ironically, consumers of arbitration - the companies that incur the expenses of arbitration - are concerned about both "too much" and "too little" discovery. On the one hand, the scope and related expense of discovery between parties in an arbitration have continued to grow, and yet in many important respects there are roadblocks to discovery perceived as essential in preparing a major commercial case.

Editor: What's driving the amount of discovery, and is anything being done to try to contain it?

Oberman: Broad document discovery between the parties is common, compounded now by the costs of e-discovery. E-discovery got transported into the arbitration process without some of the rules that apply in court cases. The issue is not being ignored. There are CLE courses for arbitrators on e-discovery. And certain ADR providers are making useful contributions. CPR has adopted protocols for discovery. Also, the NYSBA recently promulgated a thoughtful report on managing discovery in commercial arbitrations.

Editor: What do you mean by "too little" discovery?

Oberman: Discovery in arbitration beyond document exchanges can be quite limited. Typically, the number of depositions is kept low - which is either a good thing or a bad thing, depending on how much discovery your side needs. But the bigger issue is the scope of non-party discovery. Non-party witnesses often are beyond the subpoena power of the arbitrators, and courts are divided on whether non-party witnesses can be compelled to provide discovery or can only be compelled to give testimony or produce documents at an arbitration hearing. Parties can agree upon the scope of party discovery in the arbitration clause but have far less control over non-party discovery.

Editor: What's happening with substantive motions?

Oberman: The instinct of most arbitrators is to deny substantive motions unless the parties agree no material facts are in dispute. In part, this reflects a recognition that parties sometimes opt for arbitration to escape costly motion practice. But arbitrators also know that an arbitration award might be challenged if a party did not have a fair opportunity to present its proof. The general unavailability of substantive motions together with the discovery concerns just discussed cause some companies to decline to agree to arbitrate. Still, there are some signs that successful dispositive motions might become more common in commercial cases. The rules of some providers, like JAMS, provide for dispositive motions (although FINRA rules restrict motions). The NYSBA report links the granting of dispositive motions with curtailing unnecessary discovery expenses where there is a clear defense as a matter of law. And courts have confirmed awards rendered on a dispositive motion where the parties had the opportunity to present their proof on the motion and where there was adequate discovery.

Editor: You mentioned issues under the FAA; what are those?

Oberman: On March 25, 2008, the U.S. Supreme Court held in Hall Street Associates, LLC v. Mattel, Inc. that parties could not by agreement expand the grounds for vacating an award (e.g., having a court review an award for errors of law); federal district courts are limited to the FAA statutory grounds for vacating an award. But Hall Street also cast doubt on the viability of the long-established "manifest disregard of the law" ground for a vacatur, while suggesting more expansive grounds for review might exist under state or common law. Since that ruling, federal circuit courts have split on whether manifest disregard still has any place in the review of an award. At the same time, the impact of Hall Street on state courts in cases impacting interstate commerce and therefore covered by the FAA is beginning to play out, bringing to the surface the question of which provisions of the FAA pre-empt a state law provision addressing the same issue as the FAA provision. In August 2008, the California Supreme Court held in Cable Connection Inc. v. DIRECTV that Hall Street does not require state law to conform to the limitations of the FAA in the review of arbitration awards, and that California state law permits the enforcement of an arbitration clause providing for review for legal error. New York courts generally apply all provisions of the FAA to cases impacting interstate commerce, but have yet to provide definitive guidance on the effect of Hall Street. Parties who want expansive review can try designating in their arbitration clause a state court forum and state law for the review of the award, but this might work only if the state court holds that enforcement of the clause is not blocked by the FAA.

Editor: You also referred to some interesting cases on cost shifting; what were they?

Oberman : This past April, a divided Second Circuit in ReliaStar Life Insurance Co. of New York v. EMC National Life Co. held that arbitrators have the power to award attorneys' fees as a sanction for a party's failure to arbitrate in good faith even though the parties' agreement provided that "[e]ach party shall bear the expense of its ownoutside attorneys' fees." The majority found that a rather standard arbitration clause was broad enough to confer discretion on arbitrators to impose attorneys' fees as a sanction; a vigorous dissent argued that the language of the agreement was plain and precluded arbitrators from granting relief to achieve their notion of fairness. Practitioners might weigh including in an arbitration clause an express withholding of the power to award attorneys' fees as a sanction.

Editor: Do you have another example?

Oberman : Also this past April, New York's Appellate Division-First Department in Brady v. Williams Capital Group (a 3-2 decision) struck a fee-sharing provision in an arbitration clause holding that to require claimant in an employment discrimination arbitration to pay $21,500 as her share of the advance for the arbitrator's fees would have been prohibitively expensive - although her earnings in the five years before her termination (and before her 18 months of unemployment) totaled $1.5 million. That outcome is harder to draft around. On the other hand, in June a Texas intermediate appellate court in Townes Telecommunications, Inc. v. Travis, Wolff & Co., L.L.P . vacated an arbitration award which did not follow the arbitration clause's specification that all AAA fees and all attorneys' fees of both sides shall be "borne entirely by the non-prevailing party . . . and may not be allocated between the parties by the arbitration panel." The court held that the arbitrators exceeded their powers, contrary to Section 10(a)(4) of the FAA, by not imposing all fees on the "non-prevailing party." Interestingly, the court relied on this statutory ground alone, declining to rule on whether "manifest disregard of the law" was still applicable in Texas courts. The case teaches that, with a specific enough clause, parties can require the arbitrators to award AAA and attorneys' fees in favor of the prevailing party.

Please email the interviewee at moberman@kramerlevin.com with questions about this interview.