'My Cousin Vinny' in Arbitration? (Part II: discovery and hearing)

My September column (Part 1) focused on how the extraordinarily funny litigation antics of six-weeks-since-passing-the-bar Vinny, in the famous movie bearing his name ("My Cousin Vinny"), might play in an arbitration -- more specifically, with the pre-hearing procedures of an arbitration. This column (Part II) puts Vinny's performance under the arbitration microscope with regard to arbitration discovery.

Since he is representing his beloved nephew (plus friend) in a murder trial, Vinny doesn't get involved in the matrix of civil discovery, but a worthwhile lesson emerges from one vignette. Vinny accepts the invitation of the prosecutor to go hunting on the weekend before the trial (how often does that happen?). He accepts enthusiastically, but Vinny's not really interested in killing pheasants -- instead, as he excitedly explains to his fiancé, his master strategy is to "butter up' the prosecutor into turning over his entire file on the case to Vinny. However, before Vinny can launch his plan, the prosecutor asks Vinny if he wants the file, and when an astonished Vinny says yes, gives it to him. Vinny takes credit for wrangling the file away from the prosecutor anyway, until informed by his fiancé -- who, fortunately for Vinny, is reading the procedure book provided to Vinny (by the judge) that Vinny has tossed (See Part 1 of this column) -- reveals to him that the prosecutor is legally obligated to turn over the state's file to the defense.

Discovery in arbitration

A new relevance standard

Not unlike Vinny, trial lawyers who dabble sporadically in arbitrations commonly think that civil litigation discovery procedures transfer -- lock, stock and barrel -- to the arbitration context. Regrettably, no.

In civil discovery, a party can access almost all nonprivileged information as long as its document requests and deposition questions call for material that is reasonably calculated to lead to the discovery of admissible evidence -- roughly the legal equivalent of the six-degrees-of-separation principle.

In arbitration, the standard is materially higher: A party seeking information must show that it is in fact relevant to the issues in the case and material to their outcome, is not already known to the party or in its possession, and is reasonably believed to exist and in the possession of the responding party. Meeting this standard is not always easy, and creates a major parting of the ways between litigation and arbitration discovery.

Document exchange and discovery

The overlay to document production in arbitration -- worth remembering -- is that since the vast majority of arbitrations are commercial, construction or other contract disputes, the parties will have exchanged almost all of the relevant documents to a dispute while dealing with each other in the normal course of business. So even though a party will be allowed a full opportunity to make proper document requests, the ever-lingering question in the background will be "how much document production do you really need?" You can rest assured that good arbitrators will have this firmly in mind as a rationale supporting diligent application of the arbitration relevance standard to document discovery.

The common practice for document discovery in arbitration is for the parties to do an initial exchange of documents on which they intend to rely (and supplement this as other such documents come to light), followed up by formal document requests asking for relevant documents not informally exchanged.

Document requests in civil cases are, in the main, expansive requests that ask for the world, using boilerplate language from a document request template -- e.g., "Produce all documents that refer, relate to, or support your contention that [fill in blank]," followed by 50 more requests asking for the same thing as to all other contentions. But boilerplate requests won't cut it under the arbitration relevance standard.

A true story might help. In one case, a party tried to justify broad requests for "all emails relating" to a particular claim by arguing that this would reveal "secret documents" from the opposition's files pertaining to a disputed commercial transaction, by which he meant in-house emails showing how the opposing party interpreted some contested contract provisions. When asked by the arbitration panel why counsel thought that such "secret" documents even existed, counsel could only reply, "I hope they exist." I'll let you guess how the argument turned out. Putting aside that a party's subjective interpretation of a contract provision is inadmissible evidence even in court, resolving this dilemma was not difficult -- by simply framing the request to ask for documents which discussed the meaning of the contract provisions at issue, and showing that the interpretation of provisions were argued between the parties and therefore likely to have been discussed by the other party in private emails, the party was able to get everything it wanted.

Depositions

Depositions in arbitration are tricky. Arbitration does not contemplate deposition discovery, as reflected in the rules of major arbitration institutions and applicable law.

California law does carves out a few notable exceptions to this general rule: (1) If the parties have expressly incorporated into their arbitration clause a section (CCP 1285.03) of the California Arbitration Act (quite rare in practice), they will be allowed the same discovery rights as those pertaining to litigation, subject to the arbitrator having approval rights over every requested deposition (CCP 1283.1) (but one should not assume that this softens the arbitration relevance standard) ; and (2) "if the witness cannot be compelled to attend the hearing or if exceptional circumstances exist as to make it desirable, in the interest of justice and with due regard to the importance of presenting the testimony of witnesses orally at the hearing, to allow the deposition to be taken," the arbitrator may allow a deposition of the witness, but only as evidence in the hearing, not for discovery purposes (CCP 1283). This means that the entire deposition becomes part of the hearing record, just as if the witness had testified at the hearing.

Discovery depositions are actually allowed under some institutionalized rules. For example, in cases where over $1 million is in dispute, the AAA Commercial Rules give the arbitrator discretion to allow discovery depositions "upon good cause shown and consistent with the expedited nature of arbitration" (AAA Rule L-3); and the JAMS rules actually give each party the right to take one deposition, but others only upon a showing of a "reasonable need" to do so. However, by their very nature, these carve-outs reflect a parsimonious approach to deposition discovery in arbitration.

Should it be so? Is this philosophy depriving parties of a fair opportunity to prepare and present their case, which arbitration laws and rules themselves recognize as critical? The majority of legal systems around the world say -- resoundingly in many instances -- "No." Deposition discovery is uniquely American, and completely foreign to the civil law systems of major first world countries -- France, Germany, Japan and Russia, to name a few. And in international arbitration, deposition discovery is not only unavailable, but looked upon in many circles with disdain.

I well remember attending an international arbitration conference in Paris, at which a bright young American lawyer presented some very well-thought out proposed rules for the exchange of information in international arbitration, but made the mistake of titling his proposal as "Discovery." Despite a spirited defense from "Romeo and Juliet" that "a rose by any other name is just as sweet," the proposal was literally shouted down by attendees who would rather have fallen on their swords than allow a reference to American "discovery" weave its way into any international arbitration rules; thus, the proposal vaporized without any analysis of its considerable merits.

In domestic arbitrations, the question is usually raised by the arbitrator in the preliminary conference of whether a party really needs to take any depositions. One might rationally argue that the real purpose of depositions in civil actions is to achieve a settlement (and it works -- only 5% of all cases go to trial), whereas 50% of all arbitrations go to hearing. Also, without a deposition, a witness at the hearing is in the same position you are -- it's the first time either of you will engage in a question-and-answer exercise.

As a brilliant advocate, don't you like those odds? And remember that you are not completely in the dark in any event -- you will have studied all the produced documents, and certainly any written witness statement submitted by the witness, before the fireworks begin.

The idea of deposing (or seeking documents from) a third party by way of discovery in arbitration is its own issue.

The Federal Arbitration Act -- which preempts conflicting state arbitration law where the dispute involves interstate commerce -- has been interpreted by leading circuit courts as precluding any discovery directed towards a third party in arbitration. Instead, third-party witnesses must appear for testimony and produce documents only at the arbitration hearing itself, although an acceptable work-around is to arrange a special hearing date, at a location within the arbitrator's subpoena power, or by videoconference, for a third party to appear and testify (a pretty good substitute for a discovery deposition).

The special dispensation for deposing a witness under the California Arbitration Act, as explained above is to the same effect with respect to third-party depositions. Even arbitration rules allowing discovery depositions are limited to party witnesses, or witnesses under a party's control. Thus, even where the parties can convince an arbitrator to mistakenly issue discovery subpoenas for third parties, the reward at the end of the rainbow is usually nothing more than successful motions to quash.

Experts

What to do with expert witnesses in discovery? For arbitrators, the preferred procedure is for the experts to prepare and exchange written witness reports, followed up by rebuttal reports as necessary, and for those reports to comprise the major portion of the experts' direct testimony at the hearing. (Typically, the expert will walk the arbitrators through his report in a narrative type of presentation on direct, and reaffirm his opinions, fielding questions primarily from the arbitrators during the process.)

However, parties will sometimes request expert depositions in lieu of written reports. There is no legal impediment to doing this -- although experts are in a sense third parties, they obviously are under the control of the parties to the arbitration, and thus fall more readily into the category of party witnesses as far as discovery depositions are concerned.

But beware. Opting for expert depositions in lieu of written reports can create some daunting potholes down the road, in a couple of ways. First -- and excluding fact witnesses who may try to weave in an expert opinion here and there -- I have yet to see an expert show up to testify in an arbitration without a written presentation in hand, if not in the form of a prior report that has already been exchanged, then as a PowerPoint presentation that amounts to the same thing. The problem with a PowerPoint is that the temptation runs high to foist it on the other side either without any advance notice at all, or with a token production of the PowerPoint a day or so in advance, while the hearing is in session. This gives the other side and their expert(s) almost no chance to analyze the PowerPoint and prepare meaningful cross-examination (as the guilty party is sneakily aware).

When the party complains that they have been unfairly surprised and prejudiced by such a shark attack, the response is usually a vigorous denial, on grounds that the expert has previously been deposed. But expert depositions take place long before a hearing, and experts are always careful to explain, in purposefully general terms, that they may do additional work before the hearing. And of course this happens. The expert's PowerPoint at the hearing always bears some relationship to deposition testimony, but it also takes into account evidence which has later come to light, as well as any later deposition(s) of the other sides expert(s). The all-to-common result is a PowerPoint presentation that goes well beyond anything said in the deposition.

Serious arbitrators are universally alert to avoiding unfairness to a party in all phases of an arbitration, and they don't like unfair surprises. Nor do they appreciate being surprised themselves. A good-faith attempt will be made in the Preliminary Conference Order to set procedures in place to avoid unfair surprise, but one cannot reasonably expect the arbitrator to be the Oracle of Delphi regarding every possible unfair surprise scenario that a party might roll out in the future. So when an "expert PowerPoint surprise" arises, expect the arbitrator to do everything necessary to level the playing field -- including a refusal to let the expert testify until the other side has had time to examine the PowerPoint and prepare cross, and possibly redepose the expert if the PowerPoint and the prior deposition have no meaningful connection to each other -- even if all this means a continuance of the hearing (the last thing you want to have to explain to a client).

The second potential pothole when opting for expert depositions in lieu of written reports is the practice of "hot-tubbing," which has been in vogue international arbitrations for years and is now taking hold in domestic arbitrations which involve complex expert testimony. "Hot-tubbing" is where two experts appear as witnesses at the same time (thankfully sans swimming suits and bubbling water), and are jointly questioned by arbitrators, with follow up by the lawyers. Whoever thought this up assumed it would help the arbitrators better understand the different views of the two experts to the same question, and possibly facilitate agreement between the experts on some issues. Hot-tubbing is not without controversy, but it can work only where the parties have submitted final expert reports to the arbitrators for study before the hearing -- the hot tub is no place for a new PowerPoint presentation.

In summary, unless you have a fiancé, spouse or significant other who loves getting into the trenches of arbitration discovery procedures and can't wait to tell you about it when you have an arbitration on your plate, best not to follow Vinny's lead and act on the basis of litigation procedures that you are convinced must apply with equal force to arbitration. Appreciating that they don't, and following the lead of Vinny's fiancé to learn the differences, is where the money is. 

Fred Bennett is an experienced international and domestic arbitrator and mediator. He is a fellow with the College of Commercial Arbitrators, member of the National Academy of Distinguished Neutrals and the ICC Commission, and former head of arbitration at Quinn Emanuel and Gibson Dunn. He can be reached at fredgbennettADR@outlook.com.