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A Brief Overview of the Use of Evidence in Arbitration

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A BRIEF OVERVIEW OF THE USE OF EVIDENCE IN ARBITRATION
BY WILLIAM C. TURNER, ESQ.
In conducting arbitration, strict adherence to the rules of evidence is not only unnecessary, but may have an adverse impact on the effective and speedy resolution of the arbitration, particularly where the rules are used to obstruct and/or obfuscate the facts. Arbitrators should seek to manage the application of evidence consistent with the purposes of arbitration and the expectations of the parties, rather than to allow the process to become managed by counsel or by the strict dictates of evidence and procedure. The knowledge and management of evidence and procedure by the arbitrator are essential to keeping the arbitration on track with the admission of the evidence that is materially relevant while excluding the evidence that it will be unnecessary for the arbitrator to consider. It is further imperative that the arbitrator and counsel confer and understand the basis for the use of evidence and the contractual rules that apply in their use prior to the initiation of the arbitration. In formulating the use of evidence in arbitration, it might be helpful to consider a brief historical overview of arbitration’s evolution and the development of the rules regarding the use of evidence in the same. A reference in the Bible to the famous Judgment of Solomon is often referred to as one of the earliest uses of arbitration. As found in the biblical text, two “harlots” had given birth to newborns. When one woman’s baby died in the night, she placed the dead baby on the other’s bed and claimed the surviving baby as her own. In the morning, the other woman, recognizing the living baby as her own, implored the king for justice. King Solomon offered to split the baby in half and to award each woman one of those halves. The woman whose baby had died agreed to this “compromise,” (out of, the Bible says, jealousy and
resentment) but the real mother, rather than have her baby die, offered to give the child up. Solomon awarded her the child, reasoning that the true mother would give her baby up rather than let her baby die. (King James Bible, 1 Kings 3:16-28.) This arbitration clearly identifies the hallmarks of arbitration: flexibility, fairness and an expeditious outcome, with the experience and wisdom of the king as arbitrator, utilized to apply principles of equity and law, to resolve the case. Arbitration as an alternative method of resolving commercial disputes was recorded in the ancient Greek literature as a method of facilitating merchant trade in the Grecian city states (Magna Graecia). The word “arbitration” is derived from Roman practice and from the Latin word arbitrari, which means to examine or judge. Roman practice provided a method by which a private judge (judex) or a panel of arbitrators (arbitari) could reach a decision on matters without resorting to the complexities of the Roman legal system. The private judge or arbitrator was free to rely on matters outside the evidence, having great latitude to seek a just solution. The arbitrator was selected by the parties to adjudicate the matter (there were time limits) based on his knowledge of the
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subject matter and, presumably, his reputation contractual agreement. for fairness. While the contractual During the 11th century, a developing provisions of an agreement trade among merchants and merchant guilds to arbitrate often provide throughout Western Europe created a series that the laws of Nevada of local and international trading fairs, where shall apply, this general merchants would display and sell their goods. statement does not necessarily There was a need for a system of laws that would assist the arbitrator in his or be based on the rendering of expeditious decisions, her use of evidence in sometimes within hours, to prevent spoilage the arbitration. The or other loss of goods. Private merchant courts arbitrator should developed, employing private arbitrators familiar look to other, more with their practices and commercial traditions. specific provisions of The parties were free to choose what evidence and the contract, if they are procedures to rely on or to reject, with the ultimate present, incorporating purpose being to avoid delay and to arrive at a governing rules fair but speedy decision without resorting to the such as the Uniform formal laws or evidence of one or more European Arbitration Act (NRS or English courts. The merchant court systems 38.206), the Rules of the became, in part, the foundation American Arbitration Association of arbitration practice in English or the Federal Arbitration Act. law and the later codification These rules give Arbitrators applying the letter of the same in England and the broad authority to of the evidentiary rules, as United States (1925). Historically, the arbitrator in well as the formalities of arbitration provided a private and both the management of discovery binding final method of dispute procedure, can often create and evidence. They incorporate resolution, based upon the the expectation that arbitration unnecessary delays and concept that arbitrators, selected will be guided by the specialized further protracted litigation by the parties themselves, would experience and skills of the that neither assist the parties serve to quickly decide cases arbitrator, rather than by a more nor serve the fundamental by employing their specialized formal and rote application of purposes of arbitration. knowledge of the subject matter. evidentiary law and procedure. In doing so, the arbitrator was Arbitrators applying the free to go outside the rules of letter of the evidentiary rules, evidence to reach a decision. as well as the formalities of procedure, can often In Nevada, there are statutory, non-binding create unnecessary delays and further protracted arbitrations in certain cases valued under litigation that neither assist the parties nor serve $50,000. The statutory scheme reflects that the fundamental purposes of arbitration. After 41 arbitration should not be formalized and that years of litigating and arbitrating cases, I have the rules of evidence should be relaxed (Nevada found that the parties expect that the arbitrator Arbitration Rules (NAR) 8(A)). This is consistent will use the rules of evidence and procedure as with the court’s belief, and the legislative intent, tools of effective resolution, but will relax them that these cases should be expedited and not sufficiently so as to allow the parties to present delayed by applying formal rules of evidence or relevant material testimony to assist the arbitrator procedure (NRS 38.250). in reaching a fair, legal and equitable resolution. Litigants are often also bound by pre-existing Because the arbitrator is both the finder of fact and arbitration agreements, which may designate the judge of the law, and has specialized knowledge of forum and the law to apply. This is particularly true the field in which he is arbitrating, he may more in construction, real estate, business, employment easily allow evidence to be admitted (or excluded), and securities law. Most such private arbitrations giving it the weight it deserves, unlike a jury, which are binding, in order to give finality to the may, in fact, become confused by such evidence and proceeding, thereby saving time, costs, legal fees without specialized knowledge be rendered unable and the possibility of appeal. More complex cases to fairly weigh or balance the same. (Arbitrators may have three arbitrators who are selected by with many years of trial or other judicial experience varying methods, depending upon the agreement can clearly weigh the credibility and admissibility of the parties and/or the dictates of an earlier of hearsay testimony better than can a jury, who
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may be sitting through their first trial with no evidentiary experience.) The arbitrator, in determining the parameters of his or her authority and use of evidence, should look, not only to the law of the forum, but to the language of the contract and the intent of the parties. Nevada has adopted the Uniform Arbitration Act (NRS 38.206), as have a majority of the states, in governing the procedure and use of evidence in arbitrations. This act, as incorporated in Nevada law, gives the arbitrator broad powers regarding what evidence is to be considered and what procedures to follow. NRS 38.231(1) states that an arbitrator may conduct an arbitration in such a manner as the arbitrator considers appropriate for a fair and expedited disposition of the proceeding. The authority conferred upon the arbitrator includes the power to, among other matters, determine the admissibility, relevance, materiality and weight of any evidence.
The American Arbitration Association (AAA) has been a major factor in the arbitration of local, national and multinational disputes in Nevada for many years. Construction and commercial contracts in Nevada often have a provision that the parties utilize the AAA’s administrative services and apply the American Arbitration Rules in conducting arbitration. These rules, consistent with the weight and tradition of practice, reflect the philosophy that experienced arbitrators should be given broad latitude in their application of procedure and determination of evidence in a case. Rule 33 of the American Arbitration Rules of Construction gives broad authority to the arbitrator regarding the consideration of evidence. Rule 33 states that “the parties may offer such evidence as is relevant and material to the dispute and shall produce such evidence as the arbitrator may deem necessary to an understanding of the dispute. Conformity to the legal rules of evidence shall not be necessary.” Rule 31(a-d) of the AAA’s Commercial Arbitration Rules is the same. The rules do recognize that there are rules that should be adhered to, including the applicable principles of privilege (such as confidentiality of client-attorney communication). (R-31c) In large, complex commercial cases, the AAA rules give very wide latitude to the arbitrator regarding the management and application of
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evidence (L 4 a-e). Rule (L-4 a-b) states that an including the right to determine the suitability for arbitrator shall take such steps “to avoid delay and arbitration of a specific case. Prima Paint Corp. v. Flood to achieve a just, speedy and cost effective resolution & Conklin Mfg. Co., 388 U.S. 395 (1967)(expanding it of Large Complex Commercial Cases.” The arbitrator to state law as well in Southland Corp v. Keating, 465 shall manage the discovery and production of U.S. 1 (1984)). documents so that such production is not overly The Nevada Supreme Court also limits the review burdensome or irrelevant, but is consistent with the of an arbitrator’s decision, holding that a review of goal “of achieving a just, speedy and cost effective an arbitrator’s actions “is far more limited than an resolution of Large Commercial Cases.” (See also appellate court’s review of a trial court’s actions.” Rule 24 of the American Arbitration Association, Bohlmann v. Printz and Ash, Inc., 120 Nev. 543, 548 involving the resolution of (2004). The Nevada Supreme employment disputes). Court has limited review of The Federal Arbitration arbitrator’s decisions (outside of The Supreme Court gives Act (9 U.S.C. 1-14), by its brevity fraud or bias) in regard to whether great deference to the alone, also gives broad power or not they were arbitrary and decisions of arbitrators to the arbitrator to apply and capricious, outside the scope of including the right to interpret the rules of evidence. his or her authority or in manifest determine the suitability for Rule 7 gives discretion to the disregard of the law. The court arbitrator to be the sole judge of has defined manifest disregard arbitration of a specific case. the materiality of the evidence. of the law as the intentional act Under the Act, decisions of the of the arbitrator, with specific arbitrator will not be reviewed except for limited knowledge of the law, to disregard that knowledge. purposes. The Supreme Court refused to expand Misinterpretation of the law does not qualify. Clark the limited basis for review under the Federal County Education Association v. Clark County School Arbitration Act (10(1-4)), even where the parties District, 122 Nev. 337 (2006). had agreed in the contract for such review. Manifest Courts are reluctant, it would seem, to review disregard of the law was not, in the court’s opinion, arbitrators’ decisions because it would change the an additional basis for review. Hall Street Associates v. historical independence of the private arbitration Mattel, Inc., 552 U.S. 576 (2008). The Supreme Court and further burden the courts and appellate courts with additional cases, brought in from outside the gives great deference to the decisions of arbitrators judicial system. This is true in Nevada, where the Nevada Supreme Court has an ever-growing caseload and no intermediate appellate court system to assist in their case’s resolutions. An arbitrator, in applying the rules of evidence, should consider the fundamental purposes that have shaped the evidentiary scheme. Most evidentiary rules, both as common law and as statutorily incorporated, have been created for the purpose of preventing the jury or factfinder from being misled, wrongfully prejudiced or confused and for the prevention of redundancy and unnecessary delay in the trial of the matter. (See NRS 48.035 and FRE Rule 403.) Ultimately, fairness, clarity and consistency are goals that the rules of evidence seek to protect. The arbitrator should seek to protect these goals. To do so, it is incumbent on the arbitrator to ascertain, at the beginning of the hearing, that counsel and the involved parties understand the arbitration and evidentiary process. While arbitrators certainly may, and should, All Communications Confidential. follow evidentiary rules based on public policy (such as privilege) or those rules
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the parties stipulate to, the arbitrators’ experience and knowledge of the policies behind the rules of evidence should guide them in their application.
The arbitrator should seek to use the evidentiary rules in determining the ultimate facts and truth of the claims presented, rather than to obfuscate, obstruct or delay the proceedings. In applying the rules to the admission of evidence, the arbitrator should seek to find the evidence that will reach the merits and truth of the claims, and defenses to those claims, in a way that will require the parties to be precise in their offers of proof and avoid unnecessary delay while maintaining an open ear to the facts and law presented. As both the fact-finder and law-giver, the arbitrator has accepted broad powers in the consideration, admission of or exclusion of evidence and should use those powers to serve the parties best interests in the speedy but fair resolution of the case. WILLIAM C. TURNER served as a Federal prosecutor in Las Vegas for 12 years, and is a former member of the State Bar of Nevada’s Board of Governors as well as former chair of the state bar’s ADR Section. He has extensive experience as an arbitrator, mediator, CLE instructor and author of numerous articles on ADR. He may be reached at billtlaw@cox.net.
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