Gregory R. Meeder – March 13, 2013
Arbitration and mediation, two forms of alternative dispute resolution (ADR), are popular forums in which to resolve commercial and construction disputes because ADR is considered less expensive, faster and more efficient than court litigation.
In recent years, however, ADR — specifically arbitration — has been criticized as becoming no different than court litigation due greatly in part to extensive and costly discovery. Much of the escalated expense associated with discovery is attributable to the growing use, management and discoverability of electronically stored information (ESI). ESI is generally considered e-mail, Web pages, word processing files, databases, codes and algorithms, metadata, computer programs or any other kind of data that can be stored on a computer, BlackBerry or other personal digital assistant. This article discusses the impending ESI crisis in arbitration and how ADR can help contain ESI discovery in arbitration by managing ESI with specific guidelines and rules.
ESI crisis
The use of computer-driven technology and tools recently exploded in the construction industry and commercial arena. Construction disputes, for example, have historically been document intensive because they involve multiple parties, facts developing over one or more construction seasons and thousands of documents spread among developers, architects, engineers, general contractors, subcontractors and suppliers. Construction firms are now turning to tablet devices and related applications to develop and manage construction projects. See Erin Joyce, “Make Way for App Builders in Construction,” Engineering News-Record at 30 (Dec. 5, 2011).
Rapid communication among remote industry segments now takes place over personal digital devices and Web conferences rather than in person. See Luke Abaffy, “Millennials Bring New Attitudes,” Engineering News-Record at 22 (Feb. 28, 2011).
Advanced design modeling systems, such as building information modeling, is now widely used to identify construction challenges before the project hits the ground. See “The Case for Investing in 3-D Modeling,” Illuminations, Fall 2011. All of these technological advances, which lead to stored electronic media, create a vast amount of ESI that may be discoverable during dispute resolution.
Most parties about to embark on litigation are not ready to manage the expanse of ESI that may be related to the underlying dispute. It may be necessary to hire an outside consultant to locate, gather, store and produce the ESI in order to comply with the Federal Rules of Civil Procedure or, alternately, state rules of civil procedure. The parties must also engage attorneys to conduct a lengthy and costly privilege review of all ESI to ensure that attorney-client privilege and work product protections are not waived during production. Although “claw back” agreements, which require parties to return privileged information produced through inadvertent disclosure may alleviate the fear of waiver, it is imperative, nonetheless, that all material be reviewed to avoid providing an opposing party with even a glimpse of protected information. Furthermore, depending on the format of the ESI produced by the opposing party, a party may incur further expenses to convert the ESI into a useable format so that it can be reviewed by attorneys and parties.
If left unmanaged, electronic discovery issues will likely have unintended and a potentially disastrous impact on the cost of arbitration or litigation. Notably, failure to produce all discoverable ESI could result in sanctions ranging from attorney fees and costs to adverse inference jury instructions or a default judgment. See FRCP 37; U.S. v. Philip Morris USA, Inc. 327 F.Supp.2d 21 (D.D.C. 2004) (fining the defendant $2.5 million for destroying potentially discoverable e-mails two years after the entry of a preservation order and barred from presenting witnesses at trial who had failed to retain and preserve relevant records).
Flexibility to reduce burdens
Most ADR forums have developed electronic discovery guidelines and rules to assist parties, attorneys and neutrals in dealing with requests for ESI, while also maintaining the goals associated with arbitration.See ADR Systems “Commercial Arbitration Rules.” Unless otherwise specified in an agreement to arbitrate, judicial rules of procedure do not apply to arbitrations. Arbitrations can therefore be a welcome option to parties with commercial or construction disputes if they are looking to resolve matters involving significant amounts of ESI in an economical fashion.
Arbitrations provide parties with the flexibility to craft discovery agreements, on their own and with the assistance of ADR neutrals, limiting the breadth of ESI to be exchanged during and prior to the evidentiary hearing. It is beneficial to provide limits on discovery, specifically ESI, from the outset by including a discovery provision or agreement in the ADR clause of a contract.
When drafting the discovery provision, parties should consider the following: 1) nature of the dispute; 2) ADR forum and its ESI discovery rules; 3) “claw back” agreements; 4) data from which ESI is produced; 5) record production format; 6) balancing discovery burdens through cost shifting; and 7) defining limits on penalties and sanctions. Once the dispute is filed, parties may want to supplement the discovery agreement to address: 1) scope and breadth of production; 2) limits on custodians; 3) negotiated search terms; 4) predictive coding; and 5) production deadlines.
Conclusion
It is advantageous for parties to establish ADR agreements before there is a controversy. Limiting the scope of electronic discovery through arbitration agreements and the rules and guidelines provided by the various ADR tribunals, fosters the following: 1) lower cost dispute resolution; 2) decreased burdens in producing ESI; 3) comprehensive and focused discovery results; 4) efficient use of parties’ time; 5) less barriers to document review; 6) ESI produced in a useable format; 7) quicker dispute resolution; 8) avoiding costs that surpass goals and value of the dispute; and 9) simplifying steps to help keep ESI confidential.
Pursuing a claim through ADR with well-defined limits on the scope of ESI enables parties, attorneys and neutrals to better manage the exchange of information during arbitration and reach a resolution in a more efficient and cost-effective manner.
ADR Systems is leading the trend to contain the growing expense of ESI in arbitration. The electronic discovery component of ADR Systems’ Arbitration Rules is engineered to save parties time and money.