CHAPTER 11 PRACTICAL ASPECTS OF ARBITRATION AND OTHER ADR METHODS IN NATURAL RESOURCES DISPUTES
| Jurisdiction | United States |
(Dec 1989)
PRACTICAL ASPECTS OF ARBITRATION AND OTHER ADR METHODS IN NATURAL RESOURCES DISPUTES
Stubbeman, McRae, Sealy, Laughlin & Browder, Inc.
Houston, Texas
TABLE OF CONTENTS
I. What's Required to Arbitrate a Natural Resources Dispute
A. Pre-Dispute Agreements
B. Post-Dispute Agreements
II. Requirements of the Arbitration Agreement
A. Written Agreement
B. Form
C. Limitations
III. Type of Forum
IV. Principal Differences Between Arbitration and Litigation
A. Speed of Resolution
B. Less Formal Proceedings
C. Expertise of Tribunal
D. Time and Place of Hearings
E. Limited Appeal
F. Trial by Jury
G. Joinder of Parties
V. Steps in a Typical Arbitration — What to Expect and What to Avoid
A. Pleadings
B. Discovery
C. Hearings
D. Rules of Evidence
E. Selection of Arbitrators
F. The Arbitrators — Neutrality
G. Qualification of Arbitrator
H. Duty to Disclose
I. Waiver
J. Termination of Arbitrator's Authority
K. Immunity
L. Prehearing Conferences
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M. Hearing
(1) Timing
(2) Order of Presentation
(3) Evidentiary Rules
(4) Experts
(5) Briefs
(6) Conduct of the Panel
N. Subpoena Power
O. Transcripts
P. Applicable Law
Q. Situs
R. After the Hearing
S. Award
(1) Findings of Fact and Conclusions of Law
(2) Decision — Not a Compromise
(3) Form
(4) Damages
VI. Other ADR Methods
A. Mediation
B. Mini-trial
C. Moderated Settlement Conference
D. Summary Jury Trial
E. Non-binding Arbitration
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I. What's Required to Arbitrate a Natural Resources Dispute.
Agreement! There is no binding arbitration without agreement of the parties.
Once you have agreement, binding arbitration is truly an alternative to resolving a dispute at the courthouse.
There is a strong presumption in favor of arbitration and arbitrability of issues even if the contract arbitration clause is not entirely clear about what issues are arbitrable. Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, 460 U.S. 1, 103 S. Ct. 927, 941, 74 L. Ed. 2d, 765 (1983). Therefore, there is little likelihood of judicial review of the arbitrators award, or the necessity for an appeal, and the parties to an arbitration dispose of their dispute with greater speed and less expense than if they had litigated the dispute.
It is important to remember, however, that there is no binding arbitration without agreement of the parties. There are very few exceptions to this rule and those exceptions, such as the Pennsylvania Compulsory Arbitration Act, are very limited in scope. See Pennsylvania Compulsory Arbitration Act, Act 42 of July 9, 1971, as amended by Act 159 of June 30, 1972.
A. Pre-Dispute Agreements.
In the majority of the cases, but by no means all cases, the agreement to arbitrate is contained in the original agreement of the parties as an arbitration provision in a contract between them. That is, an arbitration agreement that exists prior to the time that a dispute arises.
B. Post-Dispute Agreements.
The parties may also agree to binding arbitration after a dispute arises between them, or a post-dispute agreement. This type of agreement would most often arise where the parties choose a binding ADR method for settlement of their dispute as an alternative to litigation.
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II. Requirements of the Arbitration Agreement.
A. Written Agreement.
An agreement to arbitrate, whether it be a pre-dispute or a post-dispute agreement, must normally be in writing in order for it to be considered enforceable under the United States Arbitration Act, the Uniform Arbitration Act, or the statutes of most states. Section 1 of the Uniform Arbitration Act reads in part as follows:
A written agreement to submit any existing controversy to arbitration, or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties, is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract.
B. Form.
A written agreement can take virtually any form and need not be formally signed by the parties, as long as the writing or writings express a clear intent of the parties to be bound to an agreement to arbitrate. Race Co. v. Oxford Hall Contracting Corp., 25 App. Div. 2d 665, 268 N.Y.S.2d 175 (1966).
C. Limitations.
Some states have statutory limitations on the purview of their arbitration laws. For instance, the Texas General Arbitration Act (Texas Revised Civil Statutes Annotated, Article 224, et seq (Vernon 1983) specifically excludes arbitration agreements between employers and employees. Additionally, the Texas Act requires that the attorneys for both parties sign any agreement containing an arbitration provision in the case of a claim for personal injury, or in any case involving an individual (as distinguished from a corporation or other entity) where the total consideration to be paid by the individual is $50,000 or less. Additionally, under the Texas Act, any contract to arbitrate entered into between January 1, 1966 and August 31, 1987 must have a warning in capital letters on the first page of the contract warning that the contract is subject to arbitration.
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If you end up with a contract that calls for arbitration, but does not fit the peculiarities of the applicable state law, don't despair. You can probably arbitrate your dispute under the Federal Act or under the common law.
The Federal Act (9 U.S.C. § 2) may be invoked in any transaction involving interstate commerce and in transactions involving collective bargaining agreements and maritime transactions. Interstate commerce is a very broad concept, and as a result, the Federal Act may be invoked in many cases, and I would say, in most natural resources cases.
If neither the applicable State Act, nor the Federal Act is available to you, you may still be able to arbitrate under the common law. Even in Texas, where arbitration has historically been limited by statute, there is now some indication that a party may be able to obtain specific enforcement of an arbitration agreement at common law, despite the attempt by the other party to revoke that agreement. Olshan Demolishing Company v. Angleton Independent School District, 684 S.W.2d 179 (Tex. App. 14th Dist. 1984), writ ref'd n.r.e.); Wetzel v. Sullivan King & Sabom, 745 S.W.2d 78 (Tex. Civ. App. 1st Dist. 1988), no writ. But see L. H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348 (Tex. 1977) and Mendoza v. Canizales, 695 S.W. 2d 266 (Tex Civ. App. 4th Dist. 1985), no writ.
Most arbitration agreements, particularly pre-dispute agreements, do not specify the rules of the arbitration, the critical time periods or any procedural rules. The lack of these elements does not render the arbitration provision void, but it does sometimes expand the job that the arbitrators must do.
III. Type of Forum.
Most natural resources disputes are arbitrated before a panel of arbitrators appointed by the parties (as opposed to a panel appointed by an institution such as the American Arbitration Association, or other arbitration group). Such party-appointed panels are often referred to as "ad hoc" panels. The reason most natural resources disputes go to an ad hoc panel is two-fold: (1) Most arbitration provisions in gas contracts and other natural resources agreements provide for the appointment of arbitrators by each of the parties without reference to any institution. (2) The second reason is that administrative fees required by these
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arbitration institutions usually escalate with the amount in controversy. Natural resources disputes such as take-or-pay and gas price disputes tend to involve large sums of money and just filing the claim can cost tens of thousands of dollars in administrative fees.
On the other hand, some saving may be realized in the case of institutional arbitration in that the first day of the arbitrator's time is often free, and the sums charged by arbitrators are controlled by the institution, and often are somewhat less than fees charged in ad hoc arbitrations.
IV. Principal Differences Between Arbitration and Litigation.
A. Speed of Resolution.
One of the most important differences is the speed with which the dispute is resolved in arbitration. This speed is achieved first by avoiding crowded court dockets and selecting a tribunal devoted solely to the resolution of your dispute. In addition, discovery is limited (or, in a few cases, eliminated altogether) and motion practice is much less formal and less time-consuming. More on the latter two points in the next section.
B. Less Formal Proceedings.
Proceedings are informal, may be conducted at a time convenient to the parties and the arbitrators (even at night or on weekends) and the arbitrators are not bound by a set of rigid procedural rules. This is particularly true in an ad hoc arbitration, but is generally true even in arbitrations conducted under the rules of the American Arbitration Association or another institution. For instance, the rules of civil procedure of most states number in the hundreds or even thousands. The Texas Rules of Civil Procedure number 822 whereas the American Arbitration Association rules number only 57.
Perhaps because of the informality of proceedings, I believe that in-house counsel are more inclined to become directly involved in arbitration than they are in litigation. This may result from the ability to concentrate on the merits of the case rather than rigid pleading and procedural rules and pitfalls. The litigation explosion has caused all of us to seek alternatives to courthouse resolution of disputes, and in-house counsel are providing real leadership in finding these alternatives.
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C. Expertise of Tribunal.
Most arbitration provisions call for the arbitrators to be selected from those having experience in...
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