This is the second installment of a three part series.
In our first installment we met former college roommates, Founder One and Founder Two, who launched a business selling gluten free cookies on campus using the secret recipe they developed. Optimistic, they could not imagine they would ever disagree. As lawyers know, business partners often find themselves in conflict they did not anticipate. These exuberant entrepreneurs engaged counsel to form a limited liability company “G-Free” and prepare an operating agreement. Their lawyer, experienced drafting formation documents, draws from templates previously used. The lawyer is not, however, experienced in litigation, arbitration or other dispute resolution and does not discuss these concepts with G-Free’s Founders. Without client consultation, the lawyer includes in the operating agreement an barebones arbitration provision. The provision does not specify arbitral forum or governing procedural rules. It does not address scope, type or amount of discovery, form of award, or other features. Founders do not question how arbitration will work because they cannot imagine anything might go awry between them.
For ten years business prospers, and Founders goals are aligned. Then life intervenes. As they commit to life partners, differences arise as to desired direction of the business. Influenced by their personal partners, their goals for the business diverge. Founder One and their personal partner are content with the status quo; but Founder Two’s personal partner pushes for G-Free to franchise nationwide. As the Founders struggle, the business suffers. After Founder One’s pre-emptive lawsuit is dismissed when a court grants Founder Two’s motion to compel arbitration, Founder Two files a Demand for Arbitration with “Your Way ADR” a new ADR provider that touts its informal approach to arbitration over the structured approach of established arbitration administration providers. At Your Way ADR, the parties “adapt as the proceedings unfold.” This is not the structured process Founder One expected so they counter file with the American Arbitration Association. The court rejects Founder One’s argument that Your Way ADR is not a “recognized provider” and orders the parties to proceed with Founder Two’s forum choice. The parties cannot agree on a neutral arbitrator, so Your Way ADR appoints an arbitrator that disappoints both sides. Time is running because the arbitration provision requires the hearing commence within 90 days after filing the Demand for Arbitration.
As we reviewed in the first installment of this series, the lawyer who drafted the Operating Agreement with the arbitration provision could have protected these parties more effectively to manage disputes. They should have discussed comparative economics, efficiency and finality of litigation compared to arbitration. Further, ideally an arbitration provision should include an administering organization to manage the process and incorporate the rules of a forum that apply to the dispute. It is helpful to specify expected qualifications of the arbitrator, the process for arbitrator selection, and procedures of assuring neutrality. When we left these floundering Founders, their separate counsel engaged to handle the dispute were about to participate in the preliminary hearing at which the arbitrator customarily addresses scheduling and other issues so arbitration progresses smoothly. Without established guardrails promulgated by Your Way ADR, parties and the arbitrator must navigate these issues with heightened care.
What can everyone expect at this initial session, and how can they best prepare? Without the structure provided by forum rules, the arbitrator has considerable discretion to establish procedures and set deadlines. Counsel would be well-served to collaborate and reach agreement on as many issues as possible and submit the agreed terms to the arbitrator in advance of the preliminary hearing. A seasoned arbitrator may direct parties to submit a joint proposal in advance. Alternatively, counsel can individually or jointly submit a proposed order addressing issues so the arbitration can proceed swiftly and hearing on the merits can occur within the prescribed time (although the parties can agree to a longer period than the 90 days set in the Operating Agreement). All stakeholders, including the arbitrator, should have a checklist of topics that they want to address. There are common topics that participants should cover in the preliminary conference to avoid conflict and delay. I have not included administrative and arbitrator fees as presumably that is addressed by Your Way ADR, when the Demand for Arbitration is filed and an arbitrator is appointed.
- Conflicts and Disclosures
The arbitrator and parties are required at the outset to make any disclosures necessary to assess the arbitrator’s neutrality. As Your Way ADR does not have a fulsome questionnaire to assess potential bias, parties need to provide detailed information as to counsel, witnesses, experts or other stakeholders so the arbitrator can consider whether relationships exist that pose conflicts and others that may create a perception of conflict. The arbitrator must conduct a conflict search and disclose personal or business ties that bear on potential impartiality. Disclosure obligations persist for the duration of the proceedings. They must be updated if new facts emerge. For example, if an arbitrator works at a firm and during the pendency of arbitration a colleague takes a matter for or adverse to a party, that must be disclosed promptly. Counsel should not contact the arbitrator directly by any means without notifying the opposing counsel. The arbitrator should specify how they may be contacted to avoid misunderstanding or actions that could undermine the perception of independence or require the arbitrator to withdraw.
- Pleadings, Statement of Claims and Defenses
Arbitration will progress more efficiently if everyone is clear on claims and defenses. Setting deadlines for finalizing the Demand and Answer fleshes out frivolous legal arguments early. Clear parameters provide a roadmap for contouring discovery. Some arbitration administrators such as the American Arbitration Association, CPR and JAMS, have rules prescribing when pleadings may be finalized and early motions can be filed or leaving these matters to the arbitrator’s discretion. As Your Way ADR does not have procedures, the arbitrator should address this issue. If the arbitrator does not do so, parties should raise it.
- Exchange of Information and Confidentiality
In arbitration as in litigation, there are issues about the scope, types and amount of discovery. Many parties include discovery provisions in their arbitration provisions to avoid complicating dispute resolution later. Arbitration is intended to be faster and cheaper than litigation, but if discovery is not handled smoothly, the cost and delay increase. Without agreed discovery parameters, the form, type and amount of discovery (whether limited to written discovery or allowing depositions), and cost issues, should be addressed at the preliminary hearing. In dispute resolution as in litigation, there are concerns about exchanging sensitive information. This should be evaluated at the first hearing so that parties can agree upon and/or the arbitrator can issue a confidentiality agreement/order setting protocols for protecting documents and other information shared in the process. The arbitrator should confirm how they will maintain sensitive information or dispose of it when the proceedings are over. Failure to raise these questions up front leads to delays in exchange of information, depositions and hearing.
- Motion Practice and Procedure
Motion practice can be expensive and time-consuming often without meaningfully narrowing the matters for hearing. For economy and expedition, it is usually best to preserve challenges to claims rather than file a motion to dismiss. Similarly, given that parties want to be heard on the merits in many cases, summary judgment motions may not avoid the need for hearing. To spare parties costs and delay, it is prudent for the arbitrator to implement a two-step motion process. First, an arbitrator can require parties seeking to file a motion to dismiss or for summary judgment to submit a brief statement on the grounds for the motion so the arbitrator can decide whether to permit the filing. If permission is granted, the arbitrator sets a briefing schedule. Here, where the Founders’ dispute is harming the business and the hearing should be completed within 90 days of the initiation of arbitration, it may be in everyone’s interest to forego motions and proceed to hearing without waiving challenges to the sufficiency of the claims/defenses.
- Use of Artificial Intelligence
Artificial Intelligence is a hot button issue in the legal profession generally and in arbitration. All stakeholders may have things to gain and to lose depending on how AI is used. For starters, the arbitrator is bound to evaluate the evidence and use their own judgment to decide. AI may save expenses by cutting back on time to review and synthesize extensive information, and in drafting. But the arbitrator must be careful to ensure that technology is not impinging on the duty to make their own independent decisions. At the preliminary hearing, the arbitrator should disclose upfront if the arbitrator intends to use AI and for what purposes. Further, the arbitrator should remind counsel that they are responsible for anything they submit and that reliance on AI for research or briefs does not get counsel off the hook. They must affirm that submissions rely upon accurate facts and correct law.
- Communication Between and Among Stakeholders
Even if Your Way ADR does not have its own rules, lawyers are still bound by the applicable rules of professional conduct and civility expectations of the jurisdiction in which they practice. It is important for the arbitrator to affirm those expectations for the arbitration proceedings, including pre-hearing. Fortunately, most counsel will act responsibly, but the arbitrator should alert counsel that failure to cooperate in discovery, meet deadlines, respond to opposing counsel, or to abide by orders may result in sanctions.
- Pre-hearing Submissions and Hearing Details
The parties agreed to a hearing within a set period. Even absent agreement, at the preliminary hearing the arbitrator should set the hearing date so deadlines for discovery and pre-hearing submissions (exhibits, witnesses, evidentiary issues, and locale) can be settled. Counsel should come prepared with their and their clients’ availability so that they are not scrambling or committing dates that pose conflicts for any of the participants. Postponing hearing dates can be agreed to by the parties or permitted by the arbitrator under appropriate circumstances, but the goal of arbitration is to move the process along to resolution.
- Form of Award
Where, as here, the arbitration agreement does not specify a form of award and there are no controlling rules or laws, parties can agree on the form. Typical options include simple awards that do not offer any explanation, reasoned awards that explain the basis for the decision, or determination with findings of fact and conclusions of law. Without set parameters, the arbitrator has discretion on the form of award. In exercising that discretion, the arbitrator should bear in mind that it is helpful for parties to understand how the arbitrator reached the decision. A reasoned award can strike a balance by providing insight for the parties without the additional cost of an award that includes findings and conclusions.
Why are these issues important?
Many of these points may be obvious to experienced ADR practitioners whether advocates of neutrals. They may not be top of mind for transactional lawyers drafting business agreements where the ADR provision may be an afterthought or pulled from a template. In this case, a thoughtful arbitration provision could have addressed many of these issues directly or by reference to a set of rules incorporated by reference. Had drafting counsel put more effort into the dispute resolution issues, the Founders would have been spared time and expense. Unfortunately, it is often when parties are on the verge of litigation that they first seek advice on how to prepare for and resolve a dispute. By ensuring that counsel drafting agreements consider and appreciate ADR issues upfront, parties can be better prepared when a disagreement cannot be resolved amicably.
In our final installment of this series, we will look at ethical issues, such as the continuing obligation of all participants to disclose potential or perceived conflicts, the importance of candor to the tribunal and respect for all participants, the arbitrator’s authority to impose sanctions for non-compliance with Orders, abuse of discovery, and misuse of Artificial Intelligence.
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As always, I welcome suggestions of topics you would like to read about in future columns.
Francine Friedman Griesing, Founder of Griesing Law, LLC, has represented clients as an advocate in alternate dispute resolution for over 40 years and has served as a neutral arbitrator and mediator for over 30 years. She represents public and privately held companies, nonprofits, higher education and government entities in litigation, employment and ADR issues.
Reprinted with permission from the August 15, 2025 edition of the “Legal Intelligencer” © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.
