ADR Playbook - Top Rated Lawyers

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2 | WEEK OF NOVEMBER 18, 2013

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THE RECORDER | WWW.THERECORDER.COM

WWW.THERECORDER.COM | THE RECORDER

ADR PLAYBOOK

WEEK OF NOVEMBER 18, 2013

RECORDER ESTABLISHED IN 1877 MAIN OFFICE AND EDITORIAL DEPARTMENT 1035 Market Street, Suite 500 San Francisco, California 94103 415.490.9990 E-mail: [email protected] www.therecorder.com

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uch of today’s dispute resolution happens outside the courtroom—and there’s a lot going on out there. To help you get current on the latest trends and thinking, The Recorder canvassed leading neutrals and practicing lawyers for practical tips and insights on how to get the most out of different alternative dispute resolution mechanisms. We’ve pulled the results in to this, our first ADR Playbook. We start with something basic: Gilda Turitz of Sideman & Bancroft offers tips on preparing a case for arbitration. Orrick’s Siddhartha Venkatesan outlines best practices for keeping arbitration from going off the rails when a third-party claim appears. Going a bit further afield, Tod Gamlen and Christina Wong of Baker & McKenzie tick off the practical considerations that should be top of mind when drawing up international arbitration agreements. But dealing with foreign companies doesn’t stop with a carefully drafted contract. Kathleen Fisher and Rodney Jacob of Calvo Fisher & Jacob team up with JAMS’ Catherine Yanni to brief you on cultural differences you’ll want to keep in mind when participating in ADR in Asia. There’s a lot more, in the pages that follow and online at therecorder.com, so—unless you’ve found an alternative to ADR—dig in.

aLm senior managemenT

—Vitaly Gashpar

biLL carTer: PRESIDENT & CEO KeVin h. michieLsen: SVP/CHIEF OPERATING OFFICER eric f. Lundberg: SVP/CHIEF FINANCIAL OFFICER Lenny iZZo: SVP/CHIEF MARKETING OFFICER Jeff LiTVacK: SENIOR VICE PRESIDENT, DIGITAL KeVin J. VermeuLen: SVP/SALES aric press: VP/EDITOR-IN-CHIEF

TA B L E O F C O N T E N T S

michaeL desiaTo: VP/REAL ESTATE MEDIA eLisa miLLer: GENERAL COUNSEL

ESTABLlSHED IN 1877 AS THE SAN FRANCISCO LAW JOURNAL. A NEWSPAPER OF GENERAL CIRCULATION BY RULES OF COURT, OFFICIAL NEWS-

Preparing to win at arbitration

5

Judicial reference, a forgotten tool

6

Emergency relief in international arbitration

8

Third-party claims can derail arbitration

10

Securing nonparty discovery

12

Mediation: stop, look and listen

13

Learn to shine through mediation

14

Bound to arbitrate

16

Cross-border mediation

18

ADR trends and changes

20

PAPER: U.S. DISTRICT COURT (N.C.) SUPERIOR COURT, SAN FRANCISCO

© Copyright 2013. All rights reserved. Further duplication without permission is prohibited. For permission to reprint articles that appear in The Recorder or to use material electronically please call Syndia Torres, (347) 227-3170. For permission to photocopy articles that appear in The Recorder please contact Copyright Clearance Center, Inc (CCC). (978) 750-8400, http://www.copyright. com.

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The Appellate Mediation Group is a specialized convening and referral service for appellate mediation serving all of California. The Appellate Mediation Group is led by Gary Weiner, the former Mediation Program Administrator at the California Court of Appeal in San Francisco. Our panel includes some of the best mediators on the Court’s panel who were chosen by Mr. Weiner based on their stellar performance for the First District. He knows the quality of their work. What’s next? You will probably hear from us soon after the appeal is filed. If you want to mediate your appeal, contact us right away, even before the notice is filed. THE PANEL: Hon. Carl West Anderson, Ret. (Former APJ, First District) Tom Klitgaard Martin Dodd Steven Hirsch

James Madison Stewart Foreman Ethan Schulman Claudia Viera

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The Appellate Mediation Group 2340 Powell St., Suite 106, Emeryville, CA 94608 www.appellatemediationgroup.com Office: (510) 597-0492 Mobile: (707) 483-1816 email: [email protected]


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Understanding the rules and arbitrators’ preferences will increase the chances of success

Preparing to win at arbitration Gilda Turitz

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t’s your first, or one of your first, arbitrations. It may have started as a court lawsuit and was compelled to arbitration on a motion, or it may have started with a demand for arbitration pursuant to the client’s contract providing for arbitration of disputes instead of court litigation. Either way, in order to get a successful result, the case assessment and strategy requires understanding how arbitration is fundamentally different from a case to be tried in state or federal court. Because arbitration is intended to be a more streamlined, efficient process of dispute resolution, it generally allows less pre-hearing discovery and no appeal in order to bring a cost-effective, quicker and final end to disputes arising from contracts, although the range of disputes arbitrated may go well beyond contract theories. With recent criticism of arbitration as having become far too much like court litigation, the major arbitration service providers and professional groups have addressed the perceived problems of discovery and delays in arbitration through new protocols and proposed best practices. Attorneys need to prepare to win in arbitration with a full understanding of what is and is not going to be allowed, and how they can best position themselves in this changing environment to have a successful outcome. In undertaking an arbitration representation, counsel should expect arbitrators to be more managerial than laissez-faire, with enforcement of the relevant rules and an emphasis on costeffectiveness and efficiency to get to hearing. 1. The arbitration clause and the governing rules: The first step to formulating a winning strategy is to understand the arbitration clause in the parties’ contract as the “constitution” for the dispute that defines the scope and limitations of what will be arbitrated. Arbitrators may not exceed their jurisdiction, so it is critical to analyze the clause which may empower, limit, or even prohibit the arbitrator with respect to awarding certain types of damages or other relief. The clause typically will refer to an arbitration service provider and its rules that will govern the dispute, may specify how many arbitrators to decide the matter (one or three) with or without specific qualifications, and may have specific time periods to get to hearing or limitations or allowances for certain discovery. The well-prepared attorney will have a thorough command of the governing rules and any statutes that may be referenced in the arbitration clause, and how they will affect the case strategy. 2. Arbitrator selection: Just as trial lawyers often say the case is won or lost with jury selection, arbitrator selection is likewise critical. Typically, arbitrators are selected through a list provided by the tribunal administrator and counsel applying a “strike and rank” method from which the arbitrators are selected. Stipulation with opposing counsel to one or more arbitrators should be considered if circumstances allow. Counsel should vet as thoroughly as possible the proposed arbitrators, and go beyond reviewing their resumes by asking colleagues for any information they may have concerning the arbitrators, and reviewing any published opinions of or articles by the arbitrator if applicable. Arrangements may be made through the case administrator to interview potential arbitrators by both counsel, particularly about their style and views on procedural matters such as discovery and motions in arbitration. If the pool of arbitrators offered is not sufficient from counsel’s viewpoint, they should ask the administrator to expand the lists or to seek arbitrators with certain expertise, even if the clause does not specify such qualifications. 3. Start with the award in mind: A valuable exercise at the beginning of the case is to draft a proposed final award that outlines the relief that the arbitrators would grant if the client’s position were successful, taking into account any restrictions on relief specified in the parties’ contract. In conjunction with analysis of the required proof for the elements of the claims and defenses, the draft award will assist in planning discovery. 4. Discovery in arbitration: Arbitrators have wide discretion as to what discovery to allow or prohibit, and will be guided by specific allowances or limitations in the arbitration clause and the applicable tribunal rules. Such rules are generally less specific than those in federal and state court, so it is critical for counsel to determine what discovery is essential (as opposed to desirable), the practicalities of getting information by subpoena or voluntarily from third parties, and whether the case warrants depositions and experts. Depositions may be allowed by stipulation or a limited number in some rules; if they are discretionary with the arbitrator, be prepared to make a good faith showing as to why they are necessary and will advance the case, and not just drive up costs. In contrast to court proceedings, e-discovery rules in arbitration are limited or non-existent.

Attempt to negotiate reasonable e-discovery protocols and agreements with opposing counsel or prepare a proposal for the arbitrators, to avoid their entering burdensome and costly e-discovery orders. 5. The pre-hearing conference: The pre-hearing conference is often the single opportunity to educate the arbitrators about the case and present counsel’s viewpoint about how it should be conducted. The well-prepared attorney will be ready to discuss all relevant procedural matters, including the length of the hearing, a discovery plan and e-discovery protocols, and any contemplated motions. Counsel should consider proposing phasing of the arbitration to promote efficiency by determining certain issues first, which may be dispositive or provide limits for further hearing. Examples are statutes of limitation or third party beneficiary rights. The scheduling order issued after the pre-hearing conference will control the proceedings unless amended, so counsel should not hesitate to address any ambiguities and ask for the arbitrators’ guidance on matters not addressed. Make sure that witnesshearing protocols, including advance notice about when witnesses will be called, are included in the order to eliminate surprises at the hearing. 6. Presenting evidence effectively at the hearing: The evidentiary hearing usually will be set for a specified number of days pursuant to the discussion at the pre-hearing conference. Because a failure to complete the hearing in that designated time frame may cause weeks or months of delay before the arbitration can be reconvened, time will be at a premium and a managerial arbitrator will conduct the hearing efficiently. Counsel should assume that there will be equal time for each side and that it will be monitored appropriately, but should not hesitate to ask the arbitrators concerning time allocations and their practices and preferences at the hearing to plan accordingly. Consider whether the client will be well served by stipulations to certain facts, or limiting or waiving an opening statement if a detailed arbitration brief has been submitted. Handling exhibits should be a cooperative effort with opposing counsel. Most arbitrators will request, if not insist, on joint exhibits to the extent possible. Cut down on duplication of exhibits by using only the fully executed copy of a document or the entire email string of a multi-email exchange, unless there is a compelling point to be made otherwise. Try to resolve foundational and admissibility issues so that valuable hearing time does not need to be spent on such routine matters. While all exhibits must be exchanged between counsel and presented to the arbitrators, counsel should prepare a separate sub-set in a binder or folder for each witness. It is far more efficient than waiting for all participants to wade through the master exhibit binders to find the right document. Counsel also should use technology in questioning witnesses by blowing up and highlighting important language in documents, and using videotaped depositions, if available, for impeachment, rather than reading from transcripts. Counsel should tailor their evidentiary presentations, understanding both that in arbitration the rules of evidence do not strictly apply and that arbitrators are generally sophisticated and experienced. Be prepared to have them allow certain direct testimony to be presented by affidavit, or appearances by telephone or video services for certain witnesses. It’s important to be flexible and accommodating about taking thirdparty witnesses and experts out of order and expect arbitrators to allow cross-examination beyond the scope of the direct so such witnesses do not need to return. Counsel also should be prepared to have their client and allied witnesses called adversely by the other side. Arbitrators may cut off cumulative testimony, so counsel should be prepared to make offers of proof if the witness is needed for another point. Arbitrators may actively question and even take over examinations of some witnesses. Their questioning will illuminate what issues they are focused on and should be a guide to counsel to adjust their further evidentiary presentation accordingly. Like court litigation and trials, every arbitration will have unpredictable, exhilarating and discouraging moments. But careful preparation, understanding both the arbitration rules and the arbitrators’ preferences, will optimize counsel’s chances for a winning strategy and an award in their client’s favor. Gilda R. Turitz is the litigation practice group leader at Sideman & Bancroft LLP in San Francisco and an arbitrator with the American Arbitration Association commercial panel, including large, complex cases, and the California ADR panel and banking, accounting and financial services panel of CPR’s panel of distinguished neutrals.


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To avoid common delays in traditional litigation, parties can rely on referees to resolve some or all of the claims

Judicial reference, a forgotten tool Ann Kough & James L. Warren

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et’s say you’re a rising star in your firm, and you’re looking for a way to break out of the pack. Your clients are frustrated by the glacial speed with which their case is slogging through the courts. They want your firm to do something. Let us introduce you to one of the most powerful tools available to litigators trying to get a case through an increasingly cash strapped — read that, “slow” — court system. It’s flexible, fast, less expensive than court resolution, and it fits any type of case you can throw at it. It is sanctioned by the California Constitution and the Code of Civil Procedure, and it can be put in place at the last minute. It can cover the entire case, or just part of it. And it can be used with equal effectiveness by experienced litigators or relative novices. It is the Judicial Reference. The tool has been around for years, but it has seen very limited use. Why? One reason may simply be inertia. You file a case with the court and it just stays there. You’ve always done it that way; why change? There are lots of reasons. Most importantly, perhaps, may be the increasing unavailability of the court system due to funding restrictions. Fewer open courts, less staff, more harried and overworked judges all contribute to a slower and less efficient justice system. But there are other, better reasons to give reference a try. Paramount is your ability to tailor it to fit the needs of your case. Are you trying to get the whole case resolved quickly? The California Constitution, Article VI §21, provides for the appointment of temporary judges and the Legislature has enacted statutes providing for the appointment of referees. The procedures could not be more flexible. Code of Civil Procedure §638(a) allows the court to appoint a referee to determine “any or all issues” in the action. You choose. Want to keep the court as the ultimate decision maker, but get a key factual issue resolved early so the case can move more expeditiously? Use CCP §638(b). That section lets you select a referee to “ascertain a fact necessary to enable the court” to decide the case. What if you want a reference and the other side doesn’t? Apply to the court under CCP

§639. Want two bites of the apple? Empower the referee to make recommendations only, but leave the final order to the court. The available resolution structures are almost boundless. The benefits of Judicial Reference are not limited to structure. Consider timing and efficiency. How many times have you prepared for a court hearing — or trial — only to have the matter continued for months at the last minute because of the court’s schedule? You’ve put in hours or weeks on preparation, maybe brought in witnesses from around the country, tuned your whole schedule to accommodate this all-important hearing. And then, with no warning, it’s gone. That’s not going to happen with a reference. When you chose your referee, usually a retired judge or an attorney-neutral, you will have that person’s undivided attention. Does he have other cases? Sure, but when a hearing gets set for your matter, those other cases are taken into consideration and the calendar will get blocked out for your case, and your case alone. The court system can’t do this, but the referee can. Many lawyers consider this degree of certainty one of the most important aspects of a Judicial reference. We know that clients love it. It’s hard enough explaining to a client why he’s just paid $50,000 to prepare for a trial that now won’t happen for six months or a year, and then he’ll have to spend that $50,000 all over again. Many cases today involve hyper-technical or complex issues, where a decision-maker’s experience in the field might be a real benefit. If you’re in court, you can look up the credentials of the judges, and armed with a one-shot CCP §170.6, hope for the best when your case is called for trial. Maybe you get lucky. But why take the chance? With a Judicial Reference, you get to choose the person who will decide your case. Sure, there’ll be some negotiating with the other parties about who that person will be, but in the end you’re much more likely to get somebody with the desired experience or expertise than you


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The California Constitution, Article VI §21, provides for the appointment of temporary judges and the Legislature has enacted statutes providing for the appointment of referees. The procedures could not be more flexible.

ISTOCKPHOTO would be in court. And think of it: the other side is more likely than not looking for someone with the same type of expertise as you are. The selection process really isn’t that difficult. Once your referee is appointed, you will begin immediately to reap the benefits of the reference. Typically, the referee will start the ball rolling with an in-person or telephonic meeting with all counsel to discuss the contours of the case. The parties frequently meet and confer in advance so that they can present the referee with a proposed agenda of either agreed upon or disputed issues for resolution. Looking at all calendars, the referee often maps out a schedule for resolution of the entire case, or at least the parts of it the parties agree upon at this juncture. The dates only get changed by stipulation or in consequence of a litigated request. In either case, you’ll never face the prospect of arriving for hearing only to be told that your matter has been continued. Nor will you be in the equally unenviable position of trying to set other cases for trial, and trying to guess whether your present case will “go” or be continued. Discovery is one of the most fertile fields from which to reap the benefits of a reference. There’s not an attorney around who doesn’t know that discovery disputes are the swamp of litigation. More time and money is wasted needlessly on discovery battles than on any other aspect of case preparation. Your referee can shorten these battles or eliminate them altogether. Often a referee will devise a discovery schedule specific to your case, and will set out a protocol for resolving discovery disputes. It is this latter area where the referee’s services will prove most valuable. In our experience, discovery battles in a reference can be resolved in days, compared with the months often involved in traditional litigation. Your client will greatly appreciate the savings in time and money. A judicial reference offers a further benefit of which many practitioners are unaware. Unlike binding arbitration, where the arbitrator’s award will only be reviewed by a court under limited circumstances, the referee’s decisions are subject to a full right of appeal, just as if the decision had been made by a sitting judge. CCP §645 guarantees that right, and it often provides the final level of comfort a client or attorney otherwise unfamiliar with judicial references needs to take this step. Even with all the benefits a judicial reference offers, clients are often reluctant to try it because of its perceived high cost. While this argument may have an initial appeal — the hourly rates of referees can be substantial — it doesn’t hold up under analysis. Of course, counsels’ rates will be the same whether the case proceeds through court or through reference. Then factor in the speed and efficiency offered by the reference, which results in a reduced number of hours spent by the lawyers, and the total cost is usually meaningfully lower. And this doesn’t take into account the value of having your case resolved sooner than if the case proceeded in court. Keep in mind that, just like an arbitration clause, a judicial reference clause may be written into your clients’ contracts and will be enforced by the court. So for potential complex contract issues, your clients will have the peace of mind of knowing they have a built in expeditious method of dispute resolution. Hon. Ann Kough (Ret.) arbitrates a wide range of disputes that span a broad spectrum of legal issues across several industries. She can be reached at [email protected]. Hon. James L. Warren (Ret.) handles complex cases in a variety of practice areas, including business and commercial disputes, professional malpractice, insurance, employment and IP matters. He can be reached at [email protected].

Penelope Pahl is a mediator with experience on both sides of the bench and both sides of the aisle. Her extensive background as a trial and appellate attorney as well as a bench officer presiding over Superior Court and Administrative Hearings has given her the tools to listen carefully and pinpoint the critical issues on which to focus while offering credible insights to help parties reach a resolution of their differences. Resolution of a Wide-Range of Civil Disputes:

Alameda Mediation offers affordable alternative dispute resolution services in all types and sizes of cases with particular emphasis on Housing, including landlordtenant disputes, Employment, Personal Injury and matters involving public agencies (Administrative Law).

Affordable Fee Options:

Alameda Mediation’s flexible fee options for alternative dispute resolution include hourly rates, half day and full day options at a reduced flat fee and lower fees for Small Claims court and Limited Jurisdiction cases allowing parties to attempt mediation at the front end of a case to see if it can be settled before the bulk of the expenses have been incurred.

Maintain Control of Your Case:

Mediation is faster, cheaper and can preserve relationships or at least disentangle them with dignity. Mediation allows people to control outcomes. Litigation results in someone else forcing a decision on you.

Choose Your Solution!

Alameda Mediation

1516 Oak Street, Suite 211, Oakland, CA 94501 www.alamedamediation.com Tel: 510-263-9273


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Counsel incorporating arbitration clauses in agreements should consider modifying the procedure to better suit their purpose

Emergency relief in international ADR Tod Gamlen and Christina Wong

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.S. federal and state court judges have the power to grant various forms of temporary, preliminary and interim relief to protect court litigants during the course of a lawsuit, such as TROs, preliminary injunctions and attachments. However, when international parties seek to resolve a dispute through international arbitration, arbitrators and arbitral tribunals have, until recently, been hampered in providing the same level of emergency relief. As a consequence, arbitration clauses in agreements governing international transactions often contain provisions allowing the parties to apply to courts for interim or preliminary relief. However, at least two international arbitration institution, the American Arbitration Association and its related International Center for Dispute Resolution, and the International Chamber of Commerce, have adopted procedural rules which provide for the granting of “emergency relief” to a party by way of an “emergency arbitrator.” These rules are found, respectively, in Article 37 of the ICDR’s International Dispute Resolution Procedures and Article 29 of the ICC’s Rules of Arbitration, including the Emergency Arbitrator Rules found in Appendix V of the ICC Rules. These provisions have the potential to do away with resorting to the courts, in the first instance, when a party to an international arbitration needs emergency relief such as TROs and attachments. International arbitration is one of the leading formal methods for the resolution of commercial disputes between parties from different countries and legal systems, particularly disputes arising out of or based upon contracts. International arbitration offers many potential advantages, including the availability of a neutral forum, the ability to choose the arbitrator (including those with requisite knowledge of the relevant industry or technology), the ability to specify the applicable law and procedures, more readily enforceable awards and confidentiality. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly referred to as “the New York Convention,” was promulgated by the United Nations in New York in 1958, and provides the framework by which the majority of international arbitration agreements and awards are enforced. In the U.S. the New York Convention is implemented through Chapter 2 of the Federal Arbitration Act, 9 USC §§201 to 208. Neither the New York Convention nor the FAA provides the procedural rules by which an international arbitration is to be conducted. In the first instance, such procedural rules

are subject to agreement of the parties, which often specify the rules of one of the several available international arbitration institutions. Such institutions are located in several countries; examples include ICDR, the ICC, the German Institution of Arbitration, the London Court of International Arbitration and the Arbitration and Mediation Center of the World Intellectual Property Organization. The rules of these institutions typically address issues such as commencing an arbitration, makeup of the arbitration panel, place of arbitration, conduct of the hearing, evidence, form of the award, costs and arbitrator compensation. Many provisions of each institution’s rules are similar; two typical provisions are of note here. First, the rules set forth procedures for the appointment of the arbitrator or panel of arbitrators, which is also referred to as the “arbitral tribunal.” These procedures can be time-consuming because they typically involve seeking the agreement of the parties. Second, such rules often allow for the granting of “interim relief.” Historically under such rules it is the arbitral tribunal that is empowered to award such relief; however, if the arbitral tribunal has not yet been constituted when the need for interim or emergency relief arises, such rules have not provided procedures for granting such relief. Consequently, arbitration clauses in international commercial contracts often include provisions that allow the parties to apply to the courts for emergency relief of a temporary, preliminary or provisional nature. Realizing that the institutions’ rules did not provide an effective method to obtain emergency relief before the constitution of the arbitral tribunal, the ICDR and ICC, respectively, promulgated ICDR Art. 37 and ICC Rule 29. Both rules allow a party to seek early emergency measures of protection through an “emergency arbitrator” prior to the constitution of an arbitral tribunal. Under ICDR Art. 37(5) the emergency arbitrator has the power “to order or award any interim or conservancy measure the emergency arbitrator deems necessary, including injunctive relief and measures for the protection or conservation of property.” ICC Art.29(1) allows a party to make an application for “urgent or conservatory measures.” The procedures for making and determining applications for emergency relief under ICDR Art. 37 and ICC Art. 29 are similar, but not identical. Under both rules a party to the arbitration proceeding may submit a written application to the ICDR or ICC administra-


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tor setting out the reasons for the emergency relief, and notifying all parties. The administrator must then appoint an emergency arbitrator within one day (ICDR Art. 37) or two days (ICC Art. 29). Upon appointment, the emergency arbitrator must quickly establish a schedule for considering the movant’s application, providing all parties a reasonable opportunity to be heard. The emergency arbitrator loses all power to act once the arbitral tribunal is constituted; and the tribunal has the power to reconsider, modify or vacate the “emergency relief” award or order. The language of these rules is broad and seems to provide many advantages to the party seeking emergency relief that are not available to parties seeking such relief through the various United States court systems. However, there are potential issues that can arise by virtue of such broad language; and few court decisions have interpreted either of these rules. The drafter of an arbitration clause may want to keep such potential advantages and issues in mind when drafting the arbitration clause, whether such drafter is seeking to maximize such advantages, or minimize them. Such potential advantages and issues include: • In evaluating the potential advantages and issues relating to these rules, the drafter of the arbitration clause needs to keep in mind that in international arbitration the laws of three jurisdictions can potentially come into play — (1) the governing law, which controls the interpretation of the agreement and the substantive issues being arbitrated; (2) the law of the place of arbitration, which, absent agreement of the parties, can affect the procedural rules followed by the arbitrators; and (3) the law of the place of enforcement, which can affect the extent to which the emergency award will be enforced. • These rules are not limited to injunctive relief and can include other interim procedures such as attachments. • Unlike the rules governing TROs and similar relief, an emergency award or order under these rules does not automatically expire or require the parties to undergo preliminary injunctive or similar further proceedings in order to keep the emergency relief in place. Rather, the relief stays in place unless and until the full tribunal reconsiders, modifies or vacates the emergency award; and the burden on seeking such reconsideration lies on the party opposing the emergency award. • On their face these rules do not require the party obtaining the emergency award to

post a bond or similar security, a requirement that exists under the federal rules and most state court rules. • The rules do not set forth the factors that are to be considered in ruling on an application for “emergency relief.” Thus the emergency arbitrator may look to a variety approaches and weigh different factors when deciding whether to grant the application. For example, federal courts and state courts generally consider four factors in deciding whether to grant a preliminary injunction or a temporary restraining order: (1) likelihood of movant’s success on the merits, (2) irreparable harm in the absence of preliminary relief, (3) the balance of equities, and (4) effects of injunction on public interest. The drafter may want to consider incorporating or modifying these factors in the arbitration agreement. • Finally, any emergency order or award that is granted by the emergency arbitrator is not self enforcing; as with any arbitration award may need to be confirmed by a court where enforcement is sought if the other party refuses to comply. These considerations indicate that the drafter of an arbitration clause may want to specify a variety of terms that will maximize (or minimize) the potential advantages these rules offer. For example, the drafter may want to specify what law should control when a party seeks early emergency relief and what factors an emergency arbitrator should consider and how those factors are weighed; or specify that procedural rules followed by courts in the place of arbitration relating to the granting of injunctive or provisional relief do not (or do) apply. Under ICDR Art. 37 and ICC Art. 29, parties to international arbitrations may be able to obtain fairly immediate emergency relief without some of the procedural hurdles of the courts. It offers several potential advantages that can be maximized, or minimized, with careful drafting of arbitration clauses. Drafters would do well to understand both of these rules, as well as the court procedures and rules that can be avoided (or preserved) relating to emergency relief. Tod Gamlen is a partner in Baker & McKenzie’s Palo Alto office where he has been practicing business, technology and international litigation for more than 20 years. Christina Wong is an associate in the firm’s San Francisco office whose practice focuses on complex business litigation involving domestic and multinational corporations.


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These tips will help you keep dispute resolution on track when not everyone is bound by the same contract

Third-party claims derail arbitration Siddhartha Venkatesan

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rbitration provisions are a commonplace fixture in contracts for complex services as they provide certainty that any disputes will be heard by a neutral with relevant subject matter experience in an expeditious manner. Such provisions may be particularly important to companies with widespread operations as they offer the further benefit of fixing a venue, thus avoiding the risk of an out-of-town company getting “hometowned” in litigation. Generally speaking, parties understand that broadly worded arbitration provisions should be enforced. However, under California law, there exists a significant exception to the general rule of enforceability that may blindside the unaware. Specifically, arbitration provisions governed by the California Arbitration Act are subject to a provision of the act that permits a court, in its discretion, to require litigation of an otherwise arbitrable dispute where litigation has commenced and nonarbitrable third-party claims and defenses are at issue. This rule creates a surprising escape hatch for a party to an otherwise ironclad arbitration agreement.

The Litigation Exception To Arbitration

Code of Civil Procedure §1281.2 governs cases where there is existing litigation involving claims subject to contractual arbitration. Typically, arbitration is mandatory under the statute as the court is only authorized to determine whether a valid arbitration provision encompasses the parties’ litigation dispute, and if the answer is yes, to order the parties to arbitration. California courts generally afford a “heavy presumption” favoring arbitration, as the statute is an enactment of the Legislature’s “strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.” Three exceptions to arbitration exist under the statute: (a) where the “right to compel arbitration has been waived”; (b) where “grounds exist for the revocation of the agreement”; or (c) where a “party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.” The first two exceptions apply to instances where a party has

failed to timely invoke its right to arbitration or where there is some defect preventing enforcement of the arbitration clause. The third exception, which is the focus of this article, permits a court to avoid contractual arbitration in ongoing litigation involving a third party where there is “a possibility of conflicting rulings.” The exception could apply, for example, in contract litigation involving a general contractor, subcontractor and customer where only the customer and the general contractor are party to an arbitration clause. In such a case, a dispute involving the subcontractor’s area of responsibility may lead to potential “conflicting rulings” if the general contractor and customer arbitrated their dispute and the subcontractor and the other parties simultaneously litigated their dispute. Another example could be a products liability scenario where an end-user brings suit against a manufacturer and a parts vendor that are party to an arbitration agreement. Again, conflicting rulings could result if the end-user arbitrated its dispute with the manufacturer; and the vendor, manufacturer and user litigated theirs. In these “conflicting rulings” scenarios, a court may join all the parties in a single litigation on some or all issues involved in the dispute; stay arbitration pending the outcome of the litigation before the court; or stay the litigation pending the outcome of arbitration between the parties to the arbitration agreement under §1281.2(c). None of these outcomes is expressly favored over the others in the statute, meaning that a court is not statutorily required to apply the “heavy presumption” typically favoring the arbitration of disputes in “conflicting rulings” cases. Section 1281.2(c) seems to require a merits inquiry that is normally impermissible in determining whether a matter should be referred to arbitration. A party seeking to avoid arbitration will certainly argue that the arbitration will lead to conflicting rulings with the litigation (and the opposing party will argue the opposite), leaving the trial court to divine what claims and defenses will be presented in the arbitration and whether they will give rise to conflicting rulings. Compounding the difficulty in prognosticating the course of litigation is the fact that petitions to compel arbitration are brought early in a litigation, lest a party bringing the petition risk waiving its right to arbitration. Thus, a trial court may be left to guess whether there may be conflicting rulings based solely on


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a complaint. The court’s decision whether to refer a matter to arbitration under §1281.2(c) is reviewable under a deferential “abuse of discretion” standard. Thus, a trial court is vested with the authority to set aside an arbitration clause in favor of litigation in cases where it determines conflicting rulings “may” result. Procedurally, a request to stay arbitration may either be made in opposition to a petition to compel arbitration or in connection with a motion for preliminary injunction to enjoin an ongoing arbitration. The usual four-factor test for injunctions does not apply to a motion for preliminary injunction under §1281.2(c); rather, the only question is again whether “conflicting rulings” may result through parallel litigation and arbitration proceedings.| Section 1281.2(c) contrasts with the Federal Arbitration Act, which contains no analogous provision authorizing a court to stay an otherwise arbitrable dispute to avoid “conflicting rulings.” Therefore arbitration under the FAA cannot be upset by “conflicting rulings,” giving effect to the strong federal policy favoring arbitration recently reaffirmed by the United States Supreme Court in AT&T Mobility v. Concepcion and CompuCredit v. Greenwood. However, the California Supreme Court in Cronus Investments v. Concierge Services, 35 Cal.4th 376, has stated that “§1281.2(c) is not a special rule limiting the authority of arbitrators”; the effect of the statute is in fact to limit the authority of the arbitration by placing in the trial court’s hands the discretion as to whether or not to permit contractual arbitration to proceed. In practice there are a number of reported cases where courts decline to enforce an arbitration provision under §1281.2(c).

Tactical Considerations

Parties to a contractual arbitration clause governed by the California Arbitration Act should be aware that §1281.2(c) can derail what would otherwise be a straightforward path to arbitration where there is a pending litigation involving third-party cause of action. The party seeking to enforce an arbitration clause should consider initiating arbitration per the terms the arbitration clause immediately so as to be in a position in petition the trial court to stay the litigation as soon as possible. In addition, if the arbitration is

commenced quickly enough, it may progress to the point that an arbitrator is selected, initial discovery requests have been exchanged and an arbitration date is set. Showing that the arbitration is ahead of the litigation may be persuasive evidence to a trial court that arbitration should proceed and that any prejudicial delay to third-party rights would be minimal. Further, the party seeking arbitration should consider informally reaching out to any third parties to see if they will consent to having their dispute heard in a single arbitration proceeding or, if that is not feasible, if they will join the petition to compel arbitration. Further, given the strong federal policy favoring arbitration, it may be useful to consider immediate removal to federal court (if possible) and then petitioning a federal trial court to send the parties to arbitration, though parties should be mindful that too much involvement in the litigation process could be viewed as a constructive waiver of the right to arbitration. Finally, of course, it may be worth trying to proactively modify the contract such that arbitration clause is governed by the Federal Arbitration Act or to insert a venue provision to prevent litigation in an unfavorable forum. The opposite considerations apply to the party seeking to avoid an arbitration clause. First, litigation should be initiated as quickly as possible and the complaint should name all third parties to the dispute at the outset. To the extent there is a good faith basis to do so, assert claims or theories of liability involving overlapping conduct, such as conspiracy, unfair competition or tortious interference claims. Further, the litigating party should consider drafting a detailed set of facts in its complaint to illustrate the overlapping facts that could lead to “conflicting results” and then argue to the court the overlapping facts would require it to serially arbitrate, then litigate the same set of facts and issues. Finally, as soon as an arbitration is initiated, the party wishing litigation should immediately move to enjoin it so that the arbitration does not progress ahead of the litigation. Siddhartha Venkatesan is a partner in Orrick, Herrington & Sutcliffe’s intellectual property group. His practice focuses on high stakes, highly complex patent and trade secrets litigation on behalf of technology companies located in Silicon Valley and internationally.


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In arbitration, ability to seek information from nonsignatories to the contract may depend on how it was drafted

Securing nonparty discovery Lucas Messenger

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arties to contractual arbitration possess a limited right to discovery in California. See California Code of Civil Procedure §1282.2(a)(2) (where amount in controversy exceeds $50,000, parties may demand an exchange of witness lists and copies of the documents to be presented at the hearing). The full range of discovery devices contained in California’s Civil Discovery Act are only available under two specific sets of circumstances: (1) where the arbitration agreement expressly provides for incorporation of §1283.05 of the California Code of Civil Procedure; or (2) where the dispute involves a tort claim for personal injury. More limited party discovery also may be permitted by contract (e.g., “the parties to this contract may conduct x number of depositions and propound y and z forms of discovery”), pursuant to the rules of the arbitration organization handling the matter (e.g., AAA or JAMS), or where statutory claims are involved. But when it comes to nonparty discovery, the only clearly permissible basis in contractual arbitrations is through incorporation of CCP §1283.1 into the arbitration agreement. This is not to say that an arbitrator lacks authority to order witnesses — including nonparty witnesses — to attend and produce documents at an arbitration hearing or attend a deposition for use later as evidence (but not for purposes of discovery). Though this is not discovery, it is much the same as a trial court’s authority to issue subpoenas requiring witnesses to appear at trial and bring documents. Moreover, as opposed to the corresponding provision of the Federal Arbitration Act (9 U.S.C. §7), no California court has construed CCP §1282.6 as allowing arbitrators to order pre-hearing discovery. Notwithstanding the forgoing, parties to an arbitration routinely seek discovery from nonparties even though their arbitration agreement does not incorporate CCP §1283.05. For example, a party will complete an arbitration subpoena asking for documents from a nonparty even though there is no statutory or contractual authority to do so. The party then serves the arbitration subpoena on a nonparty as almost a fait accompli because the subpoena was issued with the imprimatur of the arbitration body. Under these circumstances, many nonparties will respond in good faith while under the mistaken impression that the subpoena is legitimate because they are unaware that the subpoena is defective unless §1283.05 is incorporated.

Thus, an initial step for any nonparty responding to an arbitration subpoena is to request a copy of the applicable arbitration agreement in order to determine whether it in fact incorporates CCP §1283.05. If not incorporated, the subpoenaing party still may try to argue that regardless of what actually is set forth in the arbitration agreement, now that the arbitration has begun, the parties have determined that nonparty discovery is essential to resolving their claims and defenses. But parties cannot reach an agreement to permit nonparty discovery after the fact — regardless of whether their arbitrator concurs — because “[i]t goes without saying that a contract cannot bind a nonparty.” Quite simply, nonparty discovery is not available under California law unless the arbitration agreement specifically incorporates CCP §1283.05 or the dispute involves a tort claim for personal injury. To find otherwise and permit nonparty discovery in a business dispute at the parties’ discretion would run counter to long held tenets of contract law, as well as the central public policy consideration promoted by arbitration — speedy dispute resolution. It therefore is entirely appropriate for nonparties to take a hard line here. For one thing, as opposed to parties, nonparties are entitled to full judicial review of the arbitrator’s decision because they were not parties to the contract. Thus, nonparties need not fear that they are without recourse if they are unfortunate enough to run across an arbitrator who chooses to ignore California law while attempting to stand their ground. Additionally, monetary sanctions are available to nonparties, consisting of attorney fees and costs for successfully moving for a protective order or opposing a motion to compel. For parties, the takeaway is they must add yet one more item to their already extensive “to do” list at the time of contract formation: determine the amount of discovery necessary in case of arbitration and then expressly incorporate that into the arbitration agreement. Depending on the type of contract, the parties involved, and likely litigation, it may or may not make sense to incorporate all or part of CCP §1283.05. At a minimum, parties should make their decision knowingly before relinquishing their ability to obtain nonparty discovery later at arbitration. Lucas A. Messenger is a litigator at Peitzman Weg. He can be reached at [email protected].


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To resolve a dispute, attorneys should stop being advocates and become problem solvers

Mediation: stop, look and listen John Herlihy

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ediation requires counsel to view the dispute differently than when preparing for trial. Counsel who are preparing for and engaged in mediation use a different skill set than counsel who are preparing or engaged in trial. It is important to apply the skill set which is appropriate for a given stage of the litigation. Counsel should consider the words on the sign at the rural railroad-crossing: Stop, look and listen. First, stop thinking like a litigator and start thinking like a problem solver. A good place to start is with the mediation brief. Most lawyers understand that mediation briefs are designed to educate the mediator. Indeed, that is one goal. No matter how familiar the mediator is with subject matter, the mediator needs to understand what is so unique about your dispute that the attorneys had to resort to mediation. Let the mediator know. If your mediation brief is designed only to educate the mediator you are still thinking like a litigator. You view the mediator as you would an arbitrator or judge. Your mediation brief should be used to educate the opposing counsel and the opposing party. Sometimes there is a moment of true revelation when you see something written a little differently than you have seen it before. Let the opposing counsel and opposing party know that their analysis of the case may have some problems. They will return the favor. Do it in a civilized and professional manner. They will hopefully start considering their position in a way they have never contemplated previously. This is the path that leads both sides to thinking about a compromise. Your mediation brief should be used to educate your own client. In that process, have a clear understanding of what your client’s real needs are, not only in terms of dollars and cents, but also what their interests are in the dispute and what is most important for a resolution of the matter. Arrive at the mediation with a rough draft of a settlement agreement. This serves a number of purposes. First, the client knows that you, as counsel, are engaging in the mediation process in good faith. This is not an idle exercise and a backdoor attempt at discovery. This process is designed to resolve the dispute. The technical aspects of the settlement agreement should be discussed with the client in advance. The provisions of Civil Code §1542 and Code of Civil Procedure §664.6 should be explained to the client. This preparation will have the effect of showing the client that resolution of the case is seriously contemplated. The client, hopefully, will become part of the “team” brainstorming how to resolve the dispute. Many mediators use pre-mediation calls. There are a number of goals in discussing the mediation without your client or opposing counsel present. First, counsel can speak freely. Let the mediator know what you think are the stumbling blocks to settlement. If it is your own client, this can be conveyed confidentially to the mediator. If it is a conflict between the attorneys, this, too, can be told to the mediator. Second, the more you withhold from the mediator, the more the mediator has to learn this during the mediation session. This is a waste of valuable time. There may be matters you do not want to share with the

mediator, even confidentially. This is can be quite appropriate. However, be sure that what you are withholding is something the other side really doesn’t know and will not learn as the case progresses. Remember, holding back critical information from the mediator will make it more difficult and time consuming to reach a resolution. It may even cause it to be impossible to reach a resolution. If you have questions regarding the process, this is a good time to clarify the format the mediator utilizes. The attorneys should be asking questions just as the mediator is asking questions. If your mediator does not initiate a pre-mediation call, the attorney should consider doing so. The attorney should be forthright in discussing what problems the mediator may encounter and the expectations of not only your client, but also how you perceive the other side’s expectations. Second, look carefully at and consider the merits of the other side’s position. Look for areas of agreement between the parties. Those agreements can be a small step toward agreement on larger issues. Be sure to look for indicators of where the other side may be willing to compromise. Initially, the areas of compromise may be on minor points, but it is a start. Look for areas where your own client may be willing to compromise. Initially your client may not be willing to compromise on very many issues; however, any areas of compromise may be the groundwork for the ultimate settlement. Third, listen to what is being said before you speak. Before, during and after the mediation everyone should be actively listening. That includes the clients, the attorneys and the mediator. Active listening means allowing a person to speak and only ask questions when it is really necessary for clarification. Do not interrupt the speaker to argue your position. You will be surprised what you can learn by remaining silent when someone else is speaking. As attorneys we are trained to be advocates. Keep in mind that a good lawyer is adept at speaking; a great lawyer excels at listening as well. For example, if the mediator is relating a position held by the other side, don’t interrupt. Don’t dismiss it immediately. Try to understand the other side’s position. Ask questions if you need clarification. Consider where you might be able to concede on an issue important to the other side. Look for concession from the other side on an issue of more importance to you. Start looking for areas of compromise and start listening to what everyone is saying. If you stop, look and listen you just might develop insights as to ways to resolve the dispute at mediation. Hon. John Herlihy (Ret.) has case managed, settled and tried thousands of civil cases including some of the county’s most complex civil litigation during his 30-year judicial career, of which more than half was spent settling and hearing civil cases. He can be reached at [email protected].


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With state court funding crises, young attorneys have more opportunities to prove themselves through ADR

Learn to shine through mediation Vicky Satrap

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ith court closures, funding crises and long delays for justice, the full picture of the developing state of our court system still remains to be seen. As the legal industry navigates this new reality, those developing their legal careers as upand-coming litigators face a whole new set of challenges. How can these litigators find opportunities to shine in the courtroom with delays and backlogs? Following are some recommendations on how the mediation process can help those attorneys raise their profile. An effective mediation requires trust and communication between the mediator, attorney and client. Mediation is often seen as a way to manage and curtail the ongoing cost of litigation and provide closure to the litigants. The role of the lawyer is a critical component to this process and positive results can make lasting impressions on clients and a law firm — building lasting professional relationships and creating future business opportunities. A well-thought-out strategy is essential to ensuring a successful resolution to any commercial disagreement through any ADR process. ADR processes can create opportunities for advancement of younger lawyers like trial practice in the past. Some ideas: Help your clients by introducing ADR and explaining the advantages of the mediation process from the beginning. It’s important to manage and clear the litigants’ mindset of any unrealistic expectations. Occasionally lawyers and clients place too much focus on the fight rather than resolution, which can hinder the best end result for the client. Certain factors may influence this mindset, like the stage of litigation, economic disparities or emotional ties to issues in dispute. Use this opportunity to become a trusted adviser to your client. Counsel the client about the consequences of the unpredictability of trial, related costs and emotional drain. Sometimes clients might lose faith in the process or worse yet, lose faith in their attorney. It’s important to demonstrate your commitment and continue communicating with your client throughout the process. Depending on your level of experience, volunteer to prep the client on the mediation process or ask to shadow the client prep meeting. The more clients understand about mediation, the better they’ll feel and the better you’ll look. Further, a skilled lawyer approaches mediation with a different set of tools than going to trial. Start shaping the process to reach your desired outcome well before the mediation takes place. Make recommendations based on your knowledge of the matter, style of the clients, opposing clients and their lawyers, desired end goal. Initiate discussion about neutral selection early to signal your understanding of considerations most important for the matter at hand. Gather information about potential mediators by pulling articles, biographical information, recommendations from fellow attorneys or the mediator’s case manager and seek references from both sides of the bar. Some important criteria to consider include reputation, subject matter expertise and whether they’re evaluative or facilitative in style. Other questions to consider: Is the style of the mediator aligned with the personalities or the sophistication of the parties? Does the mediator have the appropriate business acumen if necessary? If there are outstanding questions, suggest an interview with a potential mediator before selection to ensure the mediator’s style or expertise is aligned with the needs of the dispute. The mediator interview is becoming more popular and generally there is no additional cost to the parties. Volunteer to write the mediation brief, using it as a vehicle to demonstrate your grasp

of pivotal issues and facts in the case. Exchanging a brief allows the mediator and opposing counsel to understand your clients’ position, concepts and sought results. Without your brief there is a chance that you may need to take more time in mediation to clarify or expand upon your clients’ position. The brief should be succinct and include a time line for facts and case law. If there is something you don’t want the other side to read, you can always provide a confidential mediator’s letter or email or call the mediator to be more candid about sensitive issues. Exchanging briefs can help educate your own client and opposing counsel on potential weaknesses in their respective positions. It can be more difficult to convince the client to accept a vulnerability of their case without understanding possible outcomes at trial. Recommend or initiate pre-hearing calls in preparation for the mediation. This serves as an opportunity to give “behind the scenes” information on the case along with identifying certain dynamics not found in the brief. You may ask the mediator to reaffirm messaging, “good/bad/ugly,” with your client during the actual mediation session. You may also want to discuss the format of the proceedings, such as consideration of whether or not to have a joint session. Joint sessions can work. Not all cases are appropriate for joint sessions; however, many times they can be an effective and productive introduction to the mediation process — and for participants to interact with the mediator. Today’s joint session is an opportunity for the mediator to set the “ground rules,” demonstrating their familiarity with the matter and to give each side a chance to answer their questions in front of each other before breaking out in caucus. If joint session is not appropriate at the beginning of the mediation session, consider whether it might be helpful midway or toward conclusion of proceedings. It’s also important to remind yourself and help your clients keep an open mind. Mediation is flexible and constructive, but it is easy to only focus on the dollar amount without thinking about other nonmonetary solutions. Some of the most rewarding settlements can be facilitated through a better understanding of nonlegal bases for the initial dispute, restoration of business or personal relationships, policy or industry reform, or renegotiation of contract terms. Many times, clients will have to work together again and mediation can help to keep that relationship intact as much as possible. Creativity is encouraged in developing strategies for settlement whether a complex business dispute or an emotionally charged matter. If your case does not settle in the allotted time reserved for the mediation session, use this opportunity to work toward settlement by providing a summary of your clients’ position to the mediator. Encourage the mediator to keep in close contact with the lawyers to explore options outside the initial discussions to see the matter through closure. By incorporating some of these recommendations into your next mediation, you will demonstrate your legal skills and process expertise to your clients and to your partners. Why not become a mediation expert, thereby leading the path toward dispute resolution in the 21st century? Vicki Satrap is vice president of the JAMS northwest region. She oversees operations for the region’s Resolution Centers throughout Northern California and Washington, and is responsible for creating new business opportunities and the implementation of regional and national marketing initiatives. She can be reached at [email protected].


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Evaluative. Settlement. We’ll be the judge of that.

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In certain situations, a party not originally a signatory to an arbitration agreement can be compelled to resolve its claims before a neutral

Bound to arbitrate Jon Sylvester

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hen can arbitration be compelled by a party who did not sign the agreement containing the arbitration provision? This question was raised recently in a well-publicized and ongoing San Francisco Superior Court lawsuit alleging gender bias and discrimination at the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers. Junior partner Ellen Pao filed the suit in May, and the firm sought to compel arbitration. KPCB’s counsel argued that each of the firm’s investment funds is managed by a separate limited liability company and partner compensation, which is central to Pao’s claim for damages, is governed by each LLC’s operating agreement. KPCB says these operating agreements contain mandatory arbitration clauses that bind Pao and other partners. Pao, on the other hand, argues that her claim is not against the LLCs but against KPCB — with whom she has no arbitration agreement. At a July 10 hearing, Judge Harold Kahn agreed with Pao, tentatively ruling that “There is no arbitration agreement between plaintiff and defendant.” This might seem to have ended KPCB’s efforts to get out of court, since “arbitration agreements are purely matters of contract” — at least according to the legislative history of the 1925 Federal Arbitration Act and myriad cases right up to the present. But Kahn invited further briefing and argument, and KPCB’s lawyers took the position that even though KPCB was not a party to the LLC agreements containing the arbitration provisions, KPCB could nonetheless invoke those provisions and compel Pao to arbitrate her claims based on equitable estoppel and third-party beneficiary theories. Kahn rejected these additional arguments on July 20, but his decision may be headed for appeal. No matter what happens with this particular case, however, lawyers interested in arbitration might also be interested in these theories and others that, under certain circumstances, allow a nonsignatory either to invoke an arbitration provision or be bound by one. Courts have employed six such theories: (1) incorporation by reference, (2) assumption, (3) agency, (4) piercing the corporate veil/alter ego, (5) third-party beneficiary, and (6) equitable estoppel. The KPCB litigation has involved the last two. The first four also warrant a brief explanation, however, both for the sake of completeness and because the six theories are not as independent as their separate enumeration might imply.

Incorporation by Reference

A nonsignatory can invoke an arbitration provision against a party to the agreement containing that provision if the two have entered into a separate contract that incorpo-

rates the arbitration provision by reference. The reverse can also be true: The party to the original arbitration provision could invoke it against the nonsignatory whose contract incorporates the arbitration provision by reference. This is entirely unsurprising, and easily understood if one keeps in mind an old-fashioned phrase used for incorporation by reference: “The parties hereby agree to [xyz], the terms of which are incorporated by this reference as if fully set forth herein.” In other words, the document or obligation that is effectively incorporated by reference is literally and in fact a part of the new agreement. Thus, if the first contract (or just the arbitration provision in the first contract) is expressly incorporated into the second contract, the parties to the second contract are bound by the arbitration provision just as though they had written it out anew.

Assumption

A nonsignatory can be bound to arbitrate if its conduct evidences assumption of the duty to arbitrate. One case frequently cited for this conclusion involved union representation of flight attendants bargaining with United Airlines. After the union hired counsel, formed a committee and represented the flight attendants through the arbitration process, the flight attendants were deemed to have assumed the duty to arbitrate their claims and were bound by the decision of the arbitrators. If you think this resembles estoppel, you are not alone.

Agency

Traditional principles allow an agent to bind his or her principal to a contract. If the contract contains an arbitration provision, the principal might argue that it did not sign, but it is still likely to be bound by the arbitration provision. Thus, if an HR official signs an employment contract on behalf of an employer, the employer is bound by the contract’s arbitration provision and can also invoke the provision in the event of a subsequent lawsuit by the employee. Moreover, if the employee sues the employer and also names an individual manager as an additional defendant, the manager may be able to compel arbitration pursuant to the arbitration provision because the manager is an agent of the employer — albeit a different agent from the one who bound the employer in the first place. This, too, is relatively uncontroversial, because it really amounts to seeing the agent as an extension of the principal, and vice versa — at least for certain purposes.


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Piercing the Corporate Veil

Piercing the corporate veil and the alter ego theory also amount to viewing two arguably distinct persons (whether natural or juridical) as one — at least for certain purposes. These theories can be used, for example, to require a nonsignatory individual to arbitrate pursuant to a provision in a contract signed on behalf of a corporation that functioned as the alter ego of the individual, or to require a parent corporation to arbitrate pursuant to a provision in a contract signed by a subsidiary. Of course, such veil piercing is not automatic; it involves the same fact-specific determinations required to pierce the veil for other purposes — notably attribution of liability and recovery of damages. Again, however, when these theories are successfully invoked, the alleged nonsignatory is effectively collapsed into one of the parties to the arbitration provision. This brings us to the theories argued on behalf of KPCB.

Third-Party BeneficiarY

A nonsignatory can be bound by an arbitration provision in a dispute with a signatory if the nonsignatory’s claims are based on the contract containing the arbitration provision and the nonsignatory is an intended third-party beneficiary of that contract. Although this statement of the rule puts the nonsignatory on the defensive, it is merely the obverse of the more general rule governing whether and when a third party can enforce contractual rights. Subject to vesting requirements not at issue here, a third-party beneficiary can generally enforce a contractual right if the third party’s benefit is direct and intended by the parties to the contract. The same applies to nonsignatory enforcement of an arbitration provision in a contract. In Pao’s suit against the Kleiner Perkins firm, KPCB argued that (1) it is the direct and intended beneficiary of several express provisions in the LLC agreements to which Pao is bound, (2) each of these agreements contains a provision requiring arbitration of “any controversy or claim,” and (3) “California courts have compelled arbitration in response to motions by third-party beneficiaries in circumstances less compelling than the facts here.” Kahn rejected this argument, concluding that Pao’s employment relationship with KPCB is separate from the relationship between the fund management LLCs and the partners, and that the “agreements that are cited as the basis of the arbitration claim are not employment agreements.” Before turning to the sixth theory — upon which KPCB placed primary reliance — it is worth noting that the five theories above do very little violence to the foundational

premise that “arbitration agreements are purely matters of contract.” Indeed, the first of them, incorporation be reference, is really not an exception at all. It simply recognizes that the parties’ contract is not a document, but rather the totality of the legal obligations between them, from whatever source, including incorporation by reference. And each of the other four theories mentioned has the effect (to put it somewhat inelegantly) of placing the nonsignatory “into the shoes” of one of the contracting parties. Thus, while it is useful and may be correct to characterize the above theories as exceptions to the basic rule, there is nothing particularly radical about any of them. The sixth theory has proven to be the most controversial.

Equitable Estoppel

A nonsignatory can use the doctrine of equitable estoppel to compel a signatory to arbitrate if the claims at issue are intimately intertwined with the obligations in the contract containing the arbitration provision. KPCB argued that this requirement is met in the present case because Pao’s claim for damages relates primarily to alleged discrimination in the allocation of carried interest and other benefits available to her only as a result of having entered into the LLC agreements containing the arbitration provisions. Kahn also rejected this argument for compelling arbitration, finding it “extremely odd that [the parties] would agree to arbitrate employment disputes in such a tangential, circuitous manner.” He added, “The parties here are very sophisticated. They could, if they wished, have included in their employment agreements an arbitration clause. They didn’t.”

Conclusion

Employers most frequently cite relative speed and cost in explaining their general preference for arbitration over litigation with employees or former employees. Privacy is also a factor, however, and in this case one suspects that privacy is a major consideration for KPCB — which no doubt wishes to protect both its reputation and the contents of the LLC agreements, which were filed with the court under seal. Pao’s attorney says his client is looking forward to telling her story in front of a jury. KCPB has vowed to appeal. Jon Sylvester is a professor of law and associate dean for graduate programs at the Golden Gate University School of Law.


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When negotiating with a party in Asia, patience and knowledge of local customs are key to a successful resolution

Cross-border mediation Kathleen V. Fisher, Catherine A. Yanni and Rodney J. Jacob

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hen mediating a dispute in Asia, or with Asian companies in the U.S., lawyers and mediators cannot expect the mediation process to be “business as usual.” Mediation is not an established practice in most Asian countries. Attitudes in regard to mediation are akin to those in California 30 years ago. The adage that success in life can be achieved by “just showing up” does not apply to mediation of cross-border disputes. A well-designed process is a must. There is a high cost to failure with cross-border mediations. While international arbitration is a reasonably familiar dispute resolution technique, mediation is not. The failure of one poorly planned mediation often creates a viewpoint that “mediation does not work” and sends the parties back to the courtroom for good.

PATIENCE IS A VIRTUE

It is important to understand that while U.S.-only mediations are often done in a day — albeit a long day — cross-border mediations often take more time. It may be a wise investment to plan for a two-day mediation. Though it is understood in a typical U.S. mediation that the decision makers must be present or at least that participants have authority to settle at the mediation itself, this will seldom happen in a cross-border mediation with Asian parties. In Asia, a consensus culture necessitates a long process back home that simply must occur for a case to settle. There is more emphasis on process and less on efficiency. Patience is a virtue, if the U.S. party is seriously interested in resolving the dispute.

CHOOSE YOUR MEDIATOR CAREFULLY

Often, it is simply not possible to choose a single mediator who alone has the credentials, skill set and patience to settle a cross-border dispute. A prestigious former federal or state court judge may be important to provide the necessary gravitas to reassure the Asian company participants. On the other hand, a former-attorney mediator with the patience to manage the pre-mediation, mediation and follow-up process may be the key to settling cross-border disputes. The litigators should check and double-check the credentials and references of any proposed panelist. It is a common practice to call and interview the potential mediator about his or her actual experience mediating similar cross-border disputes. While many mediators want to mediate cross-border disputes because they are complicated and challenging, few have done so successfully. Although it is expensive to use comediators, it may be a wise investment which will save your client the time, expense and distraction of further protracted litigation. The mediator or mediators need to have some basic understanding and empathy with individuals and companies caught up in a foreign legal system. They may also need skills necessary to “co-mediate” with a foreign national with very different training. However, empathy and patience are not enough; sometimes it is important that one of mediators be

a more traditional, U.S.-style, evaluative mediator, able to explain American litigation process and risks.

PRE-MEDIATION: DESIGNING THE PROCESS

Pre-mediation work in advance of the mediation session is essential. Once the mediator is selected, intense preparation by the attorneys and principals is crucial. Planning a mediation with Asian participants is often more akin to planning a diplomatic meeting, with a great deal of effort spent on “size of the table” and “rules of engagement” issues. Conference calls led by the mediator should be set up with all parties to obtain buy-in as to the mediation process. Consider an in-person meeting. The agenda should include who will attend the mediation, the briefing schedule, a description of the actual negotiation process of caucusing back and forth, and how offers and demands will be handled. Briefs should be exchanged early so that each party can carefully consider the other’s positions. A “mediative tone,” rather than bravado, should be employed in brief preparation. Mediators will often request confidential briefing in an effort to define for the mediator the obstacles for each party, and what obstacles each side perceives the other to have. Most U.S. litigators take for granted that mediation is strictly confidential and that written or oral statements cannot be used in pending litigation. That is not the norm in Asian countries where a court may expect to be kept informed regarding negotiation developments. Agreements about litigation stays, or restraint in initiating additional litigation to permit the mediation process to work often involve extensive negotiation before the mediation is convened. The “usual understandings” embodied in California law and practice cannot be taken for granted. Extensive involvement of the mediator and parties in resolving pre-mediation issues can create trust needed for later agreement on substantive matters.

ACCOUNT FOR DIFFERING LEGAL TRADITIONS

Most Asian jurisdictions have no jury system, and have limited or no discovery. There is great fear of U.S.-style discovery. Where a case is venued will influence usual incentives toward settlement, such as litigation risk analysis, litigation expense and the likelihood of potential publicity motivating a party’s decision making. The question of “apologies,” difficult for most U.S. companies to consider in light of implications regarding future litigation, are often critical to an Asian party.

MEDIATION AND THE NEGOTIATION PROCESS

Opening statements and joint sessions are critical. Extensive time needs to be devoted to presentations by lawyers, and potentially by witnesses and experts, on each side to define the parties’ competing positions, before settlement proposals are likely to be given serious consideration.


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U.S.-style, direct adversarial contact is often unfamiliar to Asian participants. It is important for attorneys to evaluate their clients’ tolerance for conflict in the context of the mediation process, and to prepare the clients for the frank, and often critical, discussion of issues during the mediation. Clients should understand the role of the mediator in articulating and testing the parties’ respective positions. As in a well-planned U.S. mediation, a total negotiating strategy is required for success. For U.S. participants, both lawyers and clients, the number of participants on the other side, the slowness of the process, and cultural issues regarding consensus decision making, may lead impatient Americans to conclude they are “wasting their time.” It is important for the mediator to discuss and defuse this issue in advance. The usual pace of an American mediation would be deemed rude by Asian participants. American participants should be prepared to temper their expectations to permit their opponents sufficient time for group consideration of proposals, and necessary consensus building to occur. For all participants, it is also important to understand and manage issues regarding authority to settle. It would be very unusual for Asian participants, including U.S. subsidiaries of Korean, Japanese or Chinese companies, to have authority to conclude a final agreement on the day of the mediation. The consensus decision making process virtually always will require approvals from home country executives or even government regulators, which cannot be immediately obtained.

POST-MEDIATION FOLLOW-UP: GETTING TO THE FINISH LINE

Even more than in a U.S.-based mediation, reaching a final agreement in a cross-border mediation will require extensive follow-up. American lawyers and clients should anticipate getting a signed final deal may take as much, if not more, effort than the mediation. Assuming a deal was not reached during the mediation session, further negotiating across many time zones will prove challenging. The continued participation of the mediator or mediators will be critical for reaching a successful conclusion. Patience is involved in all aspects of a cross-border mediation, from the pre-mediation process, through the follow-up required to reach a final and binding settlement. It is essential that you educate your clients in the complexity and pace normal in cross-border mediations to maximize the chances for a successful outcome. Kathleen V. Fisher (San Francisco) and Rodney J. Jacob (Guam) are litigation partners at Calvo Fisher & Jacob who have participated in the successful mediation of cross-border disputes involving companies and individuals from China, Japan, Korea, Singapore, the Philippines and India. Catherine A. Yanni is a full-time mediator with JAMS. Her practice includes mediation, arbitration and special master and discovery referee work. She has handled many cross-border disputes involving multinational companies as well as individuals in the U.S., Guam and Japan.


ADR PLAYBOOK


Mediation is gaining popularity as a means to resolve disputes, but differs from a settlement conference in its own subtle way

ADR trends and changes Matthew Vafidis

T

hirty years ago, the federal court assigned a case of mine to a settlement conference before one of the icons of the Northern District bench. A champion of individual rights, this fine judge was then in his late ‘70s and had long ago assumed senior status. At that stage of his distinguished career he was regularly conducting settlement conferences in federal civil cases, and had a reputation for remarkable success. I looked forward to experiencing a master at work. As it turned out, the judge’s dispute resolution technique was nothing more, or so it seemed, than first eliciting proposed figures from each side, pronouncing a settlement figure that was midway between the parties’ figures, and then spending the rest of the conference hammering away at the lawyers until they both agreed to his number. So famous was this approach that the judge’s name came to be used as a verb; we would return from one of his settlement conferences muttering about how the case had settled but we had been “forced into submission.” When assessing the efficacy of ADR methods, it is hard to compare this type of judicial settlement conference with the more positive, subtle and cooperative process of mediation that is in widespread use today. But there can be no doubt that mediation is actively encouraged by the judiciary and preferred to the old method by litigants and litigators. The past 25 years have witnessed an exponential growth in the number and types of cases being mediated, owing to programs mandated by courts and statute, the choice of parties and lawyers, and the recognized effectiveness of the procedure. Mediation is now an established part of civil litigation. And not surprisingly, we have also seen the blossoming of a legal specialization populated by highly qualified, experienced and accomplished neutrals — retired judges, senior lawyers and trained ADR professionals devoting their considerable talents to acting as neutrals. Despite the current prominence of mediation as a form of ADR, the old approach to settlement conferences is still evident among mediators’ practices in many civil cases. All too frequently, neutrals allow mediation in civil matters to devolve into little more than a bargaining contest over a dollar figure that is a compromise between the parties’ positions, and the participants are left isolated for long periods in separate rooms periodically accessing a highly credentialed mediator advocating the compromise, based on her views as to the merits of the parties’ position, litigation expenses and the uncertainty of the outcome. In the end, the parties either agree with the mediator or give up and go home frustrated. Mediators, particularly those used to slipping into their former role on the bench, and litigation counsel who are more comfortable taking adversarial positions, understandably gravitate to this type of proceeding. But this is not mediation to me. These mediations often seem not so far different from my settlement conferences before the federal judge. I confess that I was skeptical about the application of mediation to civil cases when I started acting as a neutral more than 20 years ago. It seemed that my role as a mediator would be little more than inviting one party to explain its position and then turning to the other to ask, “And how does that make you feel?” This would not work, I thought. After all, these cases were almost all about money and the probabilities of success on legal and factual grounds; since I was surely an expert in this area of law, wise, (charming) and persuasive, shouldn’t I be telling the parties what I thought of their case and what number they should agree to? What was my value if I were not “forcing the parties into submission”? Being a passive observer and providing the coffee and conference room was certainly not my highest and best use. Fortunately, I knew my limitations. Nobody was employing me to be a judge. Any opinion I had about the case was no more correct than the parties’ lawyers, and because I knew less about the matter than they did, I should ultimately defer to them. It was up to the participants to determine what they wanted to achieve from the mediation. I had no

power, and no right, to tell anyone what to do, and if I did, the parties and their counsel would be justified in disagreeing and walking away. There was no way I could conduct the proceedings as if I were the old federal judge forcing the parties to accept his compromise solutions. I came to respect the following three different rules of mediation. I believe that they work. The first principle is the vital importance of listening. It is common to attribute the failure of mediation to a lack of commitment or preparation by one side or both. Enforcing the formalities of the process, including preparing and exchanging briefs, appearing with a party representative, and setting aside an entire day for the session, only goes so far in encouraging that necessary degree of involvement. In mediation, the parties and their counsel must go the next level and take on the responsibility for bringing about the resolution of the case — if the process is to work, the participants must feel fully engaged, that they decide and are in control over the outcome. In particular, the clients should trust that the process has given them a comprehensive opportunity to be heard, to “have their day in court.” This requires that the mediator actively and openly listen to the parties. The second rule is equally important. Mediation is, at heart, a collaborative process. This is perhaps counterintuitive to judges used to conducting settlement conferences, or to mediators anxious to avoid any risk of confrontation, but the parties need to be assured that both sides are committed to working towards a resolution, that they are in this together and need to work with each other to get out of it. The joint session is essential. The mediation should start out openly and honestly with expressions of mutual commitment, reiteration of common ground, even if it is only recognizing the procedural status, and an identification of the issues that will need to be addressed and resolved. The parties do not necessarily need to start out by compromising, but hearing one another talk works wonders. By contrast, sending the lawyers and the parties to separate rooms at the outset merely establishes barriers and potential seeds of distrust. The last rule is my favorite: It is essential that the parties and their lawyers trust and like the mediator. This goes beyond being assured of the mediator’s fairness, openness, retention of confidences, integrity and honesty. The participants must trust that the mediator is 100 percent committed to helping resolve the case and they must want her to succeed. At some point, the success of the mediation may depend on whether the parties make an extra effort; at that stage, the attitude of the mediator is all important. If the mediator is perceived as indifferent to the outcome at the mediation, one or both parties may well feel that they should also give up. The more the mediator is committed and the parties trust that commitment, the more likely that the participants will continue to work to resolve the case. When I contemplate the process of mediation these days, I often reflect on the way things have changed since my settlement conferences 30 years ago. I am fairly sure my old federal judge did not dwell on the importance of active listening to the parties and their lawyers, encouraging collaboration between the parties, and establishing the parties’ trust in his commitment to the resolution of the case. Of course, he may have adapted to today’s use of mediation in civil cases and become a fine mediator. But there can be no doubt that to that federal judge, alternative dispute resolution meant something entirely different than what we know as mediation. It should be different for us also. Matthew Vafidis is a partner at Holland & Knight’s San Francisco office. Vafidis is an English barrister who has practiced commercial litigation in S.F. since 1981. He has been a member of the ADR Panel for the U.S. District Court for the Northern District of California for more than 20 years and has acted as a mediator in 75 to 80 cases; he is a writer and commentator on matters of commercial and admiralty law, ADR and law practice.



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