“The thing to fear is not the law, but the judge” Russian Proverb
I’ve been arbitrating legal disputes since the early 2000s. Here is the first of a couple of anecdotes I’ll share. I am referring here to my experience as the arbitrator, not an attorney arguing a case before an arbitrator.
My cases have varied enormously, from huge multimillion dollar disputes to relatively small cases involving under a hundred thousand dollars. You might think that when I look back on these cases I have interesting stories about the lawyers and the clients, but that’s almost never the case. My most vivid memories involve my co-arbitrators on 3-person arbitration panels. This is where I’ve seen the most surprising aspects of human nature. In this post I’ll describe one of these, and leave other cases for future posts. I’ve slightly disguised the parties and facts so that they would not be recognizable, even to the parties, but they maintain the essence of the case.
The case was a David Inc. v. Goliath Inc. arbitration that involved complex patent and trade secret misappropriation claims by David. The arbitration panel was unusual, in my experience – the parties agreed on a single neutral, and each party retained their own arbitrator who was, in effect, their advocate on the panel. So, it was a three-person panel with one neutral arbitrator, one arbitrator chosen by David and one chosen by Goliath. My “client” was Goliath Inc., the defendant (or in arbitration-speak, the “respondent”). There were no restrictions on my meeting with Goliath’s attorneys during the hearings – indeed, I had lunch with them every day of the hearings, and advised them on how I thought their case was proceeding. I assume the same was true of David Inc.’s chosen panel member. In this case David was seeking approximately $200 million in damages.
The hearings lasted about 20 days, spread out over several months. At the close of the case it was clear that the “neutral” thought that David had put on a very weak case. However, he insisted that David was entitled to an award of around $2 million, one percent of what it was seeking in damages. I disagreed, to the point that I told the neutral that I would not join in the $2 million award. I felt that the proposed award was legally defective, and that the neutral was wrong on the law in reaching it. I thought it was a “sympathy award” by the neutral – give David (and likely it’s contingent fee attorneys), something that they could perhaps break-even on in terms of fees and expenses.
At a meeting with the neutral and “David’s” lawyer I told them that although I would not write a dissent to the “reasoned award” the parties had requested that the panel prepare, neither would I join in the award. In other words, two of the arbitrators would sign the award, which would be legally sufficient for it to be fully enforceable. A couple of days later the neutral arbitrator called me one-on-one and told me that if I would not join in the award he would increase the damages against “my party” – Goliath – by millions of dollars. I was shocked, but I had no choice but to go along with what I viewed as little more than blackmail. I joined in the award, and I never told my party about this call.
What was the neutral’s motive for strong-arming me like this? I believe that given the size of the case and its complexity he wanted a three-person award, to avoid any chance it might be successfully challenged in court – he wanted a 100% appeal-proof award. End of my story. I hope it provides some insight into what can go on inside the “sausage factory” of an arbitration panel.
A final word on this case – I’ve never been on a “one-neutral, two-advocate” arbitration panel before or since, and I would advise against it. The neutral arbitrator is unlikely to be swayed one way or the other by the “party arbitrators” (after all, the lawyers for the parties do that job). In fact, as I will discuss in another post, I would stay away from 3-person panels altogether, except in cases where the economics of a potential dispute justify it.