Consider the Role of E-Discovery in Preparing for Arbitration


New Jersey Law Journal

March 20, 2017

By: Robert C. BradyRobert J. MacPhersonLiana R. Abreu

Parties preparing for arbitration before the American Arbitration Association (AAA) and other arbitration providers should be aware of the rules governing the use of electronically stored information (ESI) in the arbitration process, or they may find themselves involved in a proceeding where the scope of electronic discovery is far broader or far narrower than is anticipated or necessary. This is important to consider, as many parties seek out arbitration in part to avoid the expansive requirements governing the production of ESI found in the Federal Rules of Civil Procedure and in their various state court analogs.

As with all issues regarding discovery in the arbitration context, the arbitrator plays a significant role at the outset of the proceeding determining the scope and use of ESI. For example, the AAA liberally authorizes arbitrators to: manage the exchange of ESI;

    • impose ESI search restrictions;
    • rule that e-discovery be more limited than that to which the parties have agreed on;
    • make cost allocations; and
  • sanction noncompliance.

Attorneys preparing for arbitration should be aware of these discretionary rules, as they can have a significant impact in an arbitration’s discovery process. If the parties ignore these rules or guidelines at the outset of the arbitration, they may be surprised later to learn that the arbitrator may limit discovery on critical facts for their case.

The AAA’s Commercial Arbitration Rules were amended in 2013, in part to address ESI and to help parties avoid the burdens and expense in dealing with ESI in traditional litigation. Among these changes were: Rule 21 which governs the prehearing conference; Rules 22 and 23, which govern discovery in general and, as related to e-discovery, establish parameters for arbitrators to manage the exchange of ESI, impose search parameters, and make cost allocations; and Rule 58, which governs sanctions. (Although this article focuses on AAA procedures, it is important to note that Rule 16 of the JAMS Comprehensive Arbitration Rules similarly covers topics including preliminary conferences, metadata, production format, custodians, and cost shifting.)

Arbitration Provisions and Pre-Arbitration Preparation
Parties should consider the role that ESI will play in the dispute resolution process long before a dispute even arises. Indeed, many parties are now adding language to their arbitration agreements governing the scope of ESI. These clauses often address the types of ESI that can be utilized in the arbitration proceedings and impose requirements on arbitrators to issue prehearing orders governing the use of ESI. These provisions often mandate that the arbitrator follow certain sets of model rules—for example, those dictated by the Seventh Circuit E-Discovery Pilot Program. In addition, many arbitration clauses now require that arbitrators be experienced and receive training in the use of ESI. These pre-dispute preparations will inevitably make it easier for parties to guide the use of ESI in ways that they find to be most appropriate for their needs.

The Prehearing Conference
For many reasons beyond the scope of this article, the critical first step to any arbitration is the preliminary hearing, as this is where numerous decisions concerning the scope of the proceeding are made. ESI has become an increasingly important part of this process in recent years. At the preliminary hearing, the arbitrator should require, and the parties should discuss and ultimately agree on, the scope of discovery and form of production. This should include a discussion regarding ESI. If the arbitrator does not raise the issue, the parties should consider raising the issue to ensure that an agreement can be reached regarding the scope of ESI that will be obtainable.

Before the preliminary conference, parties should discuss the types of ESI that will be sought and how to ascertain such documents that are electronically stored. It may be helpful to also have the parties agree to designate one or more ESI custodians for each party that will then be in charge of producing the most relevant ESI. At this stage—as is the case with traditional litigation—parties should also implement arbitration holds to preserve ESI. If parties cannot agree on the scope and/or method of preservation of ESI, the arbitrator should include a preservation order in the scheduling order at the end of the preliminary hearing.

At the preliminary conference, the arbitrator should discern the ESI needs of each party. Agreements should be reached regarding the types of documents to be produced, the number of custodians, the use of search terms, parameters regarding the use of inadvertent disclosure of privileged materials, and the use of “claw back” agreements. “[H]olding a preliminary hearing as early in the process as possible will help the parties and the arbitrator organize the proceeding in a manner that will maximize efficiency and economy, and will provide each party a fair opportunity to present its case.” (AAA, Preliminary Hearing Procedure P-1(a).) During the preliminary conference, the parties “should be prepared to discuss and establish a procedure for the conduct of the arbitration that is appropriate to achieve a fair, efficient, and economical resolution of the dispute.” (AAA, Preliminary Hearing R-21.) “Care must be taken to avoid importing procedures from court systems, as such procedures may not be appropriate to the conduct of arbitrations as an alternative form of dispute resolution that is designed to be simpler, less expensive and more expeditious.” (P-1(b).)

If the parties have not previously agreed on the extent of discovery, they must discuss the concept of proportionality during the preliminary conference. Proportionality is the principle that allows arbitrators to limit e-discovery where the burden of costs would significantly outweigh the potential benefits from the extensive discovery. Parties should also compare the amount in dispute to the amount of discovery. Relevancy is another key factor to be discussed at the preliminary conference. The ESI sought must relate to the claims, defenses, and counterclaims involved in the arbitration proceeding. Lastly, parties should discuss if there are any other collateral consequences to the outcome if disclosure of ESI is permitted versus nondisclosure.

The Scope of Discovery
Without a reasonable discovery agreement, arbitrators, through their discretionary powers, are more likely to issue objective discovery orders with which the parties may not necessarily agree. Pursuant to R-22 (AAA, Pre-Hearing Exchange and Production of Information), an arbitrator is required to manage the exchange of documents including ESI. In the context of ESI, an arbitrator may require that ESI be made available “in the form most convenient and economical for the party in possession of such documents, unless the arbitrator determines that there is good cause for requiring the documents to be produced in a different form.” (R-22(b).)

Importantly, arbitrators also have the authority to issue any orders necessary to enforce the production and exchange of discovery, including, without limitation:

(a) conditioning any exchange or production of confidential documents and information, and the admission of confidential evidence at the hearing, on appropriate orders to preserve such confidentiality;

(b) imposing reasonable search parameters for electronic and other documents if the parties are unable to agree;

(c) allocating costs of producing documentation, including electronically stored documentation;

(d) in the case of willful non-compliance with any order issued by the arbitrator, drawing adverse inferences, excluding evidence and other submissions, and/or making special allocations of costs or an interim award of costs arising from such non-compliance; and

(e) issuing any other enforcement orders which the arbitrator is empowered to issue under applicable law.

(AAA, Enforcement Powers of the Arbitrator R-23.) Even if the parties have reached an agreement, it is important to remember that there are limitations to e-discovery in arbitration and that the agreements must be reasonable and fall within those limitations. Generally, the scope of arbitration is less than what is permitted in litigation.

The Availability of Sanctions
Rule 58 provides the arbitrator with the power to impose sanctions “where a party fails to comply with its obligations under these rules or with an order of the arbitrator.” (R-58.) These sanctions can limit a party’s participation in the arbitration proceeding or can take the form of an adverse determination of a legal issue or finding of fact. An arbitrator, however, does not have the power to a default award as a sanction for failure to provide discovery. Although not specifically mentioned, Rule 58 also seems to contemplate an award of fees for abusive discovery tactics. Indeed, arbitrators regularly hear and resolve requests for fees incurred in bringing discovery motions.

These rules and procedures demonstrate that the AAA intends for arbitrators to control electronic discovery and the costs associated with it. Nevertheless, nothing in these rules limits the arbitrator’s ability to permit wide-ranging and expansive discovery in any individual case if the arbitrator deems it necessary and appropriate. As such, parties must be prepared to raise the issues early in the proceeding to ensure that the scope of electronic discovery is proportional to the needs of their case. In this way, the parties can retain control of the arbitration process and help ensure that it remains a cost effective alternative to traditional litigation.

Reprinted with permission from the March 21, 2017 issue of the New Jersey Law Journal. © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. For information, contact 877-257-3382 or or visit