Court closures and the inevitable backlog
Courts in states like California where the incidence of COVID-19 is the highest are more or less closed for business when it comes to commercial litigation. The ten largest counties in California have each closed all or most of their courthouses for non-emergency matters. The California Chief Justice recently continued all jury trials to May 25, and it is likely that Los Angeles County will not convene civil jury trials until late June at the earliest. Federal jury trials in all four districts in California have joined many of their sister courts across the nation in suspending jury trials until mid-April or May. These dates are constantly changing as information about the pandemic evolves; any trial date in the next six months should have an asterisk next to it.
Although these closures have an acute effect on upcoming trials, the impact of the virus on litigation will be even more far-reaching. Even when a semblance of normalcy is returned and courts reopen and begin convening civil jury trials again, the closures will create a backlog of cases that will impact all civil matters. Courts will need to wade through a backlog of motions and trials before reaching other pending matters and newly-filed cases.
This backlog will put increasing pressure and strain on California state and federal courts, already some of the most overburdened in the nation. Courts like Los Angeles Superior Court, where hearing dates were already being set months out, may see those waiting periods balloon. Given the number of courts impacted and the scale of the pandemic, the delay will have an impact on litigation that will likely be felt for a year or more.
The coming months will also see an influx of entertainment lawsuits based on film and television production being delayed or cancelled due to pandemic-related shutdowns. These disputes will raise difficult questions about interpreting force majeure clauses and frustration defenses, and will have major ramifications for studios and talent. How will these claimants navigate the inevitable backlog and the frustration accompanying this delay? One potential avenue is to voluntarily refer already-pending or newly-filed lawsuits to arbitration, even if those disputes are not governed by an arbitration clause. Because arbitration is a question of contract, parties can always agree to have an arbitrator hear an existing dispute. Although post-dispute arbitration agreements have traditionally been rare (because one party will typically view arbitration as a less advantageous forum ex post), as explained below, the COVID-19 pandemic and its effect on the judicial system may alter that calculus and make arbitration an attractive option for both sides.
Benefits of arbitration in a post-pandemic world
Saving time and money
Traditionally, the most commonly cited benefit of arbitration is that it offers a streamlined dispute resolution process that saves time and expense. This consideration is magnified in light of the pandemic. Although arbitration providers are not immune from pandemic-related closures and they will similarly experience a backlog of arbitration hearings, the flexibility of arbitration will allow those providers to address this backlog far more efficiently. The expected duration of a case from initiation to completion should thus stabilize to pre-pandemic levels relatively quickly. Because discovery motions and dispositive motions are less frequent in arbitration, providers will have less need to “catch up” on law and motion practice than judges whose dockets have been stacking up for months. We expect practitioners to view this as an appealing feature of arbitration.
Availability of phone conferences and hearings
Relatedly, arbitration lends itself better to remote hearings. Although courts across the country have been experimenting with remote proceedings, telephonic hearings are in arbitrator’s wheelhouses, and we anticipate that transition to be much easier. Indeed, many arbitrators do not normally convene in-person hearings prior to the final hearing, so we can expect arbitrations in early stages to proceed more or less normally over the coming months. This will avoid the catch-up effect where judges are required to get through a backed up motion calendar once they reopen, and we can expect arbitrators to bounce back to pre-pandemic levels of efficiency relatively quickly.
Flexibility in terms of arbitration attendees
Perhaps an overlooked difference between litigation and arbitration (one that is now more apparent) is the number of people required to be present at trial. Even putting aside the obvious issue of jurors, trials in court cannot operate without clerks, bailiffs, security and other court staff and personnel. Moreover, courts are open on an “all or nothing” basis, so trials will likely not be able to proceed until it is safe for the entire courthouse to reopen for business. Contrast this with an arbitration hearing, which can proceed in a conference room with only a handful of people. For this reason, we might expect final arbitration hearings to restart earlier than jury trials, giving parties and attorneys another reason to favor post-dispute arbitration agreements.
Finality
An additional benefit of arbitration is its finality. Arbitration awards are notoriously difficult to overturn, which discourages appeals and generally promotes finality. This is a welcome feature in light of the pandemic, as we can expect appellate courts to be similarly backlogged.
Drafting a post-dispute arbitration agreement
Once your adversary agrees to arbitrate your existing dispute, the next step is drafting the agreement. Just like pre-dispute arbitration agreements, post-dispute arbitration agreements require thoughtful drafting rather than a one-size-fits-all approach. Consideration will need to be given to questions such as which arbitration provider should be selected, whether your case will be heard before a panel or a single arbitrator, how that panel or arbitrator will be selected, the precise scope of issue to be decided by the arbitrator, whether and to what degree the parties can take discovery and/or file dispositive motions and whether to preserve appellate rights for significant errors of fact or law.
Unlike a pre-dispute arbitration agreement, you will already be familiar with the facts and theory of the dispute, so negotiating these terms should be made with a careful eye towards how best to position your client well. Be mindful that your adversary will be doing the same.
Conclusion
In normal times, it is rare that both sides will agree to arbitrate a dispute absent an arbitration agreement. This is particularly true when a matter is already in litigation. But, these are not normal times and given the growing backlog in the judicial system, we can expect post-dispute arbitration agreements to become an attractive option to attorneys and their clients, especially in the entertainment space.