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A New ‘Arb-Lit’ Hybrid Process Unifies ADR and Litigation for Creative Resolution

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By Gerald F. Phillips, Jennifer Winestone May 2016

There are many great virtues to alternative dispute resolution processes, like the collaboration, confidentiality and self-determination of mediation; the privacy, efficiency, and finality of arbitration; and the flexibility of both.

In an attempt to combine the best virtues from each of the primary ADR processes, hybrid processes have developed, including med-arb, arb-med, and early neutral evaluation.

But despite the ADR community's best efforts in continuing to expand the scope of alternative conflict strategies, in certain circumstances parties may be unwilling or unable to opt into an ADR process—and all its virtues—in forbearance of the virtues that can be found in litigation. The courtroom's benefits include procedural due process and rights-based conclusions founded on legal principle, common law, and legislation.

This article proposes using a new hybrid procedure, which borrows from the general judicial reference procedure of California Code of Civil Procedure Section 638. The procedure combines arbitration and litigation—call it “Arb-Lit”—in a process that marries the benefits of an expert-driven fact-finding mission and the accountability of a legally sound and appealable decision.

The basis for the process arises in the commercial litigation context, but the authors believe it is equally applicable and advantageous in other areas of law, including employment law, estates litigation, and family law, to name but a few.

BORROWING FROM THE LAW

Arb-Lit draws on CCP Section 638, California's general judicial reference procedure. It provides, in part:

638. A referee may be appointed upon the agreement of the parties filed with the clerk, or judge, or entered in the minutes, or upon the motion of a party to a written contract or lease that provides that any controversy arising therefrom shall be heard by a referee if the court finds a reference agreement exists between the parties:

  • (a)To hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision.
  • (b)To ascertain a fact necessary to enable the court to determine an action or proceeding.

In an article published on the statute last year, commercial litigator Charles L. Pernicka, who chairs the litigation practice at Encinitas, Calif.'s Opus Law Firm, describes the general judicial reference procedure as “an underutilized alternative to arbitration.”

He notes that the primary disadvantages of arbitration are that “an arbitration award need not be based on the law,” and “… because arbitrators are not required to base their decisions on law, their awards are generally not subject to review or appeal.” Charles L. Pernicka, “Explore the Benefits of Judicial Reference,” Daily Journal (Los Angeles, May 22, 2015).

But the arbitrator's decision-making flexibility, and the finality of an arbitration award, also are lauded as arbitration's greatest strengths. Still, as Pernicka correctly points out, these characteristics are often viewed as prohibitive redlines by parties who want to ensure decisions are founded in law, and preserve their rights of appeal.

Pursuant to CCP Section 638, the parties may jointly agree to the general reference, either pre-dispute or post-dispute. The judgment may be reviewed on appeal in the same manner and as if it had been made by the court. In addition, generally, rules of evidence and civil procedure that apply to court litigation do not apply to arbitration.

Flexibility & Fairness

The proposal: A new form of ADR that also retains jurisdiction for the matter in the court.

How does it work? ‘Arb-Lit’ would bifurcate the case. The facts are arbitrated. The court would treat the fact rulings as an arbitration award in its rulings on the law.

Why? Read on for five reasons on how the new ADR process expands justice. By the way, it is derived from the letter of California law that, unfortunately, is used infrequently.

CCP Section 638 referees, on the other hand, conduct the proceedings as would a judge in court.

THE REFEREE AS ARBITRATOR

In a complex motion picture accounting case, the parties requested the appointment of a referee pursuant to CCP Section 638. The parties asked for the appointment of commercial arbitrator—and co-author—Gerald F. Phillips to ascertain an enumerated set of facts necessary to enable the court to determine the action or proceedings.

The stipulation provided that the referee's compensation would be paid equally by the parties. There was no request for the use of court facilities or court personnel. The court had discretion to choose to accept or reject the referee's findings.

In considering the circumstances of that case and the general reference procedure, the authors believe that the process provides an opportunity for a new Arb-Lit ADR hybrid. In Arb-Lit, we propose a version of a judicial reference, which enables the virtues of both arbitration and litigation.

In this hybrid, parties to an action agree to the appointment of a referee-arbitrator who will decide the factual issues and render a final and binding award as to the facts only. The court retains jurisdiction to determine the law based on those findings of fact. That ultimate decision is reviewable on the law and subject to appellate procedures.

In other words, the fact findings by the referee-arbitrator would be final, and the court will treat the findings as it would an arbitrator's award, retaining jurisdiction to vacate the findings only if it decides that they were the result of “corruption, fraud or undue means,” or “evident of miscalculation or mistake.” The court has jurisdiction to make an award on the law using the facts as found by the referee-arbitrator.

With respect to evidentiary findings, the process would recommend that the court reserve jurisdiction to determine, by motion to the court, any evidentiary arguments. But the parties, by agreement, would have the option of having the referee-arbitrator make a legal evidentiary determination, in the alternative—a determination that would not be appealable.

While the process is perhaps possible through CCP Section 638 alone, by defining the process in terms of the ADR spectrum, the authors hope to help free the current provision from its relative obscurity, expand the scope of its reach, and structure it by terms favorable to litigants and their attorney-advocates.

THE NEW HYBRID'S BENEFITS

This proposal for the new Arb-Lit conflict resolution process has several benefits unique to the proposed process:

  1. Appealability on the Law: It would provide parties with a complete review as to the law, which is not available in arbitration. This benefit addresses and overcomes the often-heard reluctance to use arbitration based on the lack of appellate rights;
  2. Expertise of the Fact Finder: It would provide parties with the right to choose a fact finder with subject-matter expertise, rendering a more efficient and certain fact-finding process.
  3. Efficient Use of Resources: Due to the subject-matter expertise of the fact finder, the process would be quicker and less expensive than court litigation. The combination of private and public proceedings would save public resources, vastly reducing the time expended by the court by eliminating the court's fact-finding efforts. For example, a five-day trial may be reduced to a mere half day of legal argument instead. With regard to the arbitration portion of that proceeding, due to the fact finder's expertise, arguably there may be a reduction of time spent in that proceeding as well.
  4. Preservation of Broad-Scope Privacy: Since the fact-finding portion of proceedings occur outside of the public sphere, parties preserve privacy, except as to those discoverable facts that the referee-arbitrator considers pertinent to the issues for determination.
  5. Preservation of the Right of a Public Proceeding: There is a well-known adage in law, arising from the English case of R. v. Sussex Justices, [1924] 1 KB 256 (available at bit.ly/1TwJQLN), which states that “justice should not only be done, but should manifestly and undoubtedly be seen to be done.” Our litigation process is founded on the system's principles of fairness and judicial impartiality. Arb-Lit preserves the principles upon which public proceedings rely by balancing the litigants' joint interests of privacy and transparency of proceedings.

Arb-Lit is a missing link in the ADR spectrum. Given the current state of the courts—docket backlogs, inadequate funding, California's curtailment of court-connected ADR resources, and difficulty in securing speedy hearing dates for complex proceedings—this new hybrid process may provide the cure for many of the issues that are plaguing the public dispute resolution process.

Phillips in Alternatives

Author Gerald F. Phillips died last fall before the accompanying article was finalized. The veteran attorney-neutral passed away Oct. 19, 2015, in Los Angeles, where he had lived for many years. He was 90.

Phillips was a longtime Alternatives editorial board member who had written on various topics that consistently urged increasing use of conflict resolution processes.

His most requested Alternatives work has been on the hybrid process of med-arb. Those articles include “It's More Than Just ‘Med-Arb’: The Case for ‘Transitional Arbitration,’” 23 Alternatives 9 (Oct. 2005); “Back to Med-Arb: Survey Indicates Process Concerns are Decreasing,” 26 Alternatives 73 (April 2008); “The Survey Says: Practitioners Cautiously Move toward Accepting Same-Neutral Med-Arb, But Party Sophistication Is Mandatory,” 26 Alternatives 101 (May 2008). All are available with a subscription via http://bit.ly/1BUALop.

Phillips is author of “Fair Deal for All Clients: How to Rekindle Pride in the Legal Profession” (2014 Carolina Academic Press).

The New York City native is a co-founder of the College of Commercial Arbitrators and former president of Dispute Resolution Services.

Phillips worked in the entertainment field for more than 50 years, beginning at New York's Phillips, Nizer, Benjamin, Krim & Ballon, which was founded by his father, Louis Phillips, whose first partner was noted trial lawyer Louis Nizer.

While Phillips remained associated with the firm until the late 1980s, he also served concurrently as a vice president of United Artists, heading the studio's litigation department and its special markets division. From 1984-1987, he also served as chairman of WNYC, New York City's flagship public radio station.

Phillips devoted his work to arbitration and mediation in the 1990s at his daughter Stacy's firm, Phillips Lerner ALC, which he helped her launch in Los Angeles.

Phillips graduated Dartmouth College in 1950; he and his family created the Phillips/Samuels/Victor Family Fund at the school's Ethics Institute, which endows an annual ethics essay award (for more information, see bit.ly/1WuEY7Z). He received his M.B.A. at Dartmouth's Tuck School of Business. He received his J.D. at Cornell Law School.

Biographies

  • Co-author Gerald F. Phillips, who passed away in October, was a veteran attorney-mediator and arbitrator in Los Angeles, and an adjunct professor at Malibu, Calif.'s Pepperdine University School of Law. Please see the accompanying box on page 73.

  • Co-author Jennifer Winestone, LL.M. (ADR), is an attorney with licenses to practice in the United States and Canada. She is founder of Winestone Mediation in Los Angeles and works as family mediator.


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