March 26, 2020

By: Richard W. Foltz, Partner, Pepper Hamilton LLP

Two years ago in this space, I wrote a piece on Combatting Arbitration Inefficiency, calling for the development of a culture of efficiency in arbitration as a shared value in the construction bar.  One of the larger drivers of inefficiency and delay was the import into the arbitration process of one of the most extensive and expensive conventions of American-style discovery – the collection and processing of electronically stored information (ESI) from parties and even non-parties  

While most arbitration rules provide for some pre-hearing information exchange, that process can devolve into an excessive discovery program, including an expensive exchange of ESI, including not only project files relevant to disputed issues, but also searches through employee e-mails, text messages and chat records.  When unchecked, the costs and efforts associated with ESI discovery can be explosively large.  This note will examine the use of ESI discovery in construction arbitrations more closely, and examine what can be done to ensure a more cost-effective arbitration. 

Arbitrators Can and Should Impose Limits on ESI Discovery

Many arbitrators believe that because awards can be set aside by the refusal of the panel to receive evidence, the best way to avoid a reversal is to liberally allow all discovery that a party requests.  But that posture significantly overreacts to the potential risk of vacation of an otherwise proper award, and applied to ESI discovery can allow costs to skyrocket.  Taken too far, this can undermine the prompt and cost effective dispute resolution that is or should be a hallmark of arbitration.  

The Rules of the American Arbitration Association guide arbitrators to narrowly tailor information exchange. “The arbitrator shall manage any necessary exchange of information among the parties with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.”  Rule 24(a).  The AAA’s addendum for large and complex construction matters cautions against wholesale adoption of litigation techniques into arbitration, rather providing for document exchange by agreement.  International arbitration bodies, typified by the ICC, are even more circumspect about adopting discovery techniques.  “The arbitral tribunal and the parties shall make every effort to conduct the arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute.”  ICC Art 22 1.  The ICC rules do not explicitly provide for any right to information exchange.  

Arbitration forums generally have as a working principle that costs should be strictly controlled.  Rule L4 of the Construction Industry Arbitration Rules of the American Arbitration Association provides that “the arbitrator shall take such steps as deemed necessary or desirable to avoid delay and to achieve a fair, speedy and cost-effective resolution of a large complex construction dispute.”  The Construction Industry Arbitration Rules for Preliminary Management Hearing procedure include in their mandate “means and methods for cost-effective case management”. 

While judicial review is a limited check on the arbitrator’s discretion to limit ESI discovery, the basis for setting aside an award for failure to permit discovery is in fact quite narrow.  Under the Federal Arbitration Act, the court . . . may make an order vacating the award upon the application of any party to the arbitration—…..where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy”  9 U.S.C.§ 10(a)(3).   The cases make clear that vacatur pursuant to section 10(a)(3) is warranted only where the arbitrator’s refusal to hear proffered testimony ‘so affects the rights of a party that it may be said that he was deprived of a fair hearing.’”  Century Indem. Co. v. Certain Underwriters At Lloyds, London, 584 F.3d 513, 559 (3d Cir. 2009) (citations omitted).  Fundamental fairness requires that arbitrators provide each party an adequate opportunity to present its evidence and argument but it does not require arbitrators to hear all the evidence proffered by a party. Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16 , 20 (2d Cir. 1997) (citation omitted). 

While the Federal Arbitration Act does not set out failure to provide for discovery as a specific ground for vacatur, it has been asserted – sometimes successfully – where documentary evidence crucial to the fair resolution of a dispute is in the possession of only one party.  The seminal case on this issue, Chevron Transport Corp. v. Astro Vencedor Compania Naviera, S.A., held that [t]he absence of statutory provision for discovery techniques in arbitration proceedings obviously does not negate the affirmative duty of arbitrators to insure that relevant documentary evidence in the hands of one party is fully and timely made available to the other party. . . . [A] failure to discharge this simple duty would constitute a violation of FAA § 10(a)(3), where a party can show prejudice as a result. 300 F. Supp. 179, 181 (S.D.N.Y. 1969).  See also NFL Mgmt. Council v. NFLPA, No. 15-Civ.-5916 (RMB) (S.D.N.Y. Sept. 03, 2015)rev’d on other grounds, 820 F.3d 527, 546-47 (2d Cir. 2016) (where the district court vacated an award in an NFL player disciplinary hearing in part based on the arbitrator’s denial of access to the league’s investigative files). 

Far more common are cases where a losing party in arbitration argues unsuccessfully that limits on discovery amount to misconduct.  These arguments typically fail.  See, e.g., Willacy v. Marotta, No. 1:14 CV 1858 (N.D. Ohio Jan. 22, 2016) (arbitrators rejected belated request to subpoena adversary’s office manager to explain accounts between parties); Bellantuono v. ICAP Sec. USA, LLC, 557 Fed. Appx. 168, 37 IER Cases 1018 (3d Cir. 2014) (arbitrators alleged to have improperly decided privilege and relevance issues in the context of discovery of investigation file).  These examples show that reviewing courts usually find sufficient support to confirm awards when faced with a challenge based upon exclusion of discovery, even where the reviewing court finds the arbitrator’s analysis to be erroneous, by deferring not only to arbitrators’ conclusions that the requested materials are cumulative, but also notions of laches, legal determinations of privilege, relevance or materiality. 

ESI Discovery and the Construction Arbitration

Gone are the days where the project file was maintained in file cabinets, document discovery was measured in Bankers boxes, and review of documents for production and case preparation was an eyes-on manual process, perhaps with computer-based coding.  It is now the norm that construction activities on projects of any breadth are administered, documented and conducted through email, Excel spreadsheets, PDF files and other ESI, and case and project tools have developed accordingly.   

While requests for production of documents generally remain the exclusive method for production of documents and ESI, the process of locating responsive documents can now be augmented through electronic searching.  Most systems for maintaining and organizing project files in electronic form would permit ready access to and production of regular project documentation such as correspondence, meeting minutes, schedule updates, RFIs and responsesand cost files.  But problems can arise when one or more parties demand that additional documents be produced through the harvest of email and other files from the client network or hard drives of client custodians, and selected for production through the application of search terms.  Even more extreme positions, involving requests for harvesting and production of data from personal devices of project personnel, such as cell phones and tablets, have been asserted.  Such an approach to discovery can easily get out of hand.  

Management of discovery of documents and ESI is crucial where the parties have an asymmetry of interest in cost containment. Adverse parties may perceive a tactical advantage in proliferating litigation costs, or by establishing rules that have an adverse impact on a large corporate party as opposed to an opposing party with more limited documentation, a shorter history on the project, and fewer levels of management personnel.  

This custodian/search term process provides opportunities to limit the burden of discovery.  Captured documents can be reviewed by the producing party for responsiveness or produced with “eyes-on” review or some combination of “eyes-on” review with technologyassisted review (TAR), where artificial intelligence concepts and “predictive coding” are used to remove duplicates and nearduplicates, thread documents into logical groupings and use the results of limited review to prioritize documents.  But the cost of “eyes on” review of documents is a large fraction of the cost of discovery, even where parties invest in efficient management systems and use economical resources.   

Other methods of limiting the inefficiency of the process involve tailoring carefully drawn search strategies to narrowly drawn requests for known categories of ESI.  Helpful limits that can be applied to specific requests can include use of specific date ranges and custodian limits; project identifiers for personnel who have duties and documents beyond the management of the construction project at issue; proximity limits with multiple terms to ensure the logical capture of only targeted documents; and exclusionary terms that also help limit the search to only targeted documents.   

In international arbitration, it is customary to parse disputed document discovery using a tool known as a “Redfern Schedule”—a form that tabulates specific requests for discovery along with reasons or arguments in favor of or opposing each request, and facilitates rulings by the arbitrators The Redfern Schedule, prepared through an iterative process, eventually includes each party’s position on the reason specific documents are needed, their lack of availability from other sources, arguments relating to their relevance and materiality and the burdensomeness of their production.  Parties use this approach to resolve disclosure conflicts between them, reserving arbitrator involvement for truly well-vetted disputes with the benefit of an organized record of positions and their application to specific categories of documents.  

The rigorous Redfern Schedule process has proven useful to limit discovery requests to essential materials.  A similar process can be used once the categories of documents to be produced are established, either by agreement or arbitrator ruling, to correlate any opposing positions on the search strategies implemented to locate the targeted documents for production, and to facilitate the arbitrator’s decision.   

If called upon to decide disputes over the search strategies required to locate and produce documents, arbitrators must become familiar with the tools and techniques of electronic discovery.  Resources for help are available through arbitral bodies [1] and legal reference materials [2]. 

Possible Solutions

Parties and arbitration panels can take action to preserve the inherent advantages of arbitration for resolving construction disputes.  Reasonable limitations on ESI discovery would be a large step in that direction.  So would worrying more about inefficiency, and less about the risk that an award is vacated for denial of discovery. 

Parties can provide in the arbitration clause itself for limitations on discovery and hearing, and any other limitations that would make sense under the circumstances.  Parties may, of course, tailor some, even many, features of arbitration by contract, Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576 , 586 (2008).  It is much easier for clients to agree on reasonable limits in the abstract before a dispute arises, rather than afterward when one or both parties might see a tactical advantage in proliferating proceedings.   

At the outset of a dispute, arbitrators should encourage and parties should craft procedural orders containing strict but fair and reasonable limits on the amount of ESI discovery for an arbitration proceeding.  Finally, a “Redfern schedule” approach to ESI discovery would permit tight control by the arbitrators over the costly process of custodian/search term production. 

These efforts can pay dividends in a more streamlined arbitration process.  Counsel and clients should work to achieve this result so that arbitration continues to lead the way in efficient construction dispute resolution. 

[1] See, e.g., Techniques for Managing Electronic Document Production When it is Permitted or Required in International Arbitration, (ICC 2011),

[2]See, e.g., The Sedona Principles, Third Edition: Best Practices, Recommendations & Principles for Addressing Electronic Document Production, 19 Sedona Conf. J. 1 (2018),

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