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A Texas court has rejected a pipeline contractor’s $25 million claim for additional costs based on broad release language include in an executed change order (see Wood Group, USA v. Targa NGL Pipeline Company, LLC, No. 01-21-00542, 2023 WL 5280249 (Tex. Ct. App. Aug. 17, 2023)). The change order at issue increased the contract price by $1.3 million to cover additional costs resulting from a specific change to the contractor’s scope of work (i.e., an increase in the number of horizontal directional drilled bores). Included in the change order was broad release language whereby the contractor waived and released any claim based upon information the contractor knew or should have known prior to the date of the change order. The contractor argued that the release should only apply to claims related to the specific change addressed by the change order. The trial court disagreed and applied the release as written to bar over $25 million in claims that it held were known or should have been known as of the date of the change order. 

In affirming the trial court’s, the Texas Court of Appeals provided this helpful overview of how releases are interpreted and enforced under Texas law:

A release is a written agreement that discharges a duty or obligation owed to one party to the release and operates to extinguish the claim and is an absolute bar to any right of action on the released matter. A release is a contract subject to the rules of contract construction. Thus, we read the contract as a whole and must examine the entire contract to harmonize and give effect to all its provisions. We give the release’s language its plain grammatical meaning unless doing so would defeat the intent of the parties. To effectively release a claim, the releasing instrument must mention the claim to be released and claims that are not clearly within the subject matter of the release are not discharged, even if they exist when the release is executed. Although releases generally contemplate claims existing at the time of execution, a valid release may also encompass unknown claims and future damages.

Wood Group is a good reminder to pay close attention to the fine print before signing any legal document like a change order. The contractor may have thought it was only giving up claims related to the particular change at hand, but the wording of the release went much broader than that. By signing the $1.3 million change order, the contractor agreed to the broad release and gave up over $25 million in claims.

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Here’s the Scenario: Try explaining the concept of “retainage” to a businessperson unfamiliar with the construction industry at your next holiday party. Here’s the typical response as she spits out her eggnog: “Wait a minute: are you telling me that when work and materials timely supplied on a private commercial project are approved, the contractor and subcontractors have (depending on the state) 5%-10% withheld every month until the very end of a long project? That’s just nuts!” You respond: “Crazy, but this is standard in the industry, even when profit margins are getting smaller and smaller.” And the businessperson then says: “Where is this ‘retainage’ during this time, in a safe in the Grinch’s cave? Your response: “Well, while its mostly the subcontractors’ retainage, since most prime contractors don’t self-perform, maybe the retainage is with the owner or even the lender and it may not be actually set aside.” The businessperson does her best Santa “Ho, Ho, Ho,” shakes her head, heads back to the bar for more eggnog, and strongly suggests you should get yours spiked.

A Warning

If you do historical research to find out where the heck the concept of retainage came from, you have to go back in England in the 1840s during a boom in railway construction called “railway mania.” With not enough competent contractors, and then a crash in the market, the railway companies began to withhold up to 20% to make sure that the work was properly and timely done. This concept somehow filtered over to the United States during the industrial revolution and has been in use ever since.  The idea of “protecting” retainage reached a legislative peak after the series of failed projects and bankruptcies that followed the 2008-2010 financial meltdown. Lenders foreclosed, wiped out any lien rights and then sold the projects without having to pay a dollar to the construction companies that built the half-completed projects. And where was the subcontractor retainage for approved work on these failed projects?  Most of the time, it did not exist and had not been funded to the owner by the lender as set forth in a loan agreement. Poof, an invisible lump of coal shoved down your financial throat. Recall from the previous post, the “owner” on any prime contract is typically a “limited liability” company whose only asset is the heavily mortgaged land. Who may be holding the empty retainage bag when all the subcontractors all gather around the Prime office trailer tree with their hands out? Yep, prime contractors.    

So, what can a prime contractor do?

  • Know the Retainage and Prompt Pay Laws in the Project’s state: Some states (like Tennessee) have mandatory requirements and severe civil penalties if retainage on a commercial is not paid into an interest-bearing escrow account during the project. These laws can also limit the % of retainage which can be withheld and even when and how retainage is released. Most of these laws also cannot be “waived” by contract. To be clear, there can be consequences not just for the owner for not following the retainage laws, but also to the prime contractors which have in turn withheld retainage from their subcontractors. In Tennessee, due to a very active subcontractor’s lobbying efforts, as an example, the failure to establish a retainage account after written notice can even be a criminal violation. Don’t get bad news after the fact from your Chief Legal elf. 
  • Can you get the owner to not withhold retainage?  Because of the perceived unfairness of retainage and the possibility of retainage abuse, there is a trend for owners (mostly state and federal agencies) not to withhold retainage. Why should retainage be withheld if there is a payment and performance bond required of the prime contractor? The primary problem is still on commercial, financed projects where the status quo is for lenders to demand that retainage be withheld and even make retainage, even if escrowed, part of the security for the loan (think the Grinch in his cave hiding the Whoville toys) in the event of an owner default (which may be a violation of a retainage laws).  The argument is that the owner can properly manage a project through the ability to withhold payments from monthly pay applications if there’s an issue with the work. When quality and loyal subcontractors are sometimes hard to find, what better way to ensure loyalty than to tell a subcontractor, like an ecstatic toddler Christmas morning, that for approved work, it will get paid 100% of a pay request?
  • Can there be creative ways to benefit all sides and not hold retainage? Put on your Santa thinking hat. Can the owner be protected, and the prime contractor and subcontractors benefitted, by not withholding “retainage” but placing some monetary value on some aspect of the work or requirements for final payment such as project close out?  But be careful if the goals are to avoid retainage laws.  Again, many of these laws cannot be waived by contract, and if some withholding of monies looks and sounds like retainage (looks and quacks like a duck), it may be deemed by a judge or (in many cases) an arbitrator as retainage.
  • Be smart about retainage provisions in contracts.  Be like Cindy Loo Who ferreting out her toys and the Grinch.  Don’t sign a prime contract that calls for retainage until you have some reliable information about how “your” retainage is located/held. More importantly, look carefully at the retainage provisions. Going back to the lender issues, many loan agreements provide that if there is an owner loan default, over which a contractor has zero control, retainage will not be released but used to cure any owner default.  Scrutinize the contract provision for “final” payment, which normally includes retainage. Are there unacceptable conditions, such as lender approval? You don’t want to be left with an empty bag like Santa at 11:59 pm on December 25th. 
  • Check your own “form” Subcontracts.  While most prime contracts are heavily negotiated, many prime contractors have their own “form” subcontracts.  Again, every state’s lien, retainage and prompt payment laws are different. An effort needs to be made to modify that form, just like Santa continues to update his naughty and nice list. 

The Bottom Line

What’s your profit margin?  Think through how retainage impacts your bottom line during your projects. Even Santa has to feed and water his reindeer before, during and after Christmas. In 98% of your projects, the retainage will flow down to you and in turn you are handing out retainage checks like candy canes at a holiday parade but be prepared if you see a big fat retainage lump of coal coming to the stocking on your mantle.

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Here’s the Scenario: After months of working with a new national developer (and providing hours of unreimbursed value engineering), you get the draft prime contract and see that the named “owner” will not be the hugely successful developer, but a specially created “limited liability company” that’s sole “asset” is the land upon which the project will be built. The developer has also shopped around to obtain investors for this project, and the LLC is made up of a series of limited liability companies, limited partnerships, etc. The project is also being financed, so that the sole owner “asset” is subject to a deed of trust/mortgage by the lender that will take precedence over any contractor lien claim. While there’s been zero discussion or mention of this “owner,” the pressure is on. What options do you have?   

A Warning

Those old timers who have been around recall the series of failed projects and bankruptcies that followed the 2008-2010 financial meltdown. This put many construction companies out of business while the lenders foreclosed, wiped out any liens, and then sold the projects without having to pay a dollar to the construction companies that built the half-completed projects. Any non-escrowed withheld retainage is gone. Always, always, know that there is a reason a “LLC” is called a “limited liability” company.

So, what can a prime contractor do?

  • Demand and ask for evidence of financing whether or not the owner is or is not financing the project. Some owners do not need financing. If using an AIA form prime contract, remember that the standard A201 General Conditions (Article 2.2) states that upon a written request, the owner is required to provide “reasonable evidence” that the owner has made “financial arrangements” to fulfill the owner’s obligations. And the contractor also has no obligation to “commence the work” until such information is provided. If the AIA form is not used, include something similar in your prime contract.
  • Don’t sign the contract until you have some reliable information about financing. For financed projects, you have some leverage. Typically, the owner/developer is ready to finalize the plans, get the prime contract signed, close the loan, and break ground. And to close the loan, it needs an executed prime contract. At this late date, it’s really hard for an owner to then find another contractor. Use that leverage if necessary. 
  • Protect withheld retainage: Many states (like Tennessee) have mandatory limitations on the amount of retainage that can be withheld (ranging from 5% to 10%), and for a long project, that’s a lot of delayed profit. Know the retainage laws (and penalties) if the retainage is not escrowed throughout the project, which is mandatory in some states (like Tennessee). Try to have the owner even agree NOT to withhold retainage, which would allow a contractor to in turn have very, very happy subcontractors. 
  • During the course of the project, track payments and don’t accept promises of payment. No matter the explanations, strictly adhere to the payment terms and conditions, especially for deadlines for notices for claims. Know deadlines for lien notices. It’s also vital to carefully examine those typically required partial lien releases that are required to be provided with pay applications: Make sure that any and all claims or proposed change orders are carved out and preserved. You better believe that after a dispute or termination, without making these efforts, these lien waivers will be thrown back in the contractor’s face by the owner or the lender.      
  • Before you exercise any default, threats to stop work, or initiate ADR proceedings, make sure that there not any other executed documents that may have been required by any lender. My previous post discussed the issues with the demand that the contractor execute the typically required “Consent and Assignment Agreement” in favor of the lender.

The Bottom Line

In 98% of your projects, contractors will get paid, which will in turn allow subcontractors to get paid, and the work will be done properly and on time. Any issues are worked through in good faith. The “we are all a team” attitude should prevail throughout a successful project, and everyone should pledge to work together again. But remember “who” you are contracting with, and it’s not the great developer. If there are issues and the developer decides to tank the project, or has issues with the lender, you could be holding the bag and face potential liability from subcontractors. “Know thy owner” is a mantra that should be a part of every internal discussion before embarking on a new project.

Lawyer’s Advocacy in Arbitrations: No. 10 of the Top 10 Horrible, Terrible, No Good Mistakes Lawyers Make: Not Looking for Ways to Make Your Arbitrator Happy at the End of a HearingDavid K. Taylor, Bradley Arant Boult Cummings, Nashville, TN
dtaylor@bradley.com
615-252-2396

There’s a great argument that lawyer advocacy in an arbitration is more essential than at a trial in court. This is the last post of the 10 most horrible, terrible, no good, “bang your head against the door” mistakes that I have seen lawyers make in arbitrations, both when I served as counsel and as an arbitrator. Agreeing to arbitrate a dispute, whether in a contract or by agreement, is a serious decision for any business. There are pros and cons to binding arbitration versus trial in a court that go beyond a series of blog posts, but the fact is that when a dispute is arbitrated, finality is the rule. It is very difficult to appeal an arbitration award. In many instances, representing a party in an arbitration requires more due diligence and work than a trial. Great “arbitration” lawyering is therefore essential but… sometimes does not happen.

No. 10: Not Looking for Ways to Make Your Arbitrator Happy at the End of a Hearing

Prior to the time that the proof in an arbitration is formally “closed” and you pack up your bankers boxes and thank the arbitrator (and are gracious to your adversary), think through how you can help the arbitrator make a well-informed award. Especially with an arbitration where there are scores of claims (such as change orders, each of which may be factually complicated) and defenses, remember that while you may have lived with the dispute for years, the arbitrator only has her notes and the (many times) voluminous exhibit books. Depending on your working relationship with opposing counsel, they have the same general goal when the hearing ends: Make sure the arbitrator understands each sides’ claims and defenses.

Therefore, be creative. Would post-hearing “summaries” that link up specific issues or claims to witnesses and exhibits be helpful, even if you work with opposing counsel to do so?  If there are claims for the recovery of legal fees (such as who is the “prevailing party”) and allocation of arbitration costs (which can be significant and include the arbitrator’s compensation), while you should have determined prior to the hearing how the arbitrator wants to handle such claims, ask for direction. Are your damages clear and unambiguous and have they remained unchanged from when the hearing began? Many times, during the hearing, claims and defenses are modified/revised/withdrawn. What about proposing the submittal of a Word document or Excel spreadsheet that lists the claims and amounts sought with a blank space for what will be awarded on that claim? Most arbitrators want to and will address every “claim” in the written award and want to be 100% clear on the relief sought.

While most arbitrators do not want formal post-hearing briefs that address every single issue, it may help to offer to submit a short and to-the-point summary of your damages. Sometimes there are pure legal (such as contract clause interpretation) issues that were raised for the first time in the hearing. If you are unclear or unsure that the arbitrator understands your position on such issues, offer to submit a short memorandum or even an email.  Do remember that whatever is submitted (under most arbitration rules) the time frame for the issuance of an award (typically 30 days from the close of the hearing) does not formally begin until all “post-hearing” filings have been submitted.

The bottom line is this: If you were the arbitrator, what would you want from counsel to make your final decisions and the award easier to write? Especially in a dispute where there may be scores of issues and claims, any post-hearing efforts or offers to the arbitrator to make her job easier will win you brownie points; hopefully increase your and your client’s credibility; and will pay off in the final result.

Finally, since this is the last of the top 10 posts, thank you for all of the great feedback I have received from readers all over the country, including a number of suggestions and recommendations from full-time arbitrators. One suggestion I recently implemented in an arbitration where I served as counsel was well received by the arbitration panel. For the 10 jointly created exhibit books, instead of putting them all in typical black binders, we used different color binders for each book. It saved time for all involved by being able to ask a witness or the panel arbitrator to turn to the “green” binder.

Read numbers 1, 2, 3, 4, 5, 6, 7, 8, and 9 on the list.

Lawyer’s Advocacy in Arbitrations: No. 9 of the Top 10 Horrible, Terrible, No Good Mistakes Lawyers Make: Be Creative with Proof and IssuesDavid K. Taylor, Bradley Arant Boult Cummings, Nashville, TN
dtaylor@bradley.com
615-252-2396

There’s a great argument that lawyer advocacy in an arbitration is more essential than at a trial in court. This post is the ninth of the top 10 most horrible, terrible, no good, “bang your head against the door” mistakes that I have seen lawyers make in arbitrations, both when I served as counsel and as an arbitrator. Agreeing to arbitrate a dispute, whether in a contract or by agreement, is a serious decision for any business. There are pros and cons to binding arbitration versus trial in a court that go beyond a series of blog posts, but the fact is that when a dispute is arbitrated, finality is the rule. It is very difficult to appeal an arbitration award. In many instances, representing a party in an arbitration requires more due diligence and work than a trial. Great “arbitration” lawyering is therefore essential but sometimes does not happen.

No. 9: Not Being Creative with Proof and Witnesses 

In a typical trial, the plaintiff goes first with witnesses followed by the defendant’s witnesses. There may be multiple parties and claims, and the trial can stretch out over many days.  Key witnesses or experts could testify on day one, and the witnesses (including experts) who rebut that testimony on those issues may not testify until days later. The judge’s schedule may also dictate trial time and scheduling. Witnesses will not normally be taken “out of turn” regardless of their circumstances. The result may be testimony on claims one, three, and five on the first day of trial, while the rebuttal witnesses may not provide testimony until days later. Whether in front of a judge or jury, this lack of continuity of witnesses can cause confusion, especially when there is no trial transcript for a judge or jury to review. They have to rely on notes (if allowed to a jury) and/or pure memory.

While in arbitration hearings arbitrators face some of these same continuity issues, this is where the more informal nature of arbitration can be a real advantage. It may be harder for the arbitrators to review the testimony than a judge. Keeping this in mind, be intentional about the order of presentation of your witnesses. In arbitration, you are likely to have more flexibility with the order of witnesses and the hours made available for the presentation of evidence. Always remember that the arbitrator is being fed facts and arguments through a fire hose and is relying only on notes taken while a witness is testifying, as well as (typically) volumes of exhibit books chock full of exhibits. Therefore, put on your thinking hat. Arrange the exhibit books (see previous post) and include separate “claims/issues” sections for easy access, not just for the arbitrator but for you and your witnesses’ preparation. Arbitrators appreciate any effort or suggestion to narrow down issues and claims and present all evidence on a specific claim at the same time. Creativity with how issues, witnesses, and claims are presented is the key. Zoom and telephone testimony can be arranged (remember the rules of evidence do not apply). You can suggest what’s called “hot boxing” and propose having key witnesses from both sides testify back to back on key issues. For experts, consider having them present their opinions one at a time, or even at the same time, by going back and forth answering questions from all counsel and the arbitrator. Especially in a dispute where there may be scores of issues and claims, your efforts to make sure the arbitrator’s job is easier will pay off in the final result.

Read numbers 1, 2, 3, 4, 5, 6, 7, and 8 on the list.

Lawyer’s Advocacy in Arbitrations: No. 8 of the Top 10 Horrible, Terrible, No Good Mistakes Lawyers Make: Get the Hearing Exhibit Books RightDavid K. Taylor, Bradley Arant Boult Cummings, Nashville, TN
dtaylor@bradley.com
615-252-2396

There’s a great argument that lawyer advocacy in an arbitration is more essential than at a trial in court. This post is the eighth of the 10 most horrible, terrible, no good, “bang your head against the door” mistakes that I have seen lawyers make in arbitrations, both when I served as counsel and as an arbitrator. Agreeing to arbitrate a dispute, whether in a contract or by agreement, is a serious decision for any business. There are pros and cons to binding arbitration versus trial in a court that go beyond a series of blog posts, but the fact is that when a dispute is arbitrated, finality is the rule: It is very difficult to appeal an arbitration award. In many instances, representing a party in an arbitration requires more due diligence and work than a trial. Great “arbitration” lawyering is therefore essential but sometimes does not happen.

No. 8: Get the Hearing Exhibits Right

While arbitrations are less formal than trials, and the rules of evidence normally do not apply, there are still “paper” exhibits to be introduced through sworn testimony. There can be arbitrations where all exhibits are electronically scanned and pulled up via laptops by all involved, but most of the time exhibits are copied and placed into multiple exhibit books prepared by counsel. Typically, the scheduling order issued by the arbitrator has pre-hearing deadlines for the exchange of all proposed hearing exhibits. Exhibit books are then created, and on the day of the hearing both sides show up with their own set of exhibit books. But this process of each side bringing their own exhibit books is a mistake. It can cause confusion at the hearing because many times there are identical material exhibits that have different exhibit “numbers,” and counsel, the witness and especially the arbitrator are looking around to find the right exhibit book. Why does the “contract” at issue or key letters or emails have to be Exhibit 24 in one side’s exhibit book, but Exhibit 43 in the other side’s exhibit book?

The best way to handle this (and many arbitrators mandate this in the scheduling order) is to have counsel first exchange a “list” of proposed exhibits and then work together (in good faith) to create a “joint” set of exhibit books. There should be an index that can include not just exhibits, but tabs for pre-hearing briefs, summaries of damages, and pictures. A joint exhibit set allows everyone to “sing from the same song sheet” and save time. It is also extremely helpful for counsel to know all of the exhibit numbers in advance to prepare for direct and cross examination, as well as preparing witnesses.

Other mistakes to avoid in exhibit book preparation and presentation include:

  1. If the arbitration is document intensive and there will be multiple exhibit books, use “binders” that are easy to open and close and try not have so many exhibits jammed into one binder, which can make a binder unwieldy. Err on the side of making more exhibit books.
  2. Include an index and exhibit list by exhibit number for easy reference, and especially include the dates for emails and letters. This can include exhibits separated by issues, years or even months.
  3. If there are not “bates” numbers on each page of each exhibit, for exhibits that have multiple pages, such as pictures (which should always be dated), number each page. There is nothing more frustrating to an arbitrator (and witness) than the questioning lawyer asking about a specific document that is “about ¼ of the way in” or around “18 pages from the back,” and delays ensue while everyone scrambles to find that specific document.
  4. Include some blank exhibit tabs that are numbered, since many times there can be exhibits added during the hearing, such as summaries, demonstrative exhibits, or even post-hearing added exhibits.
  5. Be sure that at the end of any hearing, when all of the proof has been presented, that all parties, and especially the arbitrator, are on the same page about all exhibits, especially if exhibits have been added. Sometimes there are proposed exhibits that ended up not being used by either side. Consider if those unused exhibits should be removed altogether from the arbitrator’s set.

Read numbers 1, 2, 3, 4, 5, 6, and 7 on the list.

Lawyer’s Advocacy in Arbitrations: No. 7 of the Top 10 Horrible, Terrible, No Good Mistakes Lawyers Make: Pay Attention to Your ArbitratorDavid K. Taylor, Bradley Arant Boult Cummings, Nashville, TN
dtaylor@bradley.com
615-252-2396

There’s a great argument that lawyer advocacy in an arbitration is more essential than at a trial in court. This post is the seventh of the 10 most horrible, terrible, no good, “bang your head against the door” mistakes that I have seen lawyers make in arbitrations, both when I served as counsel and as an arbitrator. Agreeing to arbitrate a dispute, whether in a contract or by agreement, is a serious decision for any business. There are pros and cons to binding arbitration versus trial in a court that go beyond a series of blog posts, but the fact is that when a dispute is arbitrated, finality is the rule: It is very difficult to appeal an arbitration award. In many instances, representing a party in an arbitration requires more due diligence and work than a trial. Great “arbitration” lawyering is therefore essential but…  sometimes does not happen.

No. 7: HEY! Pay Attention to Your Arbitrator.

All “trial” lawyers are taught early in their career to pay attention during a trial to the judge and the jury during witness testimony. How are they reacting to a witness or lawyer? Are they shaking their heads yes or no, nodding off (it can happen), suppressing a laugh or scowl, paying attention, or even rolling their eyes? These reactions can be invaluable to lawyers. It is difficult to gain such insight while you are questioning a witness. Many times, the questioning lawyer will ask a client or co-counsel to watch for any tell-tale reactions. This in-trial strategy is also helped immensely by the way a typical courtroom is set up: separate counsel tables facing a judge who is sitting up high; a jury on one side of the courtroom; and a witness “box” to the side of the judge. In a very large courtroom, counsel tables may be five or even 10 yards away from the bench and witness. Lawyers sometimes are also tied to a podium. A lawyer can then, pretty easily, without being too obvious, observe any reactions, whispers to co-counsel, or notes that are passed.

But an arbitration is different — mainly because of the hearing location and setup. Most hearings take place in a conference room, which can be of varying sizes. There can be a panel of three arbitrators with counsel for the parties facing each other. There may not be more than a few feet between the lawyers and the arbitrator and witness. Witnesses may not be facing the arbitrator but may be sitting on one side of the conference room table. It is therefore not as easy as being in “court” to gauge how a witness is doing or what impact, good or bad, a witness is having on the arbitrator. While most arbitrators attempt to remain stoic even during the worst of witnesses (and lawyers), they (we) are in fact human. All too often, while serving as counsel in an arbitration, I have seen significant reactions or “tells” from an arbitrator indicating whether the arbitrator is really paying attention. Is the arbitrator furiously taking notes, plugging away on a laptop, or looking at a thick exhibit book reading an exhibit that is not even being discussed by the witness? I have also, as an arbitrator, been amazed when lawyers plow through testimony and often move on to new exhibits when it is obvious that I am writing notes, not looking at the referenced exhibit, or even trying to get to the referenced exhibit. I may then tell the lawyer to “hold up” and let me “catch up,” but that should not happen.

In a word, when an arbitration award is binding and almost impossible to appeal, PAY ATTENTION TO YOUR ARBITRATOR!

What are some tips you can follow as a lawyer to make sure that you have the best “vantage point” to observe both the arbitrator and any witness?

  1. If at all possible, early on (in the initial conference call when the hearings are set) offer to “host” the hearing at your office (if that’s the city where the hearings will take place). Many times, arbitrators do not have large offices with comfortable conference rooms with amenities. That allows you to control what room to use, how it is set up, and provides ease of convenience for you and your clients to hold the hearings on your home base.
  2. If the hearing is in not in a city where the lawyers/clients/arbitrators live, be the first to offer to find a hearing location.
  3. If you are not hosting, visit the conference room days before the hearings begin and see what makes sense for the set-up.
  4. Most importantly, find out when the hearing location opens and get there as early as you can on the first day: Beat the other side there. You can choose the best side of the table (plunk down your exhibit books) and try to designate where the witnesses and the arbitrator will sit (again, plunk down the witness and arbitrator set of exhibits where you want them).
  5. Finally, just like you would do in court ­­‑‑ without trying to be too obvious — observe the arbitrator or have one of your colleagues do so, especially during testimony. You may very well pick up valuable tips that may change or alter your strategy and enhance your ability to come out with a favorable ruling.

Read numbers 1, 2, 3, 4, 5, and 6 on the list.

Lawyer’s Advocacy in Arbitrations: No. 6 of the Top 10 Horrible, Terrible, No Good Mistakes Lawyers Make: Not Treating Your Arbitrator Like SantaDavid K. Taylor, Bradley Arant Boult Cummings, Nashville, TN
dtaylor@bradley.com
615-252-2396

This post is a continuation of the Top 10 most horrible, terrible, no good, “bang your head against the door” mistakes that I have seen lawyers make before, during, and after arbitrations in which I served as the arbitrator. As stated in the previous posts, there are pros and cons to binding arbitration versus trial in a court that go beyond a series of blog posts. In many instances, representing a party in an arbitration requires more due diligence and work than a trial. Great “arbitration” lawyering is essential, but many times does not happen.

No. 6: Not Treating Your Arbitrator Like Santa

It is the time of the year for ALL good lawyers to clean up their act because Santa is coming. This same type of thought that goes into “being good” should factor into how you treat the arbitrator who will issue an award that either results in coal or a lip-smacking candy cane being placed in your law firm stocking hung snugly by your desk. Should Santa’s cookies and milk be put on the mantle near the fireplace for easy access (or maybe for a hungry elf) or out of his immediate reach? Of course not, says Rudolf the partner. A serious mistake I see, while both acting as an arbitrator or counsel, is when lawyers do not treat the arbitrator like a judge and do not think through how they can make things “easier” for the arbitrator. All those nuances we were taught as young “trial lawyers,” by our mentors, on treating judges with kid snow mittens, for some reason, go out of the decorated and frosted office window in an arbitration.

On the front end of an arbitration, try to find out from colleagues how the arbitrator likes to handle pre-hearing conferences and plan accordingly. Can you get your hands on a scheduling order previously issues by the arbitrator, revise it, and present it prior to the conference in a nicely wrapped package? On discovery disputes, arbitrators hate those as much (or even more) than judges (like Santa hates narrow chimneys). Go out of your way, just like you do in court, to resolve such disputes in good faith before taking them to the arbitrator. Do NOT think that somehow presenting a discovery dispute months before the hearing will somehow “educate” the arbitrator; it will not. Most arbitrators go into a hearing with a clean slate and base decisions on what’s presented, just like even bad girls and boys start out on the nice list with Santa on December 26th of each year.

Prior to the hearing, work with the other side as much as possible to put together a joint set of exhibit books that can be used by counsel, all witnesses, and the arbitrator so everyone has the same caroler song sheet. Bates or number the pages of exhibits that have multiple pages for easy reference. Needless time is wasted when lawyers have to say “well, this picture of the failed retaining wall near Santa’s workshop is about three-fourths of the way” in a 100-page exhibit full of pictures. Arbitrators also hate it when both sides come in with their own set of exhibit books when 80% of the exhibits in both sets are exactly the same. Along that same vein, create multiple volumes. Don’t use 12-inch-deep volumes with scores of exhibits that are hard to open and close. Again, Santa likes to have his milk and cookies close by and easy to access with no fuss. Would you wrap up his cookies in hard to open bags? Mrs. Claus would say no.

Before the hearings close, think about how to best make the arbitrator’s post-hearing analysis easier. Santa does not want to read through a long letter about what all went wrong with you in 2020. He wants to know what’s on your award “wish list” to be left under the “award tree,” which is hopefully decorated with paid client 2020 invoices. What the arbitrator wants is a short and concise summary of what relief you are seeking. Propose to submit a damages or key issue summary with a list of the exhibits that support your positions and claims. If legal fees are being considered, ask what process works best for the arbitrator. While most arbitrators do not need or want extensive post-hearing briefs, there may be one or two issues upon which the arbitrator may want a short and concise brief. And you can provide that additional, steaming cup of “hot claim chocolate” when your Santa sits down before ascending into the air to decide how he has to make someone happy and someone sad.

What you and your client do not want is to — as the Grammy winning song goes — “get run over by a reindeer” in any final award. All these holiday nuggets of wisdom cannot change your facts or make your witnesses more credible. But, you don’t want to mess around with Santa or give your arbitrator a reason to hesitate when she opens up and reaches into her big red “award bag” and provides you with an award treat that will hopefully be delicious and go down easy with you and your client.

Even Santa can’t wait for 2020 to be over. Everyone have a great and safe 2021!

Read numbers 1, 2, 3, 4, and 5 on the list.

Bradley’s construction practice group is proud to announce that it ranked No. 3 on Construction Executive’s list of “The Top 50 Construction Law Firms” for 2020. This is the second consecutive year for Bradley to be ranked in the top five of Construction Executive’s list.

Bradley’s Construction Practice Group has handled every aspect of large-scale construction projects across the country and around the world. Our broad experience comes from our hands on approach to managing both the business and legal challenges our clients face every day. We understand the sophisticated dynamics of the construction industry at home and abroad, and we deliver smart, real-world solutions to our clients.

Our construction lawyers travel extensively to advise clients on projects in the United States, Canada, and Mexico, as well as more than 60 countries across Europe, Asia, Africa, Australia, the Middle East, the Caribbean, and South America. We recognize that the nature of our practice demands spending time onsite at projects, with our lawyers engaging with clients face-to-face on matters as they develop.

We encourage you to reach out to a member our of Construction Practice Group to learn how we can help you and your business.

David K. Taylor, Bradley Arant Boult Cummings, Nashville, TN
dtaylor@bradley.com
615-252-2396

Lawyer’s Advocacy in Arbitrations: No. 4 of the Top 10 Horrible, Terrible, No Good Mistakes Lawyers MakeThis post is a continuation of the Top 10 most horrible, terrible, no good, “bang your head against the door” mistakes that I have seen lawyers make before, during, and after arbitrations in which I served as the arbitrator. As stated in the previous posts, there are pros and cons to binding arbitration versus trial in a court that go beyond a series of blog posts. In many instances, representing a party in an arbitration requires more due diligence and work than a trial. Great “arbitration” lawyering is essential, but many times does not happen.

No. 4: Not understanding Pre-Arbitration Discovery Rights… and Limitations

After going through arbitrator selection and the initial administrative hearing, you not only have an arbitrator, but a scheduling order and a hearing date. Typically, in court, there would then be the start of a tedious and expensive pre-hearing “discovery” process. The mistake: not knowing your arbitration pre-discovery rights and limitations and not having a discovery “plan” in place that takes into consideration these limitations. Recall arbitration is a matter of contract. Does the arbitration clause address pre-arbitration discovery? Typically, a clause will incorporate by reference the rules of the group that will be administering the arbitration, such as the American Arbitration Association (AAA). What do these rules provide, if anything, on pre-hearing discovery? Recall my previous post discussion about effective drafting of arbitration clauses. The lawyer drafting the clause may have referenced some rules that may call for full bore discovery, when the pitch to the client to agree to arbitration was that discovery would be limited. The AAA also has separate rules for complex cases. You have to know what discovery you can and cannot obtain according to the clause and the rules, and be prepared to negotiate with opposing counsel if you cannot get what you need.

Party document exchange is always allowed, and it can be as simple as a letter with a list. It’s not necessary to send a formal “Request for Documents.” I still have arbitrations when counsel try to send interrogatories or requests for admissions. Again, absent a clause or agreement with counsel, the “rules of civil procedure” do not apply in arbitrations. The arbitrator does have the power to entertain motions related to party discovery, such as motions to compel. Entertaining and awarding sanctions is another matter, since again the rules of civil procedure, where judges are given options, do not apply. In these days of e-discovery, especially when there may be reams of documents and emails (especially in construction cases), it makes sense to try to work with opposing counsel on some kind of e-discovery protocol, such as search terms. Any reasonable arbitrator will expect and demand this sort of cooperation.

Pre-hearing depositions are always a tricky subject. Absent a clause, or what the rules provide, typically a party does NOT have a right to take any pre-hearing depositions. This drives some lawyers who do not have arbitration experience crazy. The arbitrator also does not have the right to “order” depositions (there can be exceptions for out-of-state witnesses). There can be an “agreement” with counsel for a full blown, unlimited depositions or just a few. But be forewarned: Many arbitrators who feel strongly about controlling legal costs (one hallmark of arbitration), may push back on “agreements” for extensive discovery. There have been arbitrations where the arbitrator believes the lawyers are out of control and sets up conference calls insisting that the clients participate, along with all counsel, to discuss why such depositions are necessary. How the arbitrator thinks about depositions is key when reviewing arbitrator lists. This is also a topic that prior to the initial scheduling conference counsel should have discussed, and certainly with the arbitrator in that conference where a scheduling order is being fashioned.

What about pre-hearing third-party discovery? The short answer is, unlike “court,” there is no “right” to such discovery. This is a huge factor in agreeing to arbitration in the first place. If there is a dispute arising out of the contract and your client will be the one who will need to have third-party discovery to prevail, that discovery may not happen. This post isn’t long enough to go through all of the case law (federal circuit courts differ on the enforceability of third-party, pre-hearing arbitrator subpoenas) and articles (just Google) on this topic. It is also important to know that unlike judges, arbitrators do not have the power to enforce a pre-hearing, third-party subpoena. The remedy for that party is to “go to court” to try to enforce the subpoena. Best advice: Have the arbitrator issue third-party discovery subpoenas early, well in advance of the hearing date. Since these third parties may simply ignore the subpoena, obtaining a continuance of a hearing because of your own issues with third-party discovery may not happen.

The primary learning points: (a) Know what your arbitration clause and rules allow for pre-hearing discovery; (b) have a plan for discovery in advance of the initial scheduling conference; (c) try to reach agreement with counsel if at all possible; and (d) use the arbitrator to manage the process to favor your client. Failing to do any of this will seriously hurt your chances of success at a hearing.

Read numbers 1, 2 and 3 on the list.