March 29, 2013

Blankley on Arbitration Ethics

By Jen Reynolds

FOI Kristen Blankley (Nebraska) has posted “Advancements in Arbitral Immunity and Judicial Review of Arbitral Awards Create Ethical Loopholes in Arbitration” on SSRN. The paper was presented at a University of Nebraska Law and Psychology Symposium entitled: “Justice, Conflict, and Well-Being” and will appear later this year in a book of articles from the symposium. The abstract:

Arbitration’s interesting status as quasi-independent of the court system has created perplexing ethical dilemmas. On the one hand, arbitration has been considered separate from the legal system in many important regards, allowing parties the opportunity to receive adjudication in a confidential forum by an expert decision-maker. On the other hand, the rules and expectations of litigation are slowly creeping into arbitration, including discovery and motion practice. Recently, courts have (rightly) begun to apply the rules of judicial immunity to arbitration participants, shielding them from satellite lawsuits for defamation based on things said in the arbitral forum. In so doing, however, the courts have not considered that the criminal laws for perjury, document destruction, and the like do not apply to arbitration, thus creating an ethical “loophole” in the arbitral forum. Compounding this loophole is the fact that the judicial review for arbitral awards on the basis of participant “fraud” (9 U.S.C. 10(a)(1)) is subject to a higher burden of proof than any other basis of review under the statute or common law. This Article suggests two reforms to close the ethical “loophole.” The first is to extend the criminal laws dealing with perjury, document destruction, and the like, to arbitration. The second is to remove the heightened burden of proof from the test for judicial review under Section 10(a)(1). Both of these actions would make arbitration a fairer forum.

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  • Berkeley Mengwasser says:

    This article that proposes ways to close the ethical “loophole” in arbitration was very intriguing to me. I had not realized that this loophole existed, and I’m sure it was something that the courts did not expect after applying the rules of judicial immunity to arbitration participants.

    I agree with Blankley’s first suggestion, that by applying criminal laws to arbitration the loophole could then be closed, however by doing so, this could create a fine line of what is arbitration and what is litigation, especially when the same laws are used for both legal processes and are applied similarly.

  • Elizabeth A. Campbell says:

    I, like Berkeley, did not realize that charges for perjury did not extend to the arbitration process. This creates a huge problem when it comes to discovery. What keeps a party to arbitration from destroying documents or providing the opposing party with altered documents if they cannot be charged criminally with perjury? Nothing.

    The failure to extend criminal perjury and document destruction laws to the arbitration process sets back the legal profession 50 years. And as a profession do we want to turn the clock back 50 years and bring “litigation by surprise” into the arbitration process? The different ADR processes are supposed to be progressive, forward thinking, cost effective, and more efficient than litigation. Failing to extend perjury laws sacrifices ethicality for those positive aspects of arbitration. Why would any party want to take the arbitration route if it is more likely that parties would be more inclined to “play by the rules” if they engaged in litigation?

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