Parties to commercial disputes typically resolve their differences in a single forum, either through a civil action or an arbitration. In complex commercial litigation, however, parties often must attack or defend on multiple fronts simultaneously. As discussed below, this can raise a host of procedural and strategic considerations.
Parallel Civil Actions and Arbitrations
Arbitration requires unambiguous consent from all parties. Thus, an overly-narrow arbitration clause in a contract may deprive an arbitrator of authority to resolve all disputes between two parties. Even a broad arbitration clause may not reach all parties to a given dispute, where the operative agreement is between only two of several relevant parties. Or a single dispute will involve multiple contracts, only one (or some) of which contain arbitration provisions. All of these situations may lead to civil actions and arbitrations being filed simultaneously.
This can be problematic for several reasons. First, and most obviously, suing or being sued is costly, stressful, and time-consuming; parallel proceedings only multiply these negative effects. Parallel proceedings also raise complicated questions of claim and issue preclusion and—in turn—proper sequencing. A common way to mitigate these concerns is to stay one matter so that the parties may focus their attention and resources. Of course, careful consideration must be paid to how any potential resolution of the “first” matter could or would impact the second/others.
Parallel Arbitrations
Most litigators are familiar with the concept of consolidating civil actions pending in the same court and involving common questions of fact or law. But what happens when a group of employees or businesses have signed similar contracts (with arbitration provisions) with the same counterparty and assert similar grievances in multiple arbitrations? Or when one party files arbitrations against several respondents based on similar issues but different agreements?
Good news: AAA recently revised its rules to allow for consolidation of otherwise-separate arbitrations. A related rule permits joinder of additional parties to an ongoing arbitration. JAMS similarly allows for the consolidation of arbitrations when they have been filed by the same party, or the arbitration demand names a party already involved in a pending arbitration. Both AAA and JAMS have also revised their rules to facilitate the more efficient resolution of mass arbitrations, giving some limited relief to businesses facing proliferating, similar claims.
What if a dispute arises that involves separate contracts with different arbitration provisions (e.g., one AAA and one JAMS)? Arbitrators themselves may lack the authority to consolidate or coordinate arbitrations being administered before entirely different organizations, elevating the importance of inter-party negotiation. One potential solution is to negotiate an agreement to move one of the arbitrations so that they are all before the same tribunal. Another is to request a stay so that the matters can be resolved sequentially—to the extent that resolution of first does not drive resolution of the second.
Parallel Books and Records Actions and Civil Actions
Suspicious stockholders have tools to investigate possible mismanagement, including inspection demands and inspection actions. Typically, such inspection (or “books and records”) actions precede more substantive (or “plenary”) lawsuits, but sometimes it may be necessary or advisable for a plaintiff to file them in tandem, especially since inspection actions tend to get resolved on an expedited basis. Still, filing both at the same time may rightly or wrongly play into the corporate defendant’s argument that the shareholder is not pursuing inspection for the requisite “proper purpose.”
Takeaways
Successful navigation of parallel actions and arbitrations requires forethought, diplomacy, and a deep knowledge of all applicable rules—all things that experienced complex commercial litigation counsel can provide. In the meantime, businesses would be wise to conduct periodic review of their contracts to ensure, among other things, that if they contain arbitration provisions, those provisions are either consistent or purposefully inconsistent with one another.
For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Joshua Korr, or Kevin O’Brien.
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