Practical Suggestions for Matrimonial Arbitration

At the May 2008 AAML (American Academy of Matrimonial Lawyers) Matrimonial Arbitration Training Institute, presenters from North Carolina, Michigan and Texas, with scores of years of arbitration experience, gave advice about the responsibility of arbitrators and the smooth presentation of an arbitration case. That training is being considered through the lens of an important Pennsylvania matrimonial arbitration case: Deborah Kennedy v. Michael Kennedy, 865 A.2d 878 (Pa.Super. 2004).

Those who opt for arbitrating matrimonial cases choose to hire a private arbitrator to collect the evidence and make a decision on an efficient basis. Many praise the benefits of prompt resolution of the most difficult family law cases. A case that could take months or years winding through the legal system can be resolved in weeks via private arbitration. Unfortunately, in Kennedy, the arbitration award led to litigation in a neighboring county and a double appeal from the ruling amending the Arbitration Award, as well as the decree in divorce issued pursuant to that ruling. The Kennedys did not enjoy prompt relief, since the case was argued before the Superior Court and resulted in a remand. The attorneys in the Kennedy matter and the arbitrator are among the highest regarded family lawyers in Eastern Pennsylvania. They were doing their jobs to defend each client's position. Those who are embarking on arbitrations, however, should learn the lessons from Kennedy so that future arbitrations are not subject to appeal, or if they are appealed, the award will be upheld.

The Kennedy Case

In Kennedy, the specific issue was whether reversionary stock in a Grantor Retained Annuity Trust (“GRAT”) was within the assets to be valued for the purposes of equitable distribution. The arbitrator found the reversionary stock was marital. The arbitrator also resolved the difference of opinion between husband and wife regarding the value of that reversionary stock as of a designated date. The arbitration arising out of a Delaware County, PA, divorce led to a collateral lawsuit in Philadelphia County, where the arbitration was conducted. The Philadelphia County court found that the arbitrator acted outside the scope of the Arbitration Agreement by treating the GRAT shares as marital. Thereafter, the Delaware County divorce decree issued based on the Arbitration Award as amended by the Philadelphia Court. On appeal, the Superior Court upheld the arbitrator's decision and remanded for entry of a decree pursuant to the original Arbitration Award. Of the three-judge panel, the dissenting judge agreed with the husband and would have affirmed what was decided by the Philadelphia County Court, and the Delaware County court.

What Facilitates a Successful Arbitration?

Select a Skilled and Well-Respected Arbitrator

The parties will have more confidence in private arbitration if they have confidence in the competence of the arbitrator. Some arbitrators offer the option to meet with the parties before they sign the Agreement to Arbitrate. Often, this is a joint meeting with counsel and the parties. In other instances, the clients rely on their attorneys to select the arbitrator. If the attorneys are looking for a trained arbitrator, they can go on the AAML Web site, www.aaml.org, and select the link to Arbitrators and Mediators, then select the link to the names of the arbitrators who have been trained by the AAML over the years.

Carefully Edit the Arbitration Agreement

Usually, the arbitrator has a standard Arbitration Agreement, which the attorneys should review and edit for the clients. One important clause identifies the range of issues to be arbitrated. If the litigants have already attended court hearings resulting in decisions, the arbitrator should be notified of stipulations or rulings that will be incorporated in the arbitration matter. If there are related issues that are not usually handled by the court, such as payments for an emancipated or college-age child, this should be specifically recited among the issues to be resolved by the arbitrator. If there is an issue regarding dueling experts, the parties may want to give the arbitrator the option to hire an expert to review the evaluations, or conduct a neutral valuation. The Arbitration Agreement can specify whether the Rules of Evidence apply and whether witnesses will be allowed to testify by telephone, videotape, or submission of written reports.

Counsel for the parties know where the sticking points have been in litigating the matter thus far. If the arbitration process is seen as an avenue to circumvent a cumbersome legal system to address certain issues creatively, the attorneys should ensure that the Arbitration Agreement specifically gives the arbitrator authority to do so.

If issues in a case are highly technical, counsel may ask the arbitrator to tape record the arbitration sessions. Needless to say, all stipulations could be memorialized in writing. It may be easier to tape stipulations, partial agreements or recitation of relevant facts. It would be helpful to specify in the Arbitration Agreement that the arbitrator may tape-record, at his/her discretion, portions of the hearing for personal review prior to the Award. Often, the Arbitration Agreement specifies such tape recordings will be destroyed 60 days after an unappealed final Order or Divorce Decree.

Provide Comprehensive Pretrial Materials and Stipulations

Most arbitrators will talk to the attorneys at the preliminary meetings regarding issues that have been resolved to date, such as the identification of non-controversial assets and their values. Counsel for the parties should craft those stipulations and submit them to the arbitrator in advance.

In order to present the client's issues effectively to the arbitrator, make sure that pretrial materials are thorough and well organized. The arbitrator will want the history of the case; the schedule of assets and liabilities; schedules of income and expenses; the list of exhibits and/or copies of all exhibits; and a memorandum of law on any outstanding legal issues.

Know your arbitrator. Some arbitrators ask for all the materials in advance to force the lawyers to be prepared, but the arbitrator does not intend to read the materials until after the presentation of the case. Therefore, the arbitrator is reserving the right to strike certain exhibits that may be irrelevant or unsubstantiated at trial. Other arbitrators will diligently review everything in advance.

Know what the arbitrator expects from counsel. If exhibits not submitted in advance are offered at the time of trial, will such documents be stricken? Will the arbitrator generally rely on the information provided, or does the arbitrator have the latitude to require additional materials? The client will want to know his or her counsel is well organized for the arbitration hearing.

Allow for Appropriate Client Testimony

Litigants often find it awkward to present testimony in court, with the formal question and answers, cross-examination and rebuttal testimony. Often, the arbitration proceeding allows for presentation by dialogue. Most arbitrators provide an opportunity for each client to speak his/her mind. Know whether your arbitrator is going to ask your client for a statement at the beginning or at the end of the proceeding. In some cases, the arbitrator will assure the clients that he or she understands their position and does not need a statement presented by each party. Know whether your arbitrator will allow a statement to stray beyond traditional testimony, allowing a party to express thoughts that may never have come out during trial. The arbitrator may permit statements to be given outside the presence of the other party. In other words, the wife makes a presentation with both attorneys present, but the husband absent; then the husband makes his presentation without the wife in the room. As a practical matter, the client's ability to express himself/herself is a benefit afforded by private arbitration. To achieve client satisfaction after an arbitration, most parties want to know that they have been heard. A good arbitrator will reflect that empathy in the arbitration report. Prior to the arbitration, counsel may want to ask the arbitrator jointly to provide this opportunity to the clients.

Issue a Proposed (Then Final)Award

Practical arbitrators will tally up the time spent through the arbitration and request a supplemental payment of fees before the proposed report issues. That supplemental request for fees often includes an estimated fee for follow-through work after the proposed award has issued (subject to refund of unused funds). Many arbitrators issue a proposed award subject to review and comment by each side. In Pennsylvania, as in many other states, an Arbitration Award can be overturned by an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award. When an arbitrator issues a proposed award, subject to correction or request for consideration, the arbitrator is allowing the last bite of the apple by each side if either feels an error has been made. Those issues can be addressed and the final Award will then issue. This circulation of a proposed award, subject to correction, could be outlined in the Arbitration Agreement. Counsel should agree on the required response time so each can address the proposed award
in detail with the client, make application to the arbitrator, and make final arguments before the issuance of the final Arbitration Award.

Express Gratitude for Resolution

The lawyers for the clients should congratulate their clients for participating in binding arbitration that has relieved the clients of the expense and delay caused by litigation. The clients should thank their lawyers for proposing this alternative dispute resolution which allows both sides to present all the relevant facts and legal arguments to an arbitrator who has focused time and attention on the prompt decision. The arbitrator should thank the parties for their cooperation in the proceedings and the work of counsel for the parties. It is easiest to express appreciation if everyone takes full responsibility for participating in the process in a timely fashion, and according to the agreed procedures in the arbitration agreement. Hopefully with client satisfaction, the cause for appeal will be dissipated.

Conclusion

There will always be cases like Kennedy v. Kennedy, which deal with truly complicated issues and sincere differences of opinions regarding the authority of the arbitrator. Just as litigated matters are appealed and well-meaning trial judges are overturned on appeal, there will be challenges to arbitration awards. One saving grace in the Kennedy matter was the fact that the arbitrator had tape-recorded the key understandings regarding the reversionary stock, allowing the Superior Court to agree with the arbitrator that both husband and wife expected that reversionary interest to be in the marital estate. The remaining question was one of valuation. Presumably, Mr. Kennedy's counsel would point to the dissenting opinion from the Superior Court, which supported his interpretation of the transcript. However, without the transcript, the Superior Court most likely would not have reversed and remanded.

Any time an agreement is reached in a divorce case, the lawyers want to see the terms of that agreement upheld on appeal. Counsel recommend settlement only on the basis of thorough analysis of the case and reasonable compromises between the parties. Once those compromises have been made, it is very frustrating to see an agreement set aside by a trial court or an appellate court. An Agreement to Arbitrate is the same. Once the parties have committed to this expedited process with a private arbitrator, generally both counsel want to see the matter resolved on a prompt and fair basis. Neither side wants to see the resolution subject to upheaval by the trial court or the appellate courts.

In conclusion: Select a skilled arbitrator; carefully draft the Arbitration Agreement; prepare your materials for effective presentation; memorialize any stipulations in writing or on the record; and reserve the right to correct errors before the final award issues.

With these suggestions, the arbitration experience should be satisfying for most if not all those involved.

Mary Cushing Doherty, a member of this newsletter's Board of Editors, is an equity partner in the Norristown, PA, law firm of High Swartz LLP, where she serves on the Management Committee. She was a solo practitioner in Norristown from 1988 to 1999, and served asSpecial Counsel to the Philadelphia firm of Abrahams, Loewenstein, Bushman & Kauffman for the same time period.

At the May 2008 AAML (American Academy of Matrimonial Lawyers) Matrimonial Arbitration Training Institute, presenters from North Carolina, Michigan and Texas, with scores of years of arbitration experience, gave advice about the responsibility of arbitrators and the smooth presentation of an arbitration case. That training is being considered through the lens of an important Pennsylvania matrimonial arbitration case: Deborah Kennedy v. Michael Kennedy , 865 A.2d 878 (Pa.Super. 2004).

Those who opt for arbitrating matrimonial cases choose to hire a private arbitrator to collect the evidence and make a decision on an efficient basis. Many praise the benefits of prompt resolution of the most difficult family law cases. A case that could take months or years winding through the legal system can be resolved in weeks via private arbitration. Unfortunately, in Kennedy, the arbitration award led to litigation in a neighboring county and a double appeal from the ruling amending the Arbitration Award, as well as the decree in divorce issued pursuant to that ruling. The Kennedys did not enjoy prompt relief, since the case was argued before the Superior Court and resulted in a remand. The attorneys in the Kennedy matter and the arbitrator are among the highest regarded family lawyers in Eastern Pennsylvania. They were doing their jobs to defend each client's position. Those who are embarking on arbitrations, however, should learn the lessons from Kennedy so that future arbitrations are not subject to appeal, or if they are appealed, the award will be upheld.

The Kennedy Case

In Kennedy, the specific issue was whether reversionary stock in a Grantor Retained Annuity Trust (“GRAT”) was within the assets to be valued for the purposes of equitable distribution. The arbitrator found the reversionary stock was marital. The arbitrator also resolved the difference of opinion between husband and wife regarding the value of that reversionary stock as of a designated date. The arbitration arising out of a Delaware County, PA, divorce led to a collateral lawsuit in Philadelphia County, where the arbitration was conducted. The Philadelphia County court found that the arbitrator acted outside the scope of the Arbitration Agreement by treating the GRAT shares as marital. Thereafter, the Delaware County divorce decree issued based on the Arbitration Award as amended by the Philadelphia Court. On appeal, the Superior Court upheld the arbitrator's decision and remanded for entry of a decree pursuant to the original Arbitration Award. Of the three-judge panel, the dissenting judge agreed with the husband and would have affirmed what was decided by the Philadelphia County Court, and the Delaware County court.

What Facilitates a Successful Arbitration?

Select a Skilled and Well-Respected Arbitrator

The parties will have more confidence in private arbitration if they have confidence in the competence of the arbitrator. Some arbitrators offer the option to meet with the parties before they sign the Agreement to Arbitrate. Often, this is a joint meeting with counsel and the parties. In other instances, the clients rely on their attorneys to select the arbitrator. If the attorneys are looking for a trained arbitrator, they can go on the AAML Web site, www.aaml.org, and select the link to Arbitrators and Mediators, then select the link to the names of the arbitrators who have been trained by the AAML over the years.

Carefully Edit the Arbitration Agreement

Usually, the arbitrator has a standard Arbitration Agreement, which the attorneys should review and edit for the clients. One important clause identifies the range of issues to be arbitrated. If the litigants have already attended court hearings resulting in decisions, the arbitrator should be notified of stipulations or rulings that will be incorporated in the arbitration matter. If there are related issues that are not usually handled by the court, such as payments for an emancipated or college-age child, this should be specifically recited among the issues to be resolved by the arbitrator. If there is an issue regarding dueling experts, the parties may want to give the arbitrator the option to hire an expert to review the evaluations, or conduct a neutral valuation. The Arbitration Agreement can specify whether the Rules of Evidence apply and whether witnesses will be allowed to testify by telephone, videotape, or submission of written reports.

Counsel for the parties know where the sticking points have been in litigating the matter thus far. If the arbitration process is seen as an avenue to circumvent a cumbersome legal system to address certain issues creatively, the attorneys should ensure that the Arbitration Agreement specifically gives the arbitrator authority to do so.

If issues in a case are highly technical, counsel may ask the arbitrator to tape record the arbitration sessions. Needless to say, all stipulations could be memorialized in writing. It may be easier to tape stipulations, partial agreements or recitation of relevant facts. It would be helpful to specify in the Arbitration Agreement that the arbitrator may tape-record, at his/her discretion, portions of the hearing for personal review prior to the Award. Often, the Arbitration Agreement specifies such tape recordings will be destroyed 60 days after an unappealed final Order or Divorce Decree.

Provide Comprehensive Pretrial Materials and Stipulations

Most arbitrators will talk to the attorneys at the preliminary meetings regarding issues that have been resolved to date, such as the identification of non-controversial assets and their values. Counsel for the parties should craft those stipulations and submit them to the arbitrator in advance.

In order to present the client's issues effectively to the arbitrator, make sure that pretrial materials are thorough and well organized. The arbitrator will want the history of the case; the schedule of assets and liabilities; schedules of income and expenses; the list of exhibits and/or copies of all exhibits; and a memorandum of law on any outstanding legal issues.

Know your arbitrator. Some arbitrators ask for all the materials in advance to force the lawyers to be prepared, but the arbitrator does not intend to read the materials until after the presentation of the case. Therefore, the arbitrator is reserving the right to strike certain exhibits that may be irrelevant or unsubstantiated at trial. Other arbitrators will diligently review everything in advance.

Know what the arbitrator expects from counsel. If exhibits not submitted in advance are offered at the time of trial, will such documents be stricken? Will the arbitrator generally rely on the information provided, or does the arbitrator have the latitude to require additional materials? The client will want to know his or her counsel is well organized for the arbitration hearing.

Allow for Appropriate Client Testimony

Litigants often find it awkward to present testimony in court, with the formal question and answers, cross-examination and rebuttal testimony. Often, the arbitration proceeding allows for presentation by dialogue. Most arbitrators provide an opportunity for each client to speak his/her mind. Know whether your arbitrator is going to ask your client for a statement at the beginning or at the end of the proceeding. In some cases, the arbitrator will assure the clients that he or she understands their position and does not need a statement presented by each party. Know whether your arbitrator will allow a statement to stray beyond traditional testimony, allowing a party to express thoughts that may never have come out during trial. The arbitrator may permit statements to be given outside the presence of the other party. In other words, the wife makes a presentation with both attorneys present, but the husband absent; then the husband makes his presentation without the wife in the room. As a practical matter, the client's ability to express himself/herself is a benefit afforded by private arbitration. To achieve client satisfaction after an arbitration, most parties want to know that they have been heard. A good arbitrator will reflect that empathy in the arbitration report. Prior to the arbitration, counsel may want to ask the arbitrator jointly to provide this opportunity to the clients.

Issue a Proposed (Then Final)Award

Practical arbitrators will tally up the time spent through the arbitration and request a supplemental payment of fees before the proposed report issues. That supplemental request for fees often includes an estimated fee for follow-through work after the proposed award has issued (subject to refund of unused funds). Many arbitrators issue a proposed award subject to review and comment by each side. In Pennsylvania, as in many other states, an Arbitration Award can be overturned by an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award. When an arbitrator issues a proposed award, subject to correction or request for consideration, the arbitrator is allowing the last bite of the apple by each side if either feels an error has been made. Those issues can be addressed and the final Award will then issue. This circulation of a proposed award, subject to correction, could be outlined in the Arbitration Agreement. Counsel should agree on the required response time so each can address the proposed award
in detail with the client, make application to the arbitrator, and make final arguments before the issuance of the final Arbitration Award.

Express Gratitude for Resolution

The lawyers for the clients should congratulate their clients for participating in binding arbitration that has relieved the clients of the expense and delay caused by litigation. The clients should thank their lawyers for proposing this alternative dispute resolution which allows both sides to present all the relevant facts and legal arguments to an arbitrator who has focused time and attention on the prompt decision. The arbitrator should thank the parties for their cooperation in the proceedings and the work of counsel for the parties. It is easiest to express appreciation if everyone takes full responsibility for participating in the process in a timely fashion, and according to the agreed procedures in the arbitration agreement. Hopefully with client satisfaction, the cause for appeal will be dissipated.

Conclusion

There will always be cases like Kennedy v. Kennedy, which deal with truly complicated issues and sincere differences of opinions regarding the authority of the arbitrator. Just as litigated matters are appealed and well-meaning trial judges are overturned on appeal, there will be challenges to arbitration awards. One saving grace in the Kennedy matter was the fact that the arbitrator had tape-recorded the key understandings regarding the reversionary stock, allowing the Superior Court to agree with the arbitrator that both husband and wife expected that reversionary interest to be in the marital estate. The remaining question was one of valuation. Presumably, Mr. Kennedy's counsel would point to the dissenting opinion from the Superior Court, which supported his interpretation of the transcript. However, without the transcript, the Superior Court most likely would not have reversed and remanded.

Any time an agreement is reached in a divorce case, the lawyers want to see the terms of that agreement upheld on appeal. Counsel recommend settlement only on the basis of thorough analysis of the case and reasonable compromises between the parties. Once those compromises have been made, it is very frustrating to see an agreement set aside by a trial court or an appellate court. An Agreement to Arbitrate is the same. Once the parties have committed to this expedited process with a private arbitrator, generally both counsel want to see the matter resolved on a prompt and fair basis. Neither side wants to see the resolution subject to upheaval by the trial court or the appellate courts.

In conclusion: Select a skilled arbitrator; carefully draft the Arbitration Agreement; prepare your materials for effective presentation; memorialize any stipulations in writing or on the record; and reserve the right to correct errors before the final award issues.

With these suggestions, the arbitration experience should be satisfying for most if not all those involved.

Mary Cushing Doherty, a member of this newsletter's Board of Editors, is an equity partner in the Norristown, PA, law firm of High Swartz LLP, where she serves on the Management Committee. She was a solo practitioner in Norristown from 1988 to 1999, and served asSpecial Counsel to the Philadelphia firm of Abrahams, Loewenstein, Bushman & Kauffman for the same time period.