For years, businesses with legal disputes have turned to arbitration as a faster, cheaper alternative to the public courts.

But now there’s a concern that arbitration is becoming a victim of its own success, as increasing numbers of complex cases and more sophisticated litigation tactics slow down the process and drive up costs.

In fact, the trend is so worrisome that the College of Commercial Arbitrators, a national trade group, held a summit on the issue and recently issued protocols aimed at speeding things up. Arbitration services providers, including Irvine-based Jams, have followed up with their own guidelines. A training session is to be held in downtown L.A. on Dec. 7 that in part will teach attorneys how to tamp down costs and delays.

“It’s getting worse and worse,” said Thomas Stipanowich, director of the Straus Institute for Dispute Resolution at Pepperdine University and an editor of the Commercial Arbitrators’ new protocols.

Parties that enter into arbitration allow a third party to decide disputes out of court. The process gained popularity in the 1970s, when groups like Jams began recruiting more retired judges and professionalized the process. Not only was arbitration often faster and cheaper, but its confidentiality, flexibility and efficiency were seen as useful for deciding general business disputes, and labor and employment issues.

But the recent jump in the use of arbitration for bigger commercial cases has introduced problems. Since 2005, for example, the American Arbitration Association, another national arbitration provider, has seen its load of complex commercial cases – disputes involving more than $1 million, which generally take longer to decide – rise at nearly three times the rate of regular commercial cases.

“What’s brought this controversy, what’s made the issue so visible, is the fact that now you’ve got these massive disputes sent to arbitration,” said Eric Tuchmann, AAA’s general counsel.

Neither the AAA, the Commercial Arbitrators nor Jams could provide data specifying how much case lengths have grown. However, there is consensus in the arbitration world that the main problem is the discovery process, which now often involves requests for e-mails, computer files and other electronic data – which can be massive.

In addition, attorneys are said to be taking large numbers of depositions just as they would in public courts. Other litigation tactics, such as delays in scheduling, also are popping up.

‘Unnecessary documents’

Jules Kabat, a founding partner of West L.A. law firm Russ August & Kabat, recently won a $30 million arbitration award in a dispute over a real estate development project. The case could have reasonably been over in six months, Kabat said, but the opposing side made discovery demands for tens of thousands of pages of ultimately unnecessary documents, doubling the length and cost of the arbitration.

“It’s become to a significant degree the mirror image of litigation,” said Kabat, who has received arbitration discovery requests for hundreds of thousands of document pages. “The whole purpose of arbitration is supposed to be that you have sophisticated parties and sophisticated counsel that want to cut to the chase.”

Peter Sheridan, chair of the construction law practice group at Century City firm Glaser Weil Fink Jacobs Howard & Shapiro LLP, said he still found arbitration to be an efficient and flexible method of resolving disputes. But he also represented a client last year in a construction-related case in which there were 85 days of depositions over six months, compared with 20 days of actual proceedings.

“In the end only a very small percentage of what was testified in depositions was actually used in the proceedings,” Sheridan said. “When you think about preparation and appearances, we’re talking hundreds and hundreds of thousands in extra fees.”

Robert O’Brien, the managing partner of the downtown L.A. office of Arent Fox LLP, said that it’s not uncommon for arbitration cases with damages as low as $3 million to rack up attorney fees of more than $1 million on both sides.

“Up to 50 percent or more of fees in a case can be driven by discovery,” O’Brien said.

And the snags go beyond discovery.

Wes Hurst, a partner at Century City firm Rutter Hobbs and Davidoff LLP, recently wrapped up a case that was in arbitration for three years. He said there were delays in everything from the production of documents to scheduling.

“If there were more stringent or more specific guidelines about when hearings needed to be conducted and about what was the permissible scope of the exchange of information, things would get off and running more quickly,” Hurst said.

Potential solutions

The College of Commercial Arbitrators held a national summit on the issue a year ago in Washington, D.C. In August, it published a set of protocols aimed at reducing costs and delays in business-to-business arbitrations. The protocols, while not mandatory, include proposed limits on discovery and encourage providers to offer litigants the option of an expedited arbitration process.

“The ways in which arbitration can be curtailed are limited only by the imagination of counsel and the arbitrator,” said Deborah Rothman, a West L.A.-based attorney who edited the protocols with Stipanowich.

In October, Jams adopted rules for an optional expedited arbitration process that promises a decision within 150 days. The procedures, which must be opted into, place strict limits on document requests, electronic discovery and depositions. All documents requested must be “directly relevant.” In court, by contrast, discovery requests are granted for anything “reasonably calculated to lead to admissible evidence.” Electronic documents can only come from sources used in the ordinary course of business, and may not include backup servers. Discovery must be cut off after the first 75 days.

“We’re telling arbitrators, don’t fall into that trap that just because something is electronically stored, the parties are entitled to every possible piece of data,” said Richard Chernick, managing director of Jams’ arbitration practice.

In addition, five organizations including Jams and the AAA, are holding the training session Dec. 7 to teach lawyers best arbitration practices. Chernick and Rothman will be among the presenters.

It’s too soon to tell whether the reforms will work, but the public courts may not present a better option for many businesses.

A study commissioned by the Los Angeles Superior Court system last December estimated that cutbacks prompted by the state budget crisis will likely double the average length of all cases from about two to four years. Civil cases could increase even more since criminal cases are given precedence.