To Arbitrate or Not To Arbitrate
I regularly face the question of whether arbitration is "good or bad", "better than court", or best for a particular client. I always give that most lawyerly of all answers: It depends.
Arbitration is presented as a means of streamlining disputes, cutting down expenses, and providing the parties with a more informed decision maker to boot. I have seen arbitration work just like that. I have also participated in more than one arbitration that seemingly was sidetracked by the arbitrators into examinations that neither counsel nor the parties believed was germane. I have seen the process work in a streamlined fashion with cooperative document and information exchange. I have also seen the same types of discovery sandbagging and withholding of information and documents that are way too prevalent
Anyone considering arbitration should understand that their dispute will almost certainly be permanently decided at the end of the arbitration. The right of appeal and legal challenge is so limited as to be almost completely non-existent in most disputes. In some states, this might be a huge change. In Virginia this is less of a factor due it its limited appellate access in civil construction cases.
The question in my mind often comes down to types of disputes, potential for motions practice, and cost/benefit. I tend to like arbitration in smaller, less complex matters where streamlined discovery makes sense. Bigger cases with more issues translate to a far greater potential for the high-jacked "frolic and detour" arbitration that breaks down into multiple arbitration hearings. Legally complex matters often present excellent contract arguments, legal defenses (such as statute of limitations), and evidentiary arguments. Be prepared for such legal maneuvers to mean little in arbitration due to its nature. For this reason, I often prefer the courtroom for more complex cases.
If you follow this pattern, make sure to avoid having three arbitrator panels hear small cases as that breaks the bank. For budget reasons, you may also want to consider alternatives to AAA for arbitration as their filing fees have gotten extremely expensive, especially when the arbitrator's fees are added in as well.
Great thoughts Tim. I sometimes feel the other way re. arbitration. The small stuff usually does not need the expertise. Of course it all comes down to cost, thus the typical AAA mandatory arb clause does not necessarily work in most cases. On the other hand, if the contract specifies a particular method of arbitration that streamlines things, then Arbitration should be considered.
I have found it really hard to try cases in the $20,000 to $100,000 range cost effectively unless the other side is sharp and reasonable. On the other hand, the filing fees from AAA can very quickly get into thousands of dollars without even paying the arbitrators.
If you take the depositions completely out of the picture, you can at least in theory drive down the discovery expenses. Couple that with very limited motions practice, and it seems like arbitration can reduce expenses when the other side is not reasonable, but I certainly have seen it work the other way too.
Naturally, for under $15,000 in Virginia we have General District Court which is fast, cheap and also has no discovery so that is definitely a good avenue for smaller matters.
That's true Tim. The key is to make sure that the arbitration is in fact streamlined. This can be done in the contract itself to assure a streamlined process. I've been involved in arbitrations that are essentially a full blown trial with all the bells and whistles and this is what gets out of hand.
Amen to that Chris. There is nothing worse than a little arbitration being expanded to a second series of hearing dates with three arbitrators because the arbitration clause was poorly written and the parties cannot agree on anyhthing, even where it makes sense.
Great post. I'm in agreement with the (apparent) consensus above. I've also found that AAA arbitration is not quicker or more inexpensive than litigation for disputes under $100k. And yet arbitration retains its allure because of the very thing that eludes us after the fact: flexibility. I'm a big believer that the right contract, while unable to protect anyone from loss, can certainly reduce the amount of money one throws at a problem in hopes of resolution. The bottom line is that a good binding arbitration clause can make all the difference in the world. For general (and most AAA) arbitration clauses, it is simply litigation in a less-certain forum.
Alan -- thanks so much for the visit and comment!
AAA has some good arbitrators ... my frustration is I can recite the entire list and hire them directly so why pay for the really high filing fees?? It is easier to pick another group or specific acceptable folks up front.
I have tended to write AAA out of all Virginia contracts as we have a really good alternative here. Other states may be less fortunate.
Nice post. I agree with you. Arbitration is great in some cases, and not so much in others. It all depends on the parties involved and what is at stake. But one thing common to all: they are virtually impossible to appeal.
Kim,
Thanks for your comment and visit - the bottom line is that there is no bright line answer to the question. I tend to have extended conversations with clients on their options, potential types of amounts of disputes that might come up, and available remedies.
I like arbitration is specific circumstances. I agree that the case can't be too complex, although in the twin cities we have some excellent arbitrators that are lawyers and will try to follow the law. Sometimes you are assigned a judge that is very good in some areas, but not experienced in business or construction law, and that can be a problem.
My cases normally do not start with an arbitration agreement, but in a few cases I will propose an arbitration because I believe that it is the best way to get a positive result. Sometimes the other side agrees, sometimes not.
Gavin Craig
Thanks for your note and comment Gavin - I have, like you, proposed arbitration after a dispute arose. That has met with mixed results even where it made a lot of sense for everyone. Still, people should not look at the contract execution as the last time to ask or answer the question.