26th Jan 2018

              Sometimes you’re stuck. You have to arbitrate. Maybe you entered an agreement to do so. Is such an agreement binding and enforceable? It depends. If you purposefully and willingly enter such an agreement, there’s a pretty good chance you’ll have to arbitrate. But not all such agreements are enforceable. You may still be able to get out. Lawyers can, and often do, fight over this.[1] This article does not tackle that question, but rather, addresses whether one should voluntarily agree to arbitrate in the first place. Several factors are in play.

            Who Wants Arbitration, And Why

           That’s the first thing to consider. If your potential (or actual) adversary presses for arbitration, you can assume they’re doing so for reasons that will advance their interests. You must first try to grasp what, exactly, those reasons are. The degree to which their interests may be advanced, and yours affected, for good or ill, must be considered.

           Sometimes your interests are tied together, often in an inversely proportional way. Something that benefits you may, necessarily, harm your adversary, and vice versa. These are zero sum considerations. For example, suppose one party wants a quick resolution but the other party wants a delay. A lengthening of time to resolve the dispute will affect the parties in opposite ways.

           Other times your interests are not tied together. A benefit or detriment to one party will have no effect on the other. Still, both parties may benefit, a “win-win” situation – though the benefits may vary in degree.

           The analysis can be nuanced. Usually there’s a little of both going on. One cannot know all the facts known by an adversary, or their motives. Take, for example, matters of publicity and public disclosure. Defendants accused of wrongdoing will not want allegations of misconduct publicly aired in trial, especially if a bad result is expected. Nor would they want facts, perhaps known only to them, publicly disclosed for other plaintiffs to use in future cases against them. Such matters, with facts unknown to plaintiffs, may help steer defendants towards arbitration, where proceedings are generally private. Plaintiffs, by contrast, may desire publicity to heighten awareness of defendants’ bad conduct. Or they may wish to use the threat of it, and the threat of disclosure of incriminating facts for other plaintiffs to use, as leverage to settle their cases for more.

            Arbitrator Interest And Repeat Players

           Arbitration is a business. It differs from the court system in that respect. Arbitrators are paid well, but, unlike judges, they’re only paid when they work. They’re paid by the parties – and selected by them too. That selection process lets parties veto individuals appearing on rosters of potential arbitrators. Ruling against a party may increase the likelihood that an arbitrator will be vetoed in the future, a factor relevant when considering whether to arbitrate against parties who are repeat players in the arbitration arena.

            The Process: Arbitration vs. Court

            How do arbitrations compare to trials? Our court system is mature. Rules governing trials rest on common law binding precedent refined over generations. From these refinements of process, reliability and predictability have emerged. Trial courts, then, generally get things right, and if they don’t, appeals may be taken to fix mistakes. No such rights exist in arbitration. There, you get one shot.

           The refined processes of trials, however, may come at a cost. Formal requirements for submitting proofs in trial may be more time consuming, tedious, and costly than in arbitration. But if you‘re on the other side of those proofs, the proofs are to be used against you, you may want your adversary to jump through every possible legal hoop, especially if you believe they will take liberties with evidence. How much do you trust your adversary? In arbitration the rules are more relaxed. Parties and their counsel can push boundaries. Sometimes they need to be restrained. Judges yield more clout than arbitrators and can mete out harsher penalties, and publicly at that. When considering arbitration one must be mindful of how an adversary is likely to behave when the rules are relaxed. This is especially important with discovery, the process by which parties gain information or “discover” relevant facts. Discovery, critical to any fair dispute resolution, rests largely on an honor system. The procedural safeguards offered by trial courts may be preferable when a party is pitted against one who would corner-cut and cheat.

           Another consideration: if a dispute turns on very esoteric and specialized knowledge, the parties may pick arbitrators with strong knowledge of the subject matter. That may be helpful.

Fees And Costs

            Certain fees and costs are greater in arbitration, where parties must pay arbitrator fees. Those fees add up, especially when a panel of arbitrators is required. In a Michigan court it costs $235 to file a complaint and jury demand for claims exceeding $25,000. In arbitration, filing costs can run into the thousands of dollars.[2]

Conclusion

            The debate over the advisability of arbitration rages on. In a professional journal article published to all Michigan attorneys, Timothy H. Howlett and Christina K. McDonald delved deep into the research before concluding that arbitration “may not necessarily be more efficient or less expensive than going to trial.”[3] Their article was about employment arbitration but its logic applies to other types of arbitration too. No matter whether you choose to be in arbitration, or not to be, hopefully your fortunes will not be too outrageous.

 

(* Del A. Szura is a member of Szura & Delonis, PLC. This post is intended for general information purposes and should not be construed as legal advice. All Rights Reserved. Copyright 2018.)

 

[1] On October 2, 2017, the U.S. Supreme Court heard arguments in a case about whether an employment arbitration agreement is enforceable. Epic Systems Corp. v. Lewis.

[2] The American Arbitration Association’s fees depend on the arbitration type and are graduated. Commercial and construction arbitration fees increase from $1,550 for claims under $75,000 to $7,500 for claims of between $300-500,000 (through first hearings).

[3] Mandatory Arbitration of Employment Claims; An Update, at p. 41, Michigan Bar Journal Magazine, September 2013.

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