26th Jan 2018

              Sometimes you’re stuck. You must arbitrate. Maybe you entered an agreement to do so. Is such an agreement binding and enforceable? If you willingly sign  an agreement to arbitrate there’s a pretty good chance you’ll be bound. However, not all such agreements are enforceable. You may still be able to get out. Lawyers often  fight over this, with varying results.[1] This article does not tackle that question but instead addresses whether one should voluntarily sign an arbitration agreement in the first place. Several factors are in play.

            Who Wants Arbitration, And Why

           That’s the first thing to consider. If your potential adversary presses for arbitration you can assume they’re doing so for reasons of self interest. You should try to surmise what those reasons are, and, more importantly, how such considerations may affect your interests.

         Many aspects of arbitration may be mutually beneficial, presenting a win-win scenario. Other  aspects of arbitration may not be mutually beneficial. The parties’ interests may be tied together in an inversely proportional way such that a particular aspect of arbitration that benefits your adversary may harm you, or vice versa.

          The analysis can be nuanced or straightforward. For example, one consideration is the privacy of arbitration versus the public nature of court proceedings. Defendants accused of wrongdoing generally don’t want allegations against them publicly aired in a trial, especially if a bad result is expected. Nor do they want evidence of their wrongdoing disclosed to other potential plaintiffs. These considerations may steer defendants to arbitrate. Plaintiffs, on the other hand, may desire publicity to heighten awareness of defendants’ bad conduct, or they may desire to use the threat of publicity as leverage to settle their cases for more.

            Arbitrator Interest And Repeat Players

           Arbitration is a for-profit business that is not paid for with tax dollars. Arbitrators are paid very well generally, and they’re paid by the parties who mutually select them. Parties generally have a right to veto prospective arbitrators for any reason. Thus, one must be mindful of the economic clout that repeat players to arbitration have. An arbitrator who rules against a repeat player in the arbitration arena stands to lose out on future appointments to be an arbitrator by that party.

            The Process: Arbitration vs. Court

            How does an arbitration compare to a trial? Our court system is mature. The court rules and case law governing trials have been 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 right of appeal exists in arbitration, there, you get one shot.

           The refined processes of trials may come at a cost as the more formal requirements for submitting proofs in court may be more time consuming, tedious, and costly than in arbitration. But if those proofs are to be used against you, you may want your adversary to jump through every possible legal hoop. One must also be mindful of parties who would take liberties with evidence. In arbitration the rules are more relaxed and counsel can push boundaries. Sometimes they need to be restrained and judges generally wield more clout than arbitrators and can mete out harsher penalties.

           One should consider 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 and “discover” relevant facts. Discovery is critical to any fair dispute resolution and rests largely on an honor system. If discovery is likely to be hotly contested or if one is pitted against an adversary who would corner-cut and cheat, the procedural safeguards offered by trial courts may be preferable.

           Also, if a dispute turns on esoteric and specialized knowledge the parties may benefit by choosing an arbitrator with strong knowledge of the subject matter.

Fees And Costs

            Many fees and costs are greater in arbitration proceedings than court proceedings. Those fees and costs add up, especially if a panel of several 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. 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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