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 those reasons are. The degree to which their interests may be advanced, and yours affected, for good or ill, must be considered.

         Sometimes arbitration can be a win-win situation. Other times your interests are tied together in an inversely proportional way such that aspect of arbitration that benefits your adversary, harms you, and vice versa. For example, one party may want a quick resolution while the other party wants a delay. Extending the time for resolution will affect the parties in opposite ways.

          The analysis can be nuanced. One generally doesn’t know all the facts known by an adversary at the outset of the dispute resolution process. Then there’s the matter 0f publicity and public disclosure. Defendants accused of wrongdoing do not want allegations of misconduct publicly aired in trial, especially if a bad result is expected. Nor do they want bad facts to be disclosed, facts that may be known only to them when the process begins. It’s bad for revenue and provides fodder for others to use against them in other cases. These considerations 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 bad facts during the process 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. If an arbitrator rules against a party, especially a repeat player in the arbitration arena, that may increase the likelihood that the person will not be selected as an arbitrator in the future. This is a relevant consideration in deciding whether to arbitrate against a repeat player in the arbitration arena.

            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 rights exist 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 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. Also, one must 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 wield more clout than arbitrators and can mete out harsher penalties, and publicly at that.

           One must also be mindful about 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 (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.

           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, something that is not permitted in trials.

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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