To Arbitrate or Not to Arbitrate? That is the Question

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It’s been the fodder of debate of philosophers, academics and the rest of us for ages:

And for litigators and their clients, including us construction lawyers, arbitration or litigation? Or, in short, if a project goes sideways, in what forum will you resolve your dispute? It’s an important question the answer to which could mean the difference between winning or losing.

The other week I stumbled across an informative article on JD Supra written by David Taylor a construction lawyer with Bradley Arant Boult Cummings LLP in Nashville, Tennessee in which he discussed the pros and cons of arbitration and litigation with a focus on construction disputes entitled Arbitration vs. Litigation: The Great Debate.

According to Mr. Taylor:

Many of the “form” commercial construction contracts (e.g., AIA forms) contain “dispute resolution” clauses proposing binding arbitration as opposed to courtroom litigation. Most U.S. courts, faced with the number of cases flooding the legal system, regularly enforce arbitration clauses. However, the decision to arbitrate should not be taken lightly. There are pros and cons, and one size does not fit all.

Mr. Taylor ultimately sides in favor of arbitration pointing out that:

  • Courtroom litigation is expensive and time-consuming;
  • Court filings are public records;
  • Lawsuits can take years to get to trial; and
  • There is no way to guarantee what a judge or jury may do in a civil case.

Unlike litigation, he explains, arbitration is preferable because:

  • “Ideally, an arbitration is heard by a third-party neutral with experience and knowledge in the area of dispute”;
  • “[T]here is no crowded court docket” and “there are fewer and more restrictive grounds for appealing an arbitration award, so finality is the rule rather than the exception”;
  • “In most cases, the costs and expenses of arbitration are less than litigation;” and
  • “Unlike courtroom litigation, arbitration is private and confidential.”

All great points, and an article well worth reading if you’re considering whether to include that arbitration clause in your construction contract or deciding whether to opt for arbitration or litigation if your contract gives you that option.

As for me though, I’m not so sure. While arbitration has been heralded as better, faster and cheaper, I’m not sure it has delivered on that promise, except in my experience for smaller cases in which fast-track rules apply. That’s because:

  • For larger cases, I’ve found that arbitration is not necessarily faster or cheaper, in part, because you are paying the arbitrator for his time unlike a court judge.
  • As Mr. Taylor points out in his article there are more restrictive discovery rules in arbitration, but this also means that you may have more difficulty obtaining necessary evidence, which could mean more uncertainty, or worse, a less fair result.
  • Opportunities for parties to settle – either through mandatory court-ordered settlement conferences (which are not required in arbitration as they are in many courts) or through voluntary out-of-court mediation (which just doesn’t seem to happen as much in arbitration) – is less likely in arbitration.
  • As Mr. Taylor also points out there are more limited appeal rights in arbitration – and, I would also point out, generally looser standards of evidence and no trial by jury – which means that your fate is in the hands of an arbitrator (or, in some cases, arbitrators) rather than a jury of your peers and before an arbitrator who may feel less compelled to strictly follow the dictates of the law since there is less likelihood of a subsequent appeal.

So there you have it, the great arbitration versus litigation debate. And it’s a debate which will likely continue since there is no one “right” answer. How inexpensively, how quickly and, ultimately, how fairly a dispute will be decided, will likely be dependent on a number of factors which are not (or at least not completely) within your control – such as the tactics of your opponent and its counsel, you and your counsel’s ability to make a compelling argument in favor of your case, and the predilections of the person and/or persons deciding the merits of your matter.

 

4 Responses to “To Arbitrate or Not to Arbitrate? That is the Question”

  1. Dave Ross

    Great topic, Garret. Californians may have different experiences than those in other states, but Mr Taylor’s pros and cons all read true for me. Their weight, though, tilts against binding arbitration in my experience.

    Bay Area courts are so backed up that ADR is heavily favored by anyone wanting a resolution within three years. I’m a huge fan of mediation, when set up properly. But my experience with arbitration underscores its name – it is highly arbitrary.

    Reply
  2. Josh Cohen

    David or Goliath?

    When deciding whether to mandate arbitration in your contract a key consideration is whether a jury is going to view you as David or Goliath. As a general rule, if you are a landlord dealing with tenants, a general contractor dealing with subs, an employer dealing with employees, or a business dealing with consumers, a jury is more likely to identify with your opponent than with you and you are probably better off with an arbitrator, who is less likely to be swayed by your opponent’s tale of woe.

    Reply

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