Is Arbitration Really
in Your Best Interests?
Read this before you jump on the ADR bandwagon
(Editor’s note: Jay Adkisson recently published this article in FORBES. Reprinted with permission.)
Since I became a lawyer in 1989, the use of arbitration as a dispute resolution technique has skyrocketed, and it is increasingly rare these days to find a contract that does not have an arbitration clause. Indeed, arbitration has become something akin to a legal panacea, and not without good reason because of the advantages of arbitration. These advantages may be defined by two primary benefits: Faster resolution and reduced costs.
Why choose arbitration?
Arbitration results are much more quickly obtained than courtroom litigation, since discovery rights are tightly constricted, trials are much shorter, and there is no often no right to an appeal. One may expect to walk away with a judgment from an arbitration in about six months, whereas a civil case that goes to a jury will usually take around two years from the date the complaint is filed, and can stretch longer than five years where there is an appeal. This quickness keeps the dispute from hanging over everybody’s heads, and thus perhaps affecting other business decisions, for the long periods of time that would normally play out in courtroom litigation.
Arbitration costs, expenses, and attorney’s fees are usually much lower than in courtroom litigation for the same reasons, i.e., the less for attorneys to do, the smaller their billings.
Those are the primary benefits of arbitration, but there can be others of greater or lesser importance depending upon the particular matter. For instance, since arbitration is private, the airing of one’s dirty laundry in a public courtroom can be avoided. It can also be very difficult, although not completely impossible, for a party to bring class-action litigation where arbitration has been mandated.
These benefits of arbitration, all of which have been completely validated over the years, is why arbitration has become such a popular alternative to courtroom litigation. Tellingly, companies continue to use arbitration even though there are some studies which suggest that in consumer cases, just for instance, companies are more likely to lose in arbitration than in ordinary courtroom litigation. The reason that these companies still choose arbitration is that in the long run, they still save more money through the fee-savings of arbitration despite losing more cases than they would have expended in courtroom proceedings even if they had won more cases there.
The underlying hidden cost …
So, with all these benefits, why wouldn’t somebody choose arbitration if they had a choice? The answer is that there is no free lunch, and the benefits of arbitration come with a hidden cost. With arbitration, the hidden cost is that the quality of results is often quite poor.
There are at least two reasons for the quality of arbitration decisions being poor. The first reason is that all those things that arbitration eliminates for cost-savings, such as broad discovery and a right to an appeal, are designed for the very purpose of giving the court the best chance of making the correct decision. All of these safeguards go out the window with arbitration. If a party could not obtain a key piece of evidence because they had no discovery right to obtain it, too bad. If an arbitrator makes an incorrect ruling on some important question of law, too bad. You have to live with the results nonetheless as the price of being cheap.
The second reason will be more contentious, and is largely proffered on the basis of my own anecdotal experience, being that the quality of arbitrators is generally a lot lower than folks would generally like to believe.
About the author
About the author:
Jay D. Adkisson is Managing Partner of the Las Vegas, Nevada office of Adkission Pitet LLP, and maintains a secondary office at the firm’s Newport Beach, California offices. He is a nationally-recognized expert is his areas of practice. Contact Jay at jay@apjuris.com.