Arbitration provisions
are a common feature of the agreements we review and prepare for clients. They require the parties to the agreement to submit
some or all of the disputes between them to arbitration before one or more
arbitrators rather than litigating in court.
There are several
traditional justifications for favoring arbitration. Some are more persuasive than others.
Consideration #1: Arbitration is Cheaper
than Going to Court
Many attorneys will
justify arbitration by claiming that it is cheaper than going to court. Savings are theoretically achieved because most
arbitrations have limited discovery and little or no motion practice. Less discovery and fewer motions to write and
respond to means less attorney billing.
By contrast, a court proceeding may involve significant discovery and
elaborate motions practice. This
generalization is often honored in the breach. However, a complicated
arbitration can involve significant discovery.
The fees for the arbitrator
or arbitrators themselves can also be significant. In a court proceeding, the judge, the clerk
and other court staff are all paid by the state or federal government. For the cost of a filing fee (almost always
less than $500), a litigant gets the benefit of all these resources. An arbitration is not subsidized by tax
money. The parties to an arbitration pay
the fees for the arbitrator (which are often more than $500 an hour), a fee for
the organization that administers the arbitration (which is typically based on
the amount of money in dispute) and a fee to rent the office where the
arbitration will take place. Many
arbitration provisions call for multiple arbitrators, increasing fees to
thousands of dollars per day.
Consideration #2: Arbitration is Faster
than Litigation
Arbitration is relatively
fast. Whether it’s faster than
litigation depends on your court options.
The federal courts, particularly in the Eastern District of Pennsylvania
and the Court of Common Pleas in Philadelphia County, process cases very
quickly. Other state courts, for example
those located in Bucks or Lancaster county, tend to move more slowly.
Consideration #3: Arbitration is More
Private than Ligation
Arbitration is undeniably
more private than litigation. Nearly all
filings in a court proceedings are in the public record. Many proceedings have a verbatim record of
what transpired. Even the courtrooms
themselves are open to the public. In
many courts, the public can access and download court records from the Internet. Not so with arbitration. The only people allowed to access the
arbitration proceedings are the parties and the arbitrator.
Consideration #4: Arbitration is Final
A disappointed litigant
can appeal a court’s decision at least once.
When arbitration works the way it should, the decision of the arbitrator
is extremely difficult to appeal. This
helps to reduce costs and brings finality to disputes.
But arbitration does not
always go the way it should. There are a
number of procedural machinations available to an attorney wishing to avoid or
delay an arbitration by challenging the arbitrator’s jurisdiction or claiming
impartiality. These sideshows can
quickly eclipse the speed and finality of an arbitration.
The Take Away
Although there is an
increasing emphasis on submitting disputes to arbitration, we discourage
clients from kneejerk inclusion of arbitration provisions in their
agreements. The professed benefits of
arbitration often fail to materialize either because the arbitrator’s fees
exceed any cost savings or because the propriety of an arbitration ends up in a
prolonged court battle.
