It’s faster . . . It’s cheaper . . . There are no outrageous verdicts because there’s no jury . . . The outcome will remain a secret . . . There’s no precedent set for future verdicts.
These are some of the reasons corporations readily decide to waive having disputes decided in a court of law and agree to binding arbitration. Many corporations even have arbitration clauses in their standard, pre-approved contract language.
Arbitration clauses may not be triggered often, or if they are triggered, the matter may settle prior to a decision. But it only takes one outrageous binding arbitration decision to prompt the realization that you may have made a horrible mistake, multiple times, in your company’s most important contractual documents. The beginning of a new year is an ideal time to review your standard contract language and your desired approach for resolving disputes.
“It’s faster . . . It’s cheaper”
Motions to dismiss are a fantastic mechanism to dispose of frivolous litigation and claims that would otherwise waste time, money, and your company’s limited resources. They are filed at the beginning of litigation and, even if they do not dismiss the entire case, they can narrow down the claims, streamline the issues, and result in a more manageable case.
Unfortunately, arbitrators are generally reluctant to grant motions to dismiss. Arbitrators have a tendency to allow cases and claims to continue into the discovery process. This can easily make the arbitration process longer and more expensive than litigation. Also, broader discovery allows the parties to search for new claims and causes a company to utilize more resources.
It is true that courts in some jurisdictions are backlogged, and it can take years for a final verdict. Other courts move extremely rapidly, such as the United States District Court for the Eastern District of Virginia, which usually resolves even the most complicated of cases in less than a year. If you want litigation to move quickly, you can often help direct litigation to a faster moving forum by having a venue selection clause in your contract. Depending upon your arbitration clause, the rules of the arbitration forum, and the availability of the arbitrator(s), a complicated arbitration proceeding may take years to resolve.
Additionally, it should be noted that most arbitrators are paid by the hour. A longer, more complicated case will result in more fees for the arbitrator. In contrast, state and federal court judges are not paid by the hour, and there is no potential financial benefit for prolonging litigation.
“There are no outrageous verdicts because there’s no jury”
Ask any lawyer who handles arbitrations on a regular basis and they will tell you stories of ineffective arbitrators. Those that made mistakes in interpreting applicable law, misapplied or disregarded the law, failed to consider relevant facts, wrote unclear decisions subject to multiple interpretations, and provided outrageous verdicts due to a perceived inequity. While these are not typical arbitration outcomes, they can and do happen.
Courts make all of the same mistakes, but there is a clear remedy for aggrieved parties: the right to an appeal. Through the appellate process, mistakes can be corrected and outrageous verdicts modified. Appealing a binding arbitration award is difficult or impossible.
For companies worried about the uncertainty of a trial by jury, a simple fix is to agree in the contract to waive a jury trial and have a judge decide the case.
“The outcome will remain a secret . . . There’s no precedent set for future verdicts”
The parties can agree to keep all aspects of the arbitration confidential, but when there’s a significant arbitration decision, e.g., one with a large dollar value or one that affects many employees, you cannot reasonably expect the decision to remain confidential forever. Through a spouse, a loose lipped former employee, a document accidently being overseen, or an observant outsider noticing changes in the company, information may inevitably leak out or get discovered. You may never know the true source, but you will not be able to re-establish the confidentiality.
It is true that arbitration decisions may not set a precedent for future conflicts, but, if the decision does not remain confidential, new arbitrations may be filed after knowledge of an adverse decision becomes publicly known.
Is there a better alternative for a quick resolution of a dispute?
Yes, non-binding mediation often can satisfy some of the same objectives of arbitration without the same risks. Mediation is usually conducted by a single mediator who does not judge the case but will try to help the parties find a middle ground and compromise. Compared to both arbitration and litigation in a court, non-binding mediations is faster, cheaper, and there’s a strong push to reach a resolution without a final judgment.
Thus, before agreeing to binding arbitration, you may wish to determine if it will truly satisfy your goals. Requiring mandatory meditation in your contract and, if unsuccessful, litigating the dispute before a judge, without a jury, may be a better alternative.
Larry Grayer, Of Counsel at Protorae Law, is a former General Counsel who focuses on government contracting and provides general legal counseling on federal law matters to large, mid-tier, and small corporations.