Beginning in law school, the drumbeat of the advantages of arbitration over civil litigation is seemingly constant. It is drilled into attorneys that civil litigation is always lengthy and expensive—and that arbitration can satiate the principals’ bloodlust with, well, less blood.
The fundamentals of this notion are fairly apparent. Arbitration claims are generalized. Parties can sometimes arbitrate with no legal help at all. Crowded court dockets won’t delay resolution for years. Expensive motions practice and discovery are limited, even eliminated. The rules of evidence are relaxed. And, in short order, the parties get their proverbial day in court and a final answer in the form of a disinterested arbitrator’s un-appealable decision. Sounds like a win-win, right?
Not so fast, Batman. Although I’m still a proponent of all forms of alternative dispute resolution, my attraction to arbitration is slipping—maybe from 90-10 to more like 60-40. Frankly, arbitration has been lawyerized to the point that it seldom lives up to the hype. What we now have is an expectation that binding arbitration be included in many commercial agreements. Sometimes, the drafter boldly includes a 3-arbitrator panel to resolve disputes. Arbitrators are paid for their time, for starters, so that triples the procedural costs at the starting gate—and therefore should be included only with very good reason. Next, we often specify use of one of several national arbitration services. That, too, sounds like a good idea; however, those services can be quite expensive, even tying administrative fees to the amount in dispute. But my greatest and growing concern is that the rules of arbitration, like the rules of Fight Club are….that there are no rules. And it is that lack of structure that can make arbitration a scary proposition.
When arbitration begins (i.e., after a claim is filed, the service paid and an arbitrator selected), the first procedural event is typically a conference call of counsel and the arbitrator. Usually in that call, the arbitrator will address the discovery to be permitted. Arbitration service rules are characteristically vague on this topic, and the arbitrator has great leeway. Interrogatories are unusual, but how many depositions will be permitted? What scope of document production will be allowed? We’ve seen an arbitrator prohibit all discovery; more often, we’ve seen “whatever the parties want.” Next, what of motions, especially those that would be treated in court as preliminary and even dispositive? Again, we operate at the whim of the arbitrator. A recent experience colors my view of this issue and has moved me to revisit the value of arbitration. In a low-value financial dispute, we had raised a statute of limitations defense, to be considered preliminarily or, more likely, as part of the overall presentation. The arbitrator, though, set a special procedural schedule and asked for briefs, limited to 15 pages. In Fairfax Circuit Court, where we otherwise would have tried this case, we would have been held to a firm five-page limit. How/why could an arbitrator want more? We want quick justice with an arbitrator, yet here the parties are filing lengthy briefs on a mere motion. Not to be outdone, the arbitrator himself then issued a 12-page, single-spaced ruling. Again, we’re looking for quick justice here, not appeals court scholarship. A simple “yes” or “no” would suffice. Fortunately in that case, both sides soon recognized that we were well beyond the tipping point and the matter settled—without ever putting on any evidence. By then, needless to say, the cost of the arbitration exceeded the amount in dispute.
There are other reasons to dislike arbitration. For one, you may well need more discovery than the arbitrator will allow. It’s hard enough with a watchdog judge to compel meaningful discovery from a difficult adversary; arbitrators have less power than a judge and even less interest in dealing with your motion to compel. Compressed time and dubious subpoena power also weaken the process. Principal players—and more so disinterested third parties—don’t really respect the enforcement power of arbitrators. Motions to compel, motions to show cause, etc., are available tools for a litigator in court. I’ve never seen an arbitrator summon the marshal to inspire cooperation from a stubborn litigant. There are ways to elevate such disputes to gain court intervention, but seldom do you have enough time to do so.
My conclusion is that arbitration of civil matters is not always better than full-blown litigation. If the parties could have cooperated and communicated better, the dispute might have been avoided in the first place. Lawyers might ease the tension somewhat, but it is in our DNA, too, to be advocates. Mutual cooperation and civility would make the system work better, but the same could be said of court litigation. Arbitration can be an unfavorable forum for aggressive advocacy.
Maybe arbitration just isn’t all it was cracked up to be.
Posted in: Litigation & Disputes