Litigation E-Newsletter

Arbitration

Arbitration is a method of dispute resolution that resembles the traditional litigation process, although the proceedings are typically less formal. Also, in arbitration the parties usually agree to employ the procedure before any dispute arises, and they may have the right to decide who will hear their case. Like litigation, at the arbitration hearing the parties present their competing evidence to a "judge," called an arbitrator, who then makes a win/lose decision and issues an order, judgment, or decree. Sometimes, a panel of arbitrators will hear the case. There are formal rules that must be followed regarding procedure and evidence. The decision is final, although there are very limited rights of appeal. Because of this limited right to review, the choice of arbitrators is crucial. The parties' lawyers can help them make this pivotal decision.

Arbitration has a number of possible advantages over traditional litigation:

Efficiency. The parties can usually obtain a quick decision. It is not uncommon for the arbitration to be completed and the decision rendered within two to three months of selecting the arbitrator, depending on the complexity of the case and the parties' availability. Traditional litigation, on the other hand, may take years.

Privacy. The arbitration hearing usually is not open to the public or anyone who is not involved in the matter. Traditional lawsuits, however, are open to the public and the media.

Parties' right to choose. The parties involved in the arbitration can select an arbitrator who has extensive experience in the area of the dispute, which is far different from the process of being assigned a judge who may or may not have a background in the legal and factual issues involved. The parties in an arbitration may also agree on the governing rules, which can be as informal or as complex as they wish, and on the location of the arbitration.

Expense. Attorneys' fees incurred in arbitration are usually less than in litigation because less time is involved, and the parties often split the cost of the arbitrator. Also, many arbitrators allow parties to appear by telephone rather than in person for preliminary and procedural matters, saving additional time and travel costs.

Convenience. In addition to the convenience of the location selected by the parties, arbitration hearings are often scheduled at the parties' convenience, unlike trials, which are scheduled according to a court calendar that takes little heed of the parties' other commitments.

Arbitration has long been employed in labor-management disputes. Unions and employers have found it mutually advantageous to have an informed arbitrator of their choosing resolve their conflicts in a more economical and expedient manner. Because of the proven track record in this arena, the business and commercial world is becoming more enthusiastic about using arbitration in its other disputes as well.

In a newer form of arbitration, called court-annexed arbitration, the parties involved in certain civil cases are required by the court to engage in nonbinding arbitration. A growing number of state and federal courts are adopting this approach. Another method of dispute resolution, called mediation-arbitration, or med-arb, combines the approaches of arbitration and mediation. First, the mediator attempts to bring the parties to an agreement, and then, if they cannot compromise, they proceed to arbitration for a final and binding decision.

The decision to use arbitration must be determined by a careful assessment of risk and the mutual recognition that each party shares some responsibility for the conflict. Arbitration may not, however, be appropriate in all cases.

Ten Things You Should Know: Arbitration

Arbitration is a form of alternative dispute resolution. However, arbitration is very different from mediation. During an "arbitration" proceeding, one or more arbitrators hear evidence by the parties to a dispute and then issue an "award" that says who gets what. Think carefully before agreeing to arbitrate a dispute and consider the following:

In an arbitration proceeding, one or more arbitrators hear evidence and issue an arbitration award. In other words, the arbitrators take the place of the judge and jury.
Arbitration can be 'binding' or 'nonbinding'. A 'binding' arbitration usually means that the winning party can take the arbitration award to a court of law to enforce it if the losing party does not perform according to the award. A 'nonbinding' arbitration usually means that the parties have agreed to use arbitration as a way to resolve their dispute, but neither party is required to comply with the arbitrator's decision.
You may have already agreed to 'binding' arbitration. Many contracts contain a clause providing that disputes in connection with the contract will be resolved by arbitration.
There are various rules regarding how arbitration will be conducted. Parties sometimes agree to use the rules of an established organization, such as the American Arbitration Association (http://www.adr.org). Some states have default rules that will govern if the parties have not selected any rules.
Arbitration tends to be less expensive than litigation, primarily because it takes less time. Arbitration is usually pretty fast, in contrast with lawsuits, which can go on for a couple of years.
Once the arbitrator makes a decision, the parties are stuck with that decision. There is usually no right of appeal of an arbitration award.
The arbitrator is usually not bound by strict rules of procedure and evidence and can consider testimony and documentary evidence that a judge or jury would not be able to consider.
Of course, there are no guarantees that arbitration will be fair. If you feel that your arbitrator was unfair or biased, you have no recourse because you cannot appeal the arbitration award.
The parties usually split the cost of the arbitration.
Because arbitration awards usually can't be appealed, arbitration can bring finality to a dispute. Once the arbitrator issues an award, the case is over.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

View Previous Months' Selections