Author(s): William J. Brickley

In this issue of Garan Lucow’s Commercial Law Reporter, some of the deficiencies of the Arbitration process for dispute resolution are examined.

ISSUES TO CONSIDER BEFORE USING THE ARBITRATION PROCESS AS AN ALTERNATIVE DISPUTE RESOLUTION TOOL

When the discussion turns to resolving disputes by alternative dispute resolution (“ADR”) one method frequently touted as an effective alternative of going to court is Arbitration. Arbitration is often advanced as a dispute resolution alternative without fault. This article will examine some of the myths associated with Arbitration. You may find that Arbitration is still the best alternative for your specific situation, but you will also be apprised that it is not the ADR superstar that has been touted.

To begin, what is Arbitration? Simply put this is a private method of dispute resolution, as opposed to filing a lawsuit, and having either a Judge or Jury decide your dispute. Typically Arbitration is decided by one or three people, usually lawyers, who are selected by the parties and their attorneys for their knowledge and expertise in a given area of law. Normally Arbitration does not follow formal court or evidentiary rules. In fact, the parties can agree to any rules or procedures they wish in their agreement to Arbitrate. The decision to Arbitrate can be made before any dispute arises, as is often the case in many sales contracts, or it can be made after a dispute arises in lieu of filing or defending a lawsuit.

Myth #1 – Arbitration will be more cost effective.
Cost effectiveness is by far the number one myth associated with Arbitration. Under this contention the cost of only paying your lawyer to either pursue or defend the case is the reason for arbitration. In a typical lawsuit you are paying your lawyer to prepare pleadings, initiate and respond to requests for documents, answer written questions, take depositions of other parties and witnesses, attend court ordered hearings, and to keep you informed about these events. In addition, a trial will be loaded with procedural delays, lack of court docket control, and will often last much longer than even your learned counsel has estimated. With Arbitration, as the theory goes, you can avoid most if not all of these costly proceedings. Each side just lines up its evidence and presents it to the Arbitrator to decide.

One of the factors often ignored in this cost analysis myth is the fact that in an Arbitration much of the discovery still takes place. Any attorney you have pursuing your interest will be obligated to learn as much as he or she can about the opposing party’s case. It is almost impossible to prepare for a hearing when you do not know what the other side is planning on presenting. Often, the parties agree to some form of discovery. This will include sharing documents and taking depositions.

In addition, Arbitrators charge each party a rather significant fee for their services. It is not uncommon to have attorneys charge well in excess of $300 an hour for the privilege to sit as your Arbitrator. In the case where you have chosen a three-person panel, each side is paying for one Arbitrator and sharing the cost of a third one. Thousands of dollars can be spent on the fees of Arbitrators alone. Obviously, in a state or federal lawsuit, taxpayers pay for the Judge and Jury.

Also, factoring in the costs of arbitration with any potential award could significantly change the analysis. This is especially so if you are in the position of defending a claim where plaintiff is seeking damages from you. The reality is that in most cases the award is higher than a jury verdict. While every case is different, the trend is that Arbitrations result in higher awards than jury trials.

Myth #2 – Arbitration will be speedier.
We have all heard the stories of overcrowded court dockets and delay tactics that other parties will use to avoid court. The idea that you can remove yourself from this process and obtain a decision quickly sounds like a no-brainer. The reality is that it does not work that way.

Trial courts have the ultimate authority to schedule a matter when it is convenient for them. They do not normally check the lawyers or parties schedules. In the event that there is a conflict between a matter they have scheduled for trial and something else on a lawyer or party’s calendar, courts have the authority to make the trial date take precedence.

This is not so for an Arbitration. Normally an Arbitration is scheduled at the convenience of the parties and their lawyers. What will normally occur is some dates will be good for one side but not the other and eventually a date is chosen very far down the road, usually well after the date the matter would have been scheduled for trial in court. Once a date is chosen, it is sometimes adjourned because ironically the lawyers are being ordered by trial judges into court on other matters.

Also, with a trial, the Judge will normally start the case and then continue until it is concluded. The jury will be sent away and not released until a decision is made. With a complex arbitration it often happens that the case will be started, a portion of the evidence submitted, and be adjourned to a date in the future. It is not uncommon for there to be two, three or even more sessions over a period of months before the process is completed. Several more months can then go by before any decision is rendered by the Arbitrator or panel.

Myth #3 – Arbitration is fairer and less procedural.
Some advocating Arbitration proclaim that less procedure the better. The problem with this analysis is that there is a reason for procedure. What if you showed up at an Arbitration hearing and the other side had three witnesses you had never heard of? What if there were documents that they presented for the first time that you swear were fabricated? What if you learned at the hearing for the first time that the person you have chosen to resolve the dispute was a former business partner of the other party’s lawyer? What if the Arbitrator chosen simply made the decision based on a bias and not on the evidence submitted? This all happens in Arbitrations. Quickness and efficiency do not always equal fairness.

While we can often bemoan the Courts rules, filing requirements, evidentiary “technicalities,” and other processes, they are there for a reason. That is to assure a fair and equitable process to ultimately obtain the truth.

Courts require parties to file witness lists, to disclose the documents they are going to use, and your lawyer has the right to find out about the witnesses and the documents well in advance of any hearing. If the other side does not comply, evidence can be excluded. Not so in Arbitration.

If the trial judge was a former partner of the opposing counsel there are means of disqualifying the judge. In an Arbitration, if you have agreed to the arbitrator, even though you were not told of the relationship, you are potentially stuck. And even if you later find out about an apparent arbitral conflict, the cost of remedying the problem is typically very expensive.

In the event of a poor ruling in Arbitration, there is little to no means of appealing the decision. In order to overturn an Arbitration award, a party generally must prove a clear error of law. As a result, an Arbitrator who uses the correct law but simply ignores the facts cannot be overturned unless it is clear on the face of the award, which most times it is not due to the brevity of the decision. This is not true in court. While it can be difficult to have factual findings overturned, the standards are not as strict as in an Arbitration.

This is just some of the analysis that one should make before deciding to arbitrate. Each dispute is different and with the right agreement, Arbitration may be the best way to have your matter resolved. ThelawyersatGaranLucowMillerwillbe glad to discuss your specific circumstance to evaluate whether your case is suited for this type of ADR.

Mr. Brickley is a managing partner in the Grand Blanc, Michigan office of GARAN LUCOW MILLER, P.C. and can be reached at (810) 695-3700.