“See You In Court...I Mean...Arbitration!” Part 1 (Overview)
Is Arbitration Really Better Than Litigation For Your Business?
If you are in the business world, you probably have some sense that there are alternatives to fighting your legal battles in court and that arbitration is one of them. You may even know to call arbitration “Alternative Dispute Resolution" Resolution” (ADR) because it is an alternative to litigating disputes in court. And you may have a vague sense that ADR, including arbitration, is better than litigation. But, what is arbitration, exactly? That’s the topic of this five-part The Candid Counsel series.
In this post, I offer an overview of arbitration – to help a business person understand what arbitration is, exactly. In later posts, I explore whether the supposed advantages of arbitration are real – including Confidentiality, Speed and Finality, Expert Decision-Makers and Cost. (Hint: It depends.)
Because arbitration is – in fact – an alternative to litigation, understanding what arbitration is starts with comparing it to litigation.
Court Trials vs. Arbitration Hearings
Litigation is bringing a dispute to a court for the court to decide. It begins with one of the parties to the dispute filing a lawsuit – or “complaint” – asking the court to order the other party to do and/or stop doing something and contending that the law requires that result. Ultimately, unless the parties agree to settle the dispute, or the court decides to throw it out, the court will decide the dispute after a trial. At the trial – which is usually before a jury but may be before a judge – lawyers will make arguments, witnesses will testify and other evidence (such as contracts, photographs, e-mails, text messages, bank statements and financial records) will be presented.
Arbitration is bringing a dispute to an arbitrator or panel of arbitrators and asking the arbitrator(s) to decide. Instead of filing a complaint, arbitration begins with one of the parties to the dispute sending a “demand” to an organization that administers arbitrations – such as the American Arbitration Association (AAA) or JAMS or perhaps, if you are in the greater Washington, D.C. area like we are, The McCammon Group. Instead of culminating in a trial before a judge and jury, an arbitration culminates in a final hearing before the arbitrator(s) who will ultimately decide the dispute. At the final hearing, lawyers will make arguments, witnesses will testify and other evidence will be presented.
Generally speaking, it may be harder to get uncooperative witnesses to testify in arbitration than in litigation, where the court’s subpoena power can be formidable. On the other hand, an arbitrator may be more permissive than a court in allowing evidence to be presented. In court, judges are to follow certain rules in deciding which evidence the jury can see and hear, and can be reversed by higher courts if they fall short. Not so with arbitrators.
Public Courts vs. “Private” Arbitrations
With few exceptions, litigation is public. Court filings, which are mostly electronic these days, can be accessed by anyone – including the media and your business’s friends and enemies. The same is true of the court’s orders. Some court orders may not paint your business in the most flattering light. Some court orders may vindicate your business in a way that you want the public (or your business’s competitors or rogue former employees) to know.
Not only are court filings and orders accessible to the public, in many cases they are easily accessible. Court records for every federal court in the U.S. can be accessed through the PACER website. Many state court systems have similar websites for accessing court records. Hearings and other court proceedings are almost always open to everyone. People can literally walk into a courthouse off the street, watch a trial and report on it to others.
By contrast, so long as the parties agree – and they generally do – arbitration is private and confidential. In fact, arbitrations are often referred to as “private arbitration,” and the increasing prevalence of arbitration has been referred to as the “privatization of the justice system.” Usually, only the parties to the dispute and their lawyers will see the papers submitted to the arbitrators and the arbitrators’ decisions and orders, and no one will be in the room at the final hearing but the parties, their lawyers, the arbitrator(s) and the witnesses who are testifying.
Court Costs vs. Arbitration Costs and Fees
Arbitration entails costs that litigation does not. Fees must be paid to the arbitration administrator that are generally more than court filing fees. On top of that, the arbitrators must be paid for their work on the arbitration – typically on an hourly basis. That can add up for a final hearing that lasts days or weeks. By contrast, with litigation, judges and juries do not have hourly rates, judge’s salaries are paid for by taxpayers, and (unless costs are assessed against settling parties) the court system pays jury members nominal daily fees.
Right to Day in Court vs. Right to Day in Arbitration
So long as there is a case or controversy, all disputes can be litigated. But not all disputes can be arbitrated. Only disputes where both sides have agreed to arbitration can be arbitrated. If you think arbitration is better than litigation for your business, then you need to get that agreement in place.
But first, is it better? Ideally, with the help of counsel who knows the ins and outs of litigating and arbitrating business disputes because she has done lots of both, you can decide whether arbitration is better for your unique business and the types of disputes and adversaries you foresee. And, in doing so, you and counsel will consider how arbitration and litigation compare on the points of Confidentiality, Speed and Finality, Expert Decision-Makers and Cost.