By Craig T. Watrous:
We’re often asked about the benefits of arbitration over litigation in a business dispute context. While the choice of forum depends in large part on the type of the matter, the goals, size and timing of a dispute, arbitration has a number of benefits. Here are 10 reasons to consider arbitrating your next business dispute.
Arbitration is a private, generally confidential forum to resolve disputes. The court system is generally public. The public can attend court hearings and trials, and most court documents can be publically accessed. Arbitration is not public. Documents are submitted directly to the arbitrator or arbitration panel. The arbitration proceedings take place behind closed doors. Arbitration decisions are also largely private. Only once they are converted to a judgment do portions of an arbitration ruling become public record. This can have significant benefits for businesses who do not wish to air their disputes publically.
2. Choice of the Arbitrator(s).
In an arbitration, the parties get to choose who will arbitrate their case. This offers a number of advantages. Most arbitrators are attorneys and many have been past judges. Arbitration allows the parties to pick an arbitrator with specific expertise and experience related to their dispute. For example, you can choose an arbitrator with prior experience dealing with real estate matters, construction defects, business, corporate matters, contracts, etc. In the court system, the judge is chosen at random. He or she may have no prior experience or dealings with specialized business or real estate disputes. Arbitration allows you to pick a trier of fact who has a solid understanding of the law and issues related to your dispute. Additionally, for larger matters, the parties can choose a panel of three or even five arbitrators. While this does increase the cost of the arbitration, it also reduces the risk of relying on just one person to the final decision and can be useful in complex, high risk and/or high dollar disputes.
Currently in Denver, most cases go to trial within twelve months of their initial filing. This presumes there are not any continuances. Court cases in other jurisdictions often take even longer to go to trial. Arbitrations with AAA (the American Arbitration Association) usually go to hearing within seven months or less. The parties can decide to expedite the discovery process, particularly in lower dollar disputes, and can get a hearing in 3-5 months. This offers both certainty and finality to the process.
4. Decisions are Non-Appeal.
In the US court systems, parties have a right to an appeal. From a practical standpoint, this can result in a dispute taking years to work its way through the trial court and the appellate court. Generally speaking, arbitration decisions are not appealable. Similar to the benefit of speed mentioned above, this means arbitration offers a relatively quick, final resolution to a dispute.
The parties are largely able to control the rules and law that will apply to their arbitration. While organizations like AAA have specific rules for different types of disputes, the parties are able to decide which rules will apply and modify them. Similarly, if the parties decide not to use AAA, they can largely craft the arbitration rules that will apply. Most arbitrations are decided on by the parties when they originally negotiate their contracts with one another. In fact, arbitrations are generally agreed to well in advance when the parties enter into a contract with one another. An arbitration clause in a contract can spell out the type of arbitration rules, or rules of civil procedure that are to apply, as well as the choice of law and specifics regarding discovery. If you want Colorado law to apply, you can specify, same if you want the laws of another state to apply. Discovery, while a vital part of any dispute, can also be extremely time consuming and expensive. In arbitration, parties are able to put specific limits on discovery, as discussed more below.
6. No Document Dumps.
Document dumps are a common technique in civil litigation. Bombard the other side with mountains of largely irrelevant material, and let them sort through it looking for a needle in a haystack. Because the discovery process is largely controllable in arbitration, often based on contractual terms agreed to by the parties months or years before the actual dispute, document dumping is less common. It has been our firm’s experience that arbitrators are less tolerant of document dumps than judges. Most arbitration rules, and most arbitrators for that matter, have tighter discovery limits than courts. This means fewer depositions, fewer interrogatories, and fewer requests for production. The final result is usually a more expedited, streamlined, and targeted.
7. No Fishing Expeditions.
Because of the controls that can be placed on discovery in an arbitration, there is generally less fishing for information that takes place. It has been our firm’s experience that arbitrators (most of whom have expertise in the law and type of dispute at issue) are less receptive to overly broad discovery requests. Some parties use litigation to try to gather as much information about their opponent (or competitor) as possible, often with ulterior motives unrelated to the actual dispute. Having more control over the discovery process can help eliminate this problem and keep discovery focused on the actual controversy in dispute.
As stated above, most arbitrations are the result of an arbitration provision drafted and negotiated into a contract between the parties. This allows the parties to put certainty on how their disputes will be handled. A well drafted arbitration provision lays out the venue, choice of law, number of arbitrators, qualifications of arbitrators, arbitration rules, fee shifting clauses, and other concerns specific to the parties and their business relationship. If a dispute does arise, the rules and parameters have already been determined. The best time to craft an arbitration is prior to any dispute when the parties are getting along with one another.
9. Not a Scorched Earth Approach.
Rambo litigation tactics rarely make their way into arbitrations. For many business disputes, the parties don’t want to totally bury and destroy the other side. It’s never a good idea to burn a bridge that will have to be crossed again. Though the parties may have dispute with one another, they may very well end up having to work together in the future. An arbitration is often less adversarial than litigation. The result, when well implemented, is a professional, streamlined approach to resolving a disagreement between two parties.
While not often articulated, arbitration can offer strategic advantages over an opponent with less money. Arbitrations are expensive and most arbitrators bill by the hour. In Denver, most arbitrators cost between $350-$450 per hour. In addition to the arbitrator’s time, the arbitration association will also have administrative and filing fees. Three and five panel arbitrations are particularly expensive. While it seems counterintuitive, making the costs of dispute higher can actually present strategic advantages to a party. If arbitration is mandatory, it forces the other side to carefully consider their case prior to filing the arbitration and incurring the associated costs. From a practical standpoint, this means some smaller disputes won’t make it to arbitration. It also means a party with less money may be less inclined to actually file an arbitration. There are also other positive aspects to paying a professional to hear your case. Courts are unfortunately notoriously busy. Most judges have enormous case loads. Criminal matters generally take precedence over civil matters. This can result in hearings being expedited, dates being delayed or bumped, and court decisions taking a long time. When trying your case in arbitration, you have the arbitrator’s full attention. You’ve hired the arbitrator to review, assess and decide on your case. He or she will be reading your documents, standing firm by deadlines, and providing their full attention to your dispute.
Mallon Lonnquist Morris & Watrous is a business, transactional and litigation law firm. Craig T. Watrous is a Colorado litigator and partner at MLMW, based in Denver, Colorado. Craig regularly handles arbitrations in Colorado and other states. Craig can be reached at firstname.lastname@example.org.