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Top 5 Reasons to Avoid Arbitration for Your Business Dispute

Apr 30, 2019

In our recent blog Top 5 Reasons to Consider Arbitration for your Business Dispute, we discussed some of the advantages of arbitrating your business dispute, and while the choice of forum will vary based on circumstance, just as there are reasons to arbitrate, there are reasons that it may not be right for your particular dispute. Below are some of the top reasons to consider alternatives, such as litigation, instead of arbitration.

1. Decisions are Generally Not Appealable.

In the US court systems, parties have a right to appeal. When parties agree to arbitrate a matter, they waive the opportunity to a trial by jury of peers, giving the power of judge and jury to an arbitrator or arbitrators. Generally speaking, arbitration decisions are legally binding, final and non-appealable.  A party dissatisfied with a decision will not have the same recourse to appeal as a party would in a trial court.

2.  Cost.

Arbitrations can be very expensive. Arbitrators in Denver bill by the hour with fees ranging between $250-$600 per hour.  Not only will you pay for the attorney’s and arbitrator’s time, but the arbitration association will also have administrative and filing fees as well as deposits. Arbitrations may also include panels of three and five-panel arbitrators, and their time spent reviewing documents or engaged in hearings will be particularly expensive. While it may advantageous over an opponent with a smaller budget, the costs associated with arbitration will add up quickly, and your budget should be carefully considered before deciding to go that route.

3. Limits on Discovery.

Many arbitrators place limits on discovery. Depending on the type of dispute, litigating a matter can offer parties the opportunity to gather more information about their opponent (or competitor) and use found information to encourage settlement negotiations or other resolution. Parties may also face restrictions on the number of depositions, interrogatories, and requests for production. Where arbitration may disfavor broad discovery that may seem unrelated to the dispute, litigation may delve deeper into issues through the discovery process.

4. Lack of Transparency.

Some businesses may not wish to have disputes publicly accessible, and arbitration is generally confidential rather than open to the public as the court system is. The argument can be made, however, that this privacy could increase the likelihood of bias. Having a matter in a public forum provides a different level of accountability than the privacy of arbitration. Arbitrators have been known to take a “split the difference” approach where they try to assuage both parties.

5.  More Informal Process.         

Arbitration is less formal than litigation, and while this may be advantageous in some situations, the lack of formality can also lead to further dispute over procedure and rules. An arbitrator can frame his or her own procedure with party input, but litigation is typically conducted under the particular jurisdiction’s Rules of Civil Procedure with strict enforcement by the judge.

This informality also means that the rules of evidence do not apply as they would in trial court. Arbitrators have sole discretion to determine evidence relevancy and may allow damaging evidence that might have been excluded in a more formal process such as a court trial.

 

mlmw_mark_MD.pngMallon Lonnquist Morris & Watrous is a  business, transactional and litigation law firmCraig T. Watrous is a Colorado litigator and partner at MLMW, based in Denver, Colorado. Craig regularly arbitrates business disputes and drafts and enforces arbitration provisions. Craig can be reached at cwatrous@mlmw-law.com.



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