To Arbitrate or Litigate

Arbitration is almost always done pursuant to a consensual agreement between the parties. There are certain situations where the court will find that the agreement was not entered into voluntarily or the subject matter was not appropriate for arbitration.

Arbitrations are conducted by one or more arbitrators. The method of selecting arbitrators is usually set forth in the agreement to arbitrate. The most common forum for arbitration is the American Arbitration Association (AAA) which has its own rules for arbitration. It has general rules and specialized rules for particular kinds of cases, eg. commercial rules of arbitration. AAA is a not for profit organization. There are many for profit organizations that also conduct arbitration and have their own rules for arbitration.

There are a handful of advantages to arbitration:

  • It tends to be faster than the courts.
  • Scheduling is more flexible and usually is more accommodating to the needs of the parties.
  • Proceedings tend to be more informal and arbitrators are generally not bound by rules of evidence.
  • Decisions tend to be final because there are limited bases for appeals.
  • The parties are involved in the arbitrator selection process and if the parties agree then each can select an arbitrator and then either the AAA or other arbitration forum can select the third arbitrator or the parties can agree that the two designated arbitrators can select the third arbitrator.
  • Usually there are no depositions in arbitrations.

The disadvantages of arbitration can overlap with some of the advantages of arbitration:

  • It is a much more costly procedure exclusive of legal fees. You have to pay filing fees which in some cases are in excess of $10,000 usually based on the amount in controversy. The fee of the arbitrator or arbitrators, are on an hourly rate. In some cases the costs of the arbitration at the end of the arbitration usually can be allocated between the parties by the arbitrator or arbitrators as part of their decision. In addition, there may be additional charges charged by the forum based on the longevity of the arbitration or other factors.
  • If you lose an arbitration your chances of reversal on appeal are slim.
  • Without rules of evidence claimants can sometimes prove damages in arbitration in a manner which would not be admissible in court.
  • You cannot bring additional parties into an arbitration without their consent which you can do in court. For example, if two parties are partially at fault and only one has agreed to arbitrate you may have to arbitrate with one party and go to court with the second party which is double the effort and may be double the cost.
  • Even with an arbitration agreement you may still be in court in regard to the following (a) did the agreement cover the subject matter of dispute; (b) is the agreement to arbitrate subject matter against public policy; (c) was the agreement to arbitrate entered into voluntarily; (d) if you require equitable or injunctive relief prior to the commencement of the arbitration and selection of the arbitrator or arbitration; (e) motions to stay and compel arbitration may be required; and (f) a motion to confirm an arbitration award is always required unless the award is complied with voluntarily.

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