ALTERNATIVE DISPUTE RESOLUTION (ADR) PART 2 OF 3: ARBITRATIONS

Overview of Avenues for Dispute Resolution: Part 2 - Arbitrations

The second of this three-part series will provide an overview of arbitrations. Like with mediations, the term “arbitration” can mean several different things and there are several “pros” and “cons” to engaging in arbitration. 

A judicial arbitration is one where civil actions are heard and decided on by a court appointed arbitrator before they become eligible to proceed to a court or jury trial. Making the matter even more confusing, the term “judicial” is a misnomer. Judicial arbitrations are not conducted by an active judge and are not binding on the participants. Within a limited time after the arbitration hearing, any party may elect not to accept the arbitrator’s decision and request a trial, with the caveat that if that party does not receive a more favorable ruling than the arbitration award, the party may be assessed certain costs and/or prevented from recovering his or her own costs.

Conversely, there is also contractual arbitration, which differs from judicial arbitration in a couple of significant ways. Contractual arbitration is just as it sounds – there is a contract between the parties that require the dispute to be arbitrated. Parties to a contract may agree to arbitrate most contract disputes and tort claims; however, there are limitations. For example, parties cannot agree to arbitrate claims for bodily injury, wrongful death, or latent defects arising from real estate sales. Contractual arbitrations often identify the issues that may be arbitrated, who will conduct the arbitration, scope of discovery, the arbitrator’s powers, admissibility of evidence, and payment of the arbitrator’s fees and costs. Generally, an arbitrator’s decision is final and binding even if legal or factually incorrect and an arbitration award cannot be appealed except on extremely limited grounds.

Arbitration presents several advantages and disadvantages. Those touting arbitration as a viable alternative to litigation through the courts argue that it is speedier and more efficient than litigation as arbitrator’s calendars are often much less impacted than court calendars. Thus, resolution of disputes in arbitration tend to occur much quicker than through the courts. This has only been further highlighted by the COVID-19 pandemic, which has further impacted court calendars. Arbitrations can also often be conducted confidentially, which may appeal to commercial entities or parties that anticipate an ongoing business relationship. There is also more control over the arbitration process as the parties are able to select the arbitrator and dictate the process, including discovery and motion work.

Arbitration, however, also has its warts. Arbitrations are not always fast and are certainly not always as inexpensive as litigation, especially in complex matters. Unlike a judge, arbitrators need to be paid by the parties, which, depending on the length and complexity of the arbitration, can be a substantial added cost. Arbitration proceedings are often more informal than a court trial which may result in the admission of evidence or testimony that may otherwise be improper. Likewise, the general lack of discovery rights may impede a party’s ability to present its case. There are no juries in arbitrations, which adds risk to arbitrations where there is a single trier of fact. Arbitrators also often rely on equitable principles and need not necessarily follow the law. This risk is exacerbated by the fact that there is an extremely limited appeal process for arbitration awards which often do not extend to the merits of the dispute, sufficiency of evidence, or the arbitrator’s reasoning.

Especially as it relates to contracts, it is extremely important to be mindful of any arbitration provisions. If a contract with an arbitration provision is signed or initialed by the parties, then it may be difficult to avoid an arbitration in the event of a dispute; thus, you should give great care to approving any such provisions and understand the implications of doing so. The decision of whether to arbitrate or not is an extremely important one that must be made very early on in any litigation. It is important to consult with an attorney when contemplating the approval of an arbitration provision or deciding whether or not to arbitrate in lieu of litigating through the courts.

ADR can be a useful tool but is not a one-size-fits-all proposition. It is important that you confer with experienced counsel to evaluate and choose the best ADR fit for you and your case. You have finished reading Part 2 of a 3 Part series on ADR. Read our Part 1: Mediations and Read our Part 3: ENEs and Settlement Conferences to learn more.

The information provided above does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only and do not create an attorney-client relationship. The experienced and knowledgeable attorneys at Blake Law Firm are available to answer questions on alternative dispute resolution and help you navigate any other real property issues.