Reprinted with permission from the April 8, 2016 edition of the The Legal Intelligencer.

“Why is this taking so long and costing so much?” asked a client. “I thought arbitration was supposed to be quick and cost-efficient.”

His complaint was understandable. His company was involved in litigation on a contract that mandated arbitration before a three-member panel. Unfortunately, the litigation had been going on for years – including interim trips to courts in two different states – and each of the three arbitrators charged several hundred dollars an hour to the extent their services were required.

Before trial, the arbitrators had declined to decide any of the dispositive issues that had been presented to them. In fact, their most common decision was in favor of further process – supplemental briefing, yet another oral argument, and more discovery. The result? Delay and expense.

Nor did matters improve once the trial actually started. The proceedings had been sporadic, involving a few days here and there scattered over the course of weeks and punctuated by long breaks. Trial had been going on (and off) for months.

It wasn’t the first time I’d seen this happen. Because they are paid by the hour, arbitral panels often seem to have little incentive to move matters along quickly. Moreover, the members are typically very deferential to each other. They will not push to decide – at least not before they have to – any issue that causes any one of them the slightest qualm. And lawyers are good at causing qualms. As a result, it can be very difficult to obtain dispositive pre-trial rulings. Certainly, in my practice, I’ve obtained more summary rulings from courts than from arbitrators.

Arbitration isn’t always bad, of course. But it isn’t always better than going to court either. So consider carefully before assuming that “arbitration is more efficient” and reflexively binding yourself to mandatory arbitration prior to an actual dispute arising.

For businesses, the single clearest advantage to arbitration may be that it is usually confidential. That, alone, is a good enough reason to favor it in many sensitive cases.

Other cases that do well in arbitration, I think, are ones where the stakes are not too high. In particular, putting such cases before a single arbitrator under the “expedited” or “streamlined” procedures of an established forum like the American Arbitration Association or JAMS can be an efficient and cost-effective means of resolving such matters with finality. But the same qualities that are attractive in a smaller matter – limited discovery, fast proceedings, a single decision-maker, no right of appeal – may become detrimental in an important matter, or one where your client needs information from the other side to build its case.

There are other cases, as well, that I think do better in court.

The federal Judge I clerked for used to say, “Judicial robes fit better after five years.” What he meant was that experience in judging pays off. Even as a law clerk, I noticed the same evolution as my clerkship advanced. It was only one-year long but, even so, I saw the same disputes arise again and again, and learned to address them efficiently and predictably.

Judges will likely have more experience – often far more experience – in resolving typical disputes than many arbitrators do. Many judges get good at it, if only because they don’t like being reversed. And even atypical disputes (which are rarer than many think) benefit from the application of adjudicatory instincts and principles that have been honed by experience. No doubt, a particular trial judge’s brand of justice – especially a trial judge with a crammed docket – can sometimes feel pretty rough to the litigants. But even so that may not be a bad trade-off compared to the expense of paying three arbitrators to mull something afresh and, most likely, come out the same in the end anyway.

Among the cases that may fare better in court, for example, are those that hinge on legal or factual issues of recurring significance to your client. Judicial decisions generate a body of law that can be used (if favorable!) to help your client defend other, related matters. The availability of appeal (usually absent from arbitration) may also be an important factor for such recurring matters, or for matters that involve complex issues of law or public policy.

Finally, juries have an important impact not only on the outcome, but also on the trial process.

Clearly, large institutions (such as banks, credit-card issuers, big corporations and employers generally) who will likely go up against smaller and potentially more sympathetic plaintiffs in risky forums should consider requiring arbitration (and possibly class-action waivers) in advance as a substantive hedge against runaway jury awards. And the opposite holds equally true for the small players, who would typically rather avoid such advance agreements and, ultimately, take their chances with juries.

But however you may assess the odds of particular outcomes, there is no question about the impact a jury will have on trial logistics and, thus, expense.

To begin with, a court may actually be reluctant even to allow a substantial jury trial of a business dispute to proceed. Many judges think such matters should settle and don’t want them clogging up their already full calendars. As a result, they can be very “helpful” in driving the parties towards settlement, such as by pushing for settlement conferences before the trial court or another judge. A panel of arbitrators will not normally perform this function; rather, they will leave it to counsel to negotiate privately or engage a separate mediator.

Once a jury is in the box, a court will aggressively drive the matter to closing arguments. Except in really unusual cases, a jury trial will not be sporadic in the way that a substantial arbitration or bench trial can be. There will not be extended breaks to suit the scheduling conflicts of busy lawyers or arbitrators. Rather, everyone will bear down and get the matter to the jury as quickly as possible. As painful as that generally is for the lawyers, it can be cheaper for the client than paying her lawyers, plus three arbitrators, to litigate a case in fits and starts over an extended period – especially since legal work tends to expand to fit the available time.

So is a hammer better than a screwdriver? Not at all. Neither is arbitration invariably better than proceeding in court. Pick the right tool for the job instead. And if you aren’t yet sure what the job will ultimately entail, ask yourself whether there is a good reason to make the decision in advance. Is it worth tying your own hands now, in exchange for tying your adversary’s as well? Or might it be better to wait and seek a tailored dispute-resolution agreement after a dispute has actually arisen?

By considering these issues beforehand, you can avoid the buyer’s regret that may otherwise come with reflexively inserting a boilerplate arbitration clause into your contracts.

http://www.thelegalintelligencer.com/id=1202754404860/Is-Arbitration-Really-Better-for-Business-Disputes

Reprinted with permission from the April 8, 2016 edition of the The Legal Intelligencer. Copyright 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For further information, contact 877-257-3382 – [email protected] or visit www.almreprints.com.