Litigate or Arbitrate? The Pros and Cons

Should you litigate, or arbitrate?Litigation, or the process of resolving disputes in court, is a time-honored pastime in the U.S.  In recent years, however, businesses and individuals have turned more and more to non-judicial arbitration proceedings as an alternative to fighting their battles in the courts.  If you want to ensure that any potential dispute with one of your customers, vendors, business partners, etc., will  be resolved by arbitration, you will need to have a written contract providing for it … but, do you, in fact, want to go that route?

Proponents of arbitration cite the following purported advantages:

  1. It’s faster than litigation
  2. It’s less expensive than litigation
  3. It’s not public and, generally, the record remains confidential
  4. The result is not subject to appeal in the courts, so there is finality once the arbitrator’s decision is made.

 

In practice, however, these advantages are often negated by the following realities:

  1. Arbitration is not necessarily faster.  Frequently, the process is slowed by disagreement over the selection of an arbitrator or panel of arbitrators.  The process can also be slowed by agreements to conduct litigation-like discovery (e.g., document productions), and disagreements over whether the discovery provided is sufficient.  In addition, in cases requiring several days or more of hearings, the process is often spread out over a long period of time, resulting in delay
  2. For all of the reasons that can cause arbitration to be slower than its proponents suggest, it can also prove to be just as expensive as litigation
  3. Confidentiality can easily be compromised by one or both parties
  4. While the result is generally not subject to appeal, this means that the arbitrator is not accountable to any higher authority, and there is nothing much you can do about a “bad” decision.  (Bear in mind, in this regard, that arbitrators are neither required to know the law, nor to apply it to their decision making process!); and 5) While arbitration is designed to avoid court, arbitrators have no ability to enforce their decisions, which means that, absent voluntary compliance by the losing party, the winner will have to seek confirmation of the arbitration award in a court and its conversion to a judgment in order to enforce it.

 

Is litigation a better alternative?
Well, it’s not fast and it’s not inexpensive.  Indeed, in many instances, litigation will take longer and will be more expensive.  However, judges are bound to follow the law, and you can appeal the result to a higher court, which enhances the likelihood that your dispute will be decided in accordance with established rules and precedents.  In addition, you often have a right to a jury trial in court whereas there are no jury trials in arbitration proceedings.  (Of course, you may or may not want or like the idea of a jury trial … which is another topic altogether.)

Litigate or arbitrate? Generally, based on my own personal experience representing clients, I have more faith in the efficacy of litigation than arbitration as a means of dispute resolution.  However, some scenarios do lend themselves better to arbitration (e.g., construction contract disputes submitted to arbitrators who are expert in that particular industry).  Whichever way YOU come out on the issue, remember this;  If you want your disputes arbitrated, you MUST provide for it in in advance as part of a written contract.

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