Let’s talk today about arbitration agreements in a contract setting. Why would you want one? Is it a tool to help you? Or is it a tool to be used against you?
Many people believe that arbitration or some other form of private decision making is better than going to court. Maybe it is, and maybe it isn’t. And maybe, the question that you must ask yourself in determining whether arbitration is better or worse for you is slightly different: “Would you like to give up your right to trial by jury in a civil action?” Or, “would you like to give up courtroom protections?”
Often times, people think that an arbitration provision is placed into an agreement because it is going to be quicker, easier, more direct, and therefore it’s going to save time and money in the event of a dispute.
But, as any experienced attorney will tell you, arbitrations can go on, and on, and on.
In fact, a colleague was once involved in an arbitration that had dragged on for eighteen months. That would be almost impossible in a courtroom setting. That arbitration certainly wasn’t faster than a trial. Do you think that it was cheaper? No way! It was far more expensive.
Second, when considering an arbitration provision, or inserting one yourself, think about who you will be arbitrating in front of. There are solo arbitrators who are unaffiliated with any arbitration company. There are arbitration companies like JAMS or ADR. Then there’s sort of the “granddaddy” of them all, the American Arbitration Association.
Specifying the arbitration “forum” in the agreement can itself impact the odds that you or the other party will file a claim. For example, the AAA has very formal rules for how an arbitration is conducted and its filing fees can be expensive.
Third, you need to consider discovery rights when crafting, or becoming bound to, an arbitration provision. In other words, what rights to take depositions, require the other side to provide information via interrogatories, etc., exist?”
Similar in some ways to attorney’s fees provisions, arbitration provisions can be used to frustrate the resolution of the case. While they seem warm and fuzzy, the process itself can be more burdensome than trial, as well as more expensive than trial. It can be a disincentive to do what arbitration is supposedly, in popular vernacular, there to accomplish – a quick, simple and inexpensive resolution of the dispute.
