How To Make Arbitration “Worth It” AgainOn September 3, 2010 By Scott Wolfe Jr
Arbitration has been the talk of the town amongst the legal community this week, and really, it should be.
One could say that arbitration is at a crossroads these days. Over the years, the expenses and delays associated with arbitration have rivaled litigation. From a personal level, I can tell you that arbitration is simply feeling more and more like ordinary litigation. In recent arbitrations, the parties have engaged in a substantial amount of discovery, and the proceeding itself felt wrapped in a court-like formality with objections to evidence made left and right.
And let’s not even mention the costs associated with an arbitration. I recently filed for arbitration with the American Arbitration Association paying a $4,500 filing fee, and then, just a few months later being asked to pay another $4,000 for our share of the arbitrator’s fee. Even the AAA knows their fees are out of hand, as I’ve recently gotten a survey phone call from them where it seems the AAA’s administrative nightmare is looking for answers.
After all of this, you may think I’m opposed to alternative dispute resolution? Well, I’m not . Not yet.
Similar to the online discussion about arbitration this week, I believe there is a way to make arbitration worth it for the parties (despite the natural slippery slope tendency of things). It requires some extra front end work and legal jargon, and yes, counsel from an attorney to predict which type of ADR situation will work best for your matter.
Part One: Conversations on What’s Wrong (or Right) with Arbitration
There’s no shortage of complaints about arbitration (we’ve even done it!) Just this week, the WallStreet Journal published this on its Law Blog: Has Arbitration Become More Burdensome than Litigation? It starts with this revealing statement:
Arbitration was once known as a faster, cheaper, better way to settle disputes.
But has the process become as bogged down as conventional litigation?
And look at some of the comments to this article; scathing lawyers, of course: “Of course Arbitration has become hugely expensive;” and “Arbitration is extremely more expensive than litigation;” and, my favorite, “So lawyers complicate arbitration and make it way more expensive. Is this news?”
Are the criticisms true? The National Arbitration Forum would argue they are not, and they even have a website dedicated to the issue: Arbitration-Truth.com. Pointing to surveys and empirical studies like one performed by John Chalk, Sr. of for the Texas Bar ADR Section, these anti-critics argue the “empirical studies do no support the current criticisms of arbitration.”
Whose right? Well, both the critics (like me) and the anti-critics are probably part right, and that’s exactly why folks should look at their options in making arbitration work for them, and “worth it” again.
Part Two: Tips to Make Arbitration Worth It
So, what can you do to make the arbitration process actually work as intended? Here’s the good news – since the rules of arbitration are left to the parties, you can do a heck of a lot. And where do you start setting these rules? Your contract.
Take a look at the recent article by our friend Alan Haley on the Louisiana Construction Law Blog at Blogspot: Should Arbitration be a Standard Clause in Construction contracts? Alan comments that he advises clients to “tailor arbitration clauses…to their specific desires and the needs of the parties.” Want more specific instructions on how to tailor the contract – check out the related post here.
Another blog post this week helpful to those looking to make arbitration right again with better contracting comes from one of my favorite blogs, Adams Drafting (we’ve talked about this blog previously here). Interestingly, Ken Adams refers to an article on law.com and not the one on the WSJ, but it’s just a different shade of gray.
Ken highlights the importance of making the ADR clause work specifically for you with the following:
Whatever arbitration clause you use….commentators on arbitration generally recommend that you supplement it.
Part Three: Choose Your ADR Company After Thinking About It
I’ll make this point very quickly. Do not choose the American Arbitration Association just because it’s the company you’re heard of. The AAA has plenty of competition, and in most cases, the competition will be cheaper and offer a more pleasant ADR experience. In fact, the AAA uses many of the same arbitrators as these other companies.
Look around and ask your lawyer about their positive and negative experiences with these companies, and select one that works. It might be the most important thing you can do to make the arbitration process worth it.