On September 1, 2010 Gina Passarella of the Philadelphia Legal Intelligencer published an excellent article entitled, “Litigators Losing Love of Arbitration Argue for Trials.” She quotes prominent, Philadelphia-based litigators, all of whom were critical of arbitration as a supposedly speedy and less expensive alternative to adjudication. On the same day Ms. Passarella’s article was quoted and elaborated upon in Ashby Jones’ article in the Wall Street Journal Law Blog entitled, “Has Arbitration Become More Burdensome than Litigation?“ Both articles were tweeted and retweeted about on Twitter, and posted in certain LinkedIn groups.
The criticism of arbitration expressed in these articles is not new. For years people (including I) have said that arbitration can be as expensive or more so than litigation. People have repeatedly complained about how arbitration has become more like “arbigation,” and how Federal Arbitration Act satellite litigation has proliferated. Or they criticize arbitrators for substituting rough justice for reasoned, legal analysis. And so on.
If you are a business person, or someone at a business whose responsibilities include drafting or approving contracts, you might throw up your hands and declare that your business will never, ever even think about agreeing to arbitrate. But we think that you would be far better off giving more thought to what it is you desire from a system of dispute resolution, and how best to achieve your goals.
The criticism expressed in the articles, and in the past, is generally valid, albeit misdirected. It is directed at “arbitration,” as if arbitration was an institution unto itself, imposed on us by the legal system or perhaps by divine order.
But, at least in B-2-B contracts negotiated at arms’-length, “arbitration” is not something imposed on the parties; it is something the parties impose on themselves. We, the parties, are the architects of our own dispute resolution system. If it turns out we designed or agreed to something reminiscent of Charles Dickens’ Bleak House, we should not blame the non-existent institution “arbitration.” We should blame ourselves, or, more accurately, whomever drafted or approved the Dickensian arbitration agreement.
The problems we sometimes associate with arbitration could be avoided if parties would give more thought to the type of dispute resolution they desire, and how any particular arbitration agreement — or agreement to administered arbitration under a set of arbitration provider rules — will likely be interpreted, and by whom. Perhaps the best thing about arbitration is that parties have a lot of leeway not only to select the decisionmakers for their dispute, but also to design and structure the arbitration so that it suits their needs, and proceeds with as much or as little pre-hearing fanfare as the parties desire. Within some basic limits, parties can structure their agreement as they see fit, and that can be something from which businesses can reap benefits.
But many parties apparently are not aware of the extent to which arbitration can be tailored to fit particular situations, or simply do not consider the prospect of a future arbitration to be important enough to invest some modest time and effort into considering what is likely to transpire in the event of a dispute. The problem is compounded by contract drafters, including attorneys, that simply do not have the requisite arbitration, litigation and arbitration-law experience to make informed judgments about whether the agreement they have drafted is likely to suit the parties’ dispute resolution needs. I have been involved in a number of arbitrations that would have proceeded more expeditiously, efficiently and effectively had they been conducted pursuant to a well-drafted arbitration agreement, instead of one that was apparently selected without a lot of thought given to the type of proceeding the agreement authorized, and whether it was what the parties wanted. We have all heard horror stories about arbitrations that would not have been so horrifying had the parties placed some limits on how the proceedings were to be conducted.
The solution to the problem is relatively easy and not very costly. Hire an arbitration lawyer with litigation, arbitration and arbitration-law experience to help you draft an effective arbitration agreeement that suits your needs and goals. Depending on the scope of the project, only a few hours of the lawyer’s time may be needed. And the return on the modest investment could be substantial in the event a dispute ever arises under the contract.
Your arbitration lawyer should initially focus on finding out from you what you desire from your dispute resolution system, and what it is about court adjudication you wish to avoid. Depending on what your goals are, he or she may recommend that you opt for court adjudication and perhaps add choice-of-forum and choice-of-law clauses to your contract. Or he or she may conclude that arbitration can further your goals, and help you draft an arbitration agreement designed to achieve them.
So if you or your employer or business negotiates contracts with others, and you want more out of dispute resolution than ordinary court adjudication is likely to provide, hire an arbitration lawyer with litigation, arbitration and arbitration-law experience to help guide you along. You probably won’t incur much in the way of legal fees, and you will be able to take better control of your own dispute-resolution destiny.
Tags: Arbigation, Arbitration Lawyer, Ashby Jones, B-2-B Arbitration, Criticism of Arbitration, Drafting Arbitration Agreements, Federal Arbitration Act, Gina Passarella, Philadelphia Legal Intelligencer, Satellite Litigation, Wall Steret Journal Law Blog
Great post! I completely agree that arbitration is often viewed as a monolith by businesses. Frankly, most lawyers do also! They view the AAA (or other arbitration organizations) as the standard and get nervous about making revisions. I think that approach usually results in a substandard experience. Why not tailor arbitration to fit the needs of the parties? Isn’t that what we do with contracts (or supposed to, at least)?
Thanks again for this great post.
Alan Haley
Alan,
Thanks for your comment! I think the two of us are very much on the same page on this issue, which is more controversial than it may appear at first blush.
I agree that all too frequently clients and lawyers agree to a standard, arbitration-provider-drafted clause, which may or may not be the ideal clause for the situation at hand.
As I mentioned on Twitter and on your blog, the article you wrote in response to the most recent complaints about arbitration was excellent:
http://louisianaconstructionlaw.blogspot.com/2010/09/should-arbitration-be-standard-clause.html
Keep up the great work!
Phil
The difficulty with trying to word an agreement provision to cover all of the uncertainties of future events is almost impossible.That is why it may be wise to leave it to the parties. The key issue here is to provide the maximum amount of flexibility so that a fair , fast and inexpensive conclusion can be reached. When the parties reserve the right or alternative to select the ADR solution provider and neutral until a dispute arises they build in cost flexibility. The alternative is to select and name an ADR solution provider that has the same flexibility built in. VirtualCourthouse provides that flexibility.Some folks will maintain that these provisions are not strong enough to make sure that they stay out of court. But, stay out of court at what price?? If the parties or anyone wants to be truly adversarial than the matter ought to be in the court system.Arbitration at all costs is not very wise. It is very common these days for cases to start in court and end up in arbitration after discovery and court ordered mediation have taken place.The court system with its rules and procedures while allowing adversaries to be adversaries still is based on the underpinnings of sound fair minded judges. read a recent article at http://virtualcourthouse.info/Drafting-an-Arbitration-Provision-The-VirtualCourthouse-Way.html
Successful arbitration certainly starts with drawing an arbitration clause appropriate to the parties’ business needs and dispute resolution desires. In my experience, however, when a matter goes into dispute, the parties and their lawyers often go into litigation mode. The parties feel wronged and want to exact their pound of flesh, and too many attorneys are prepared to help them do it. The idea of an attempted business resolution often goes out the window.
Admittedly, much of this can be addressed in the drafting process but putting limits on discovery, depositions and other familiar pre-”trail” proceedings can end up in a lengthy and awkward arbitration clause.
So, my point is, arbitration lawyers who are hired to prepare such clauses need to invest time in changing clients’ expectations about the process. They may not get a fully-justified legal resolution. If the arbitration is conducted properly, they will not be able to appeal if they don’t like the outcome. But in return, they should get and expeditious resolution at a considerably lower price.
Monty,
Flexibility is important and it is indeed impossible to draft an agreement that will address every possible contingency. I also agree that many disputes are better suited for court than arbitration.
At least as respects pre-dispute arbitration agreements, leaving too much up to the parties causes problems. On Day 1, when the parties agree to arbitration, they trust each other, no dispute has arisen, none seems likely and they are happy with a very basic arbitration clause leaving much to the arbitrators and the parties. Fast forward to Day 1 plus 5 years: The relationship has soured, a major dispute has arisen, the parties and counsel distrust and dislike one another, and the proverbial gloves have been cast off.
I don’t have to tell an experienced judge like you that the arbitration between these two parties is not going to be an easy one. A dispute like this one would probably best be handled by a highly respected judge with a no nonsense attitude about case management and professionalism, preferably one that parties’ counsel will think at least twice about trying to push around or manipulate. But since the parties already agreed to pre-dispute arbitration, and at least one party will probably want to hold the other to its bargain, the chances are this dispute will be arbitrated.
Assuming one of the parties wants to delay the proceedings for tactical reasons, that party will likely have more leeway in an arbitration conducted under an unstructured arbitration agreement than it would have before our tough, but highly respected judge with her no nonsense attitude about case management.
As one Commmercial and Industry Arbitration and Mediation group member has quite correctly pointed out in group discussions, arbitrators are not judges. They are, for the most part, agents of the parties charged with resolving the parties’ dispute. There is no question that certain arbitrators command a great deal of respect, and may be able to defuse a situation like the one described, but they lack the coercive, statutory and constitutional powers vested in state and federal judges.
If the arbitrators are acting under an arbitration clause that leaves much to the arbitrators and the parties, the chances are that the arbitration of our hypothetical dispute will be long and painful. While back on Day 1 the parties might have burst out laughing if you told them that an arbitration could last more than nine months or a year, our hypothetical arbitration could easily last two or more years, because the parties will be able to agree on very little, and the arbitrators simply will not have the power that our hypothetical judge has. And the arbitration is almost certain to involve more discovery than the parties likely had in mind back on Day 1.
There are also economic forces at work: our hypothetical judge is criticized for having too many cases on her docket, while our hypothetical arbitrator will make more money if the case drags on. These concerns are likely to influence decision-making on close call issues.
The blame for this turn of events falls on the drafters of the arbitration clause. They made it too flexible, and did not anticipate the very real possibility that almost any deal can go to hell in a handbasket.
That said, your Virtual Courthouse online arbitration service, presupposes that the parties desire streamlined proceedings. Thus, the flexibility you have built into the Virtual Courthouse rules works well for the parties without risking the problems described above.
Online dispute resolution services like yours may, perhaps ironically, help us set back the arbitration clock to the days when arbitration procedures were truly informal, summary, inexpensive and efficient.
All the best,
Phil
Marvin,
Thanks for your comment! Your experience with reinsurance arbitration has no doubt influenced your views, which are quite similar to mine.
Frankly, I think you’ve hit the nail on the head when you say “arbitration lawyers who are hired to prepare such clauses need to invest time in changing clients’ expectations about the process. They may not get a fully-justified legal resolution. If the arbitration is conducted properly, they will not be able to appeal if they don’t like the outcome. But in return, they should get and expeditious resolution at a considerably lower price.”
Music to my ears!
All the best,
Phil