The long- and short-term success of a business is generally measured by the economic benefits it produces for its investors. Most business decisions require a business to accept risks of varying severity and frequency if the business is going to realize a meaningful return on investment. All else being equal, to increase the likelihood that those decisions will yield profits, the business must accurately assess all material risks, their corresponding benefits and the interplay between the two.
The same holds true for the decision whether to make an arbitration agreement part of a business transaction, and if so, on what terms. But in the author’s experience otherwise savvy and intelligent small-business-persons frequently view an arbitration agreement as a throw-in term that isn’t likely to affect materially the risk-benefit calculus of the transaction as a whole. These business persons are therefore likely to agree to arbitrate with a more economically powerful counterpart without giving the matter much thought, let alone the careful thought they devote to the price and performance terms of the deal. This approach, as a number of business people have learned the hard way over the years, can result in a very frustrating and potentially debilitating one-two punch: dashed reasonable expectations coupled with very little, if any, meaningful judicial review. Continue Reading »
