Arbitration Guide: Understanding the Process and its Advantages

One of the biggest legal mysteries for non-lawyers, even for experienced and sophisticated businesspeople, is the process of arbitration.  The term gets used a lot, but few actually know what the process entails, and most people are usually apprehensive about going through an arbitration in a way they aren’t with the public court process.  But, it shouldn’t be a mysterious process, and businesses should know the advantages for this alternative to the court system.

What Exactly is Arbitration?

In short: arbitration is a private trial.  The agreement to arbitrate, and the terms and conditions, is usually included in the business agreement or contract that gives rise to the dispute.  The parties, usually through AAA, the American Arbitration Association, or JAMS, Judicial Arbitration and Mediation Services, appoint an arbitrator to oversee their dispute.  AAA and JAMS have their own set of rules and procedures that will govern the proceedings.

What Exactly is an Arbitrator?

The arbitrator is an attorney or former judge and oversees all aspects of the arbitration, and presides over the final hearing.  It’s very much like a civil court proceeding, but more relaxed and streamlined with respect to the discovery process, rules of evidence, and pleadings requirements.

Why Arbitration Can be a Good Alternative to the Court System

While the authors of this blog have taken a dim view of arbitration in the past, there are some aspects that make it a favorable method of dispute resolution.

Quick(er) Resolution

Likely the best aspect of arbitration is that it is a rapid process.  Because the proceeding is overseen by a private arbitrator, who does not have as heavy a caseload as state or federal judge, the process moves much more quickly.  As a result, hearing time is more freely available and thus easier to obtain, and the final hearing can be scheduled much sooner than a trial.  According to the AAA, in 2008, the average proceeding took just 7.9 months for a resolution, whereas cases filed in civil court averaged more than four times as long if they went to trial.  While most non-attorneys would still complain that 8 months is a long time to resolve a dispute, it is clearly much quicker than the state or federal court systems.

Confidentiality

Also appealing is the confidential nature of arbitration.  The final hearing is held in private and only attended by those individuals selected and/or agreed upon by the parties and the arbitrator.  Additionally, the parties can agree to keep all aspects of the arbitration confidential, whereas sealing a court record in state or federal court is difficult and rarely-granted.  The confidential nature of arbitration is especially appealing where a company’s proprietary, trade secret information is involved, or where there is some other dispute over sensitive company information or technology.

Selection of Arbitrator

Another aspect of arbitration that makes it an attractive option is that the parties can select their arbitrator.  This is beneficial to the parties because they can select a neutral who has experience that is relevant to the dispute, whose qualifications make it more likely that he or she will appreciate and understand the nuances of the issues.  In the civil system, judges come from varied backgrounds, and a particular judge may not have experience with, or knowledge of, the law in your case.  Also, for very complex and high-value cases, the parties can utilize a panel of three arbitrators, who will collectively bring even more knowledge and experience to the determination of your dispute.

Control Over the Process

The parties are also able to exert more control over the arbitration process than standard litigation.  Because arbitration arises from contractual agreements, the parties can tailor the process to their needs and the particular facts of their business relationship.  The parties can dictate how discovery shall be handled; the use of witnesses, including whether depositions shall be taken; and the length of the process, including the date and length of the final hearing.  Further, the parties can also control the location of the final hearing, allowing them to choose a location that minimizes travel costs and expenses.  The arbitration process also allows for hearings or other proceedings to occur after normal business hours, if necessary, a request that most courts will not accommodate.  The arbitration can also allow witnesses to provide written statements of their testimony, instead of requiring live, in-person testimony, which also minimizes costs and provides for more timely resolution of the matter.

Finality of Decision

Additionally, while the inability to appeal a decision is sometimes seen as a drawback to arbitration, it can also be a positive aspect.  Many times, one or both parties want to resolve the dispute quickly and with finality, so as to avoid mounting legal costs, but also so that they can obtain a timely determination of the dispute at issue, and proceed with their business operations.  With arbitration, the possibility of lengthy, expensive appeals is eliminated.  In the event that an appeal becomes necessary, appeal will be allowed in some cases, but that appeal is to a second arbitrator, a process that is, again, more streamlined and less expensive than an appeal through the state or federal court systems.

Flexibility

Lastly, an arbitration is not required to be conducted under the complex rules of evidence and procedure, allowing the arbitration to be tailored more closely to the parties’ needs.  Whereas some evidence or testimony would be barred in the courts due to a technicality, the arbitration can allow presentation of such evidence or testimony.  As with many of the issues identified above, this also provides for more flexibility and allows for a more timely resolution of the dispute versus the court system.

Conclusion

The choice of whether to arbitrate your disputes is an important one that can have many implications for your business and for the case itself.  Whether or not arbitration is an appealing method of dispute resolution depends on the nature and facts of your dispute, including the nature of your business; arbitration is usually more appealing to large, multi-state or multi-national businesses than smaller, local businesses.  If you are considering including an arbitration provision in your business contracts, the above-listed factors should be considered and it is also wise to consult an attorney who can advise you on whether your business and/or the dispute at issue is a good fit for being resolved via arbitration.