Justice Hart of the Arkansas Supreme Court recently wrote a scathing dissent on the proliferation of arbitration to settle disputes. You can find a story summarizing the dissent here and the full dissent here.
Whether you favor or disfavor the use of arbitration, Justice Hart raises a number of points that attorneys and clients should consider before agreeing to arbitration as a method of dispute resolution.
She notes that arbitration is not often the cost saving resolution touted. She is undoubtedly correct that paying an arbitrator (or panel) is significantly more expensive than the cost of a court where a litigant is only responsible for the filing fee and court costs. Whether the total cost of arbitration is cheaper or more expensive than traditional litigation depends on the nature of the matter and the scope of discovery undertaken. Certainly if extensive discovery occurs in traditional litigation but an arbitration panel would have limited the scope of discovery, then you may spend less money through the course of the decision making process.
But that begs the question, do you need the discovery? If your case hinges on discovery, are you willing to risk that discovery may be limited by the panel? Further, if you require discovery from a nonparty in traditional litigation, it can generally be compelled through issuance of a subpoena with the discovery. Virtually no additional steps are required. In arbitration however, the panel does not have the power to compel compliance with a non-party discovery request. Consequently, in order to compel a response, a court action will have to be opened.
Justice Hart also noted the inability for judicial review. While every litigant expects that it will get the right decision at the trial court level, the appellate courts are busy for a reason. Mistakes do get made. In traditional litigation, a litigant can appeal to the appellate court to correct the decision. In arbitration, not so much. In Indiana, the decision may be vacated only if the award was procured by fraud, there was misconduct or partiality by the arbitrators, the arbitrators exceeded their powers, the arbitrators prejudiced a party by refusing to hear evidence or postpone the hearing despite sufficient cause, or there was no agreement to arbitrate (and the party appealing did not participate without objection).[1] If a litigant thinks the decision maker erred, that alone would not get the decision reversed.[2] In other words, it is unlikely that an appeal would be successful in the typical case.
There are certainly appropriate times for arbitrations. Here at our firm, partner Bill Bock has participated in hundreds of arbitrations in the last couple of years on behalf of the U.S. Anti-Doping Agency (USADA). But in the vast majority of those cases, the necessary discovery is limited. And unlike in traditional litigation, procedures are in place for appeals of USADA cases.
All of this is not to say that an arbitration is bad or inappropriate. There may be a time or place for the arbitration. But before agreeing to arbitration to resolve a dispute (or a potential dispute), you should understand what you are giving up and what you are getting. Before you agree to resolve a dispute through arbitration, and before you sign a contract that requires arbitration, be sure to talk to an attorney to make sure your rights are protected.
For a thorough discussion of these issues, or if you have other questions regarding arbitration or litigation, please contact Steve Runyan, Bill Bock, Kevin Koons, or David Wright or one of our other attorneys here to discuss your situation. It would be our pleasure to assist you.
[1] Ind. Code §34-57-2-13.
[2] Awards may be modified if there was an evident miscalculation or reference or if the arbitrators decided an issue not presented to them and that issue can be corrected without affecting the merits. Ind. Code §34-57-2-14.
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