Arbitration Revisited

Arbitration Revisited | Risk & Insurance Recently, I covered arbitration and the myths supporting its alleged superiority over court litigation. With an eye on commercial litigation, I suggested that a single judge sitting without a jury (each party waives a jury trial) was preferred over arbitration.

By Philip G. Kircher

Congress may soon agree with me, at least with respect to so-called "consumer" litigation. Anti-arbitration Senate and House bills are making their way through subcommittees and committees. If passed, they will invalidate contractual mandatory arbitration provisions in agreements signed by consumers, employees, franchise operators, nursing home patients and car buyers. A good thing, or a bad thing?

The argument for arbitration (and against pending bills) goes this way. The result of intense lobbying by plaintiff's attorneys, who want individual lawsuits returned to the courtroom where juries render bigger awards (producing more lawyers' fees), the new legislation will wipe out everything from credit card agreements to health insurance policies.

Insuring Public-Private Construction (11/01/11)
Second Thoughts About the China Market (07/11/11)
Federal Flood Insurance Program Gets Extension (01/24/12)
When the Birds Bring Down the Planes (07/19/11)
Immunity Bites ... for Shark Victims (07/19/11)

Arbitration is cheaper, faster, less complicated and fairer, with the average consumer less likely to hire a lawyer and file suit if only a small amount of money is at stake. Litigation costs and delays can swallow up the value of an eventual small recovery, while, in the right circumstances, arbitration can sometimes lead to substantial awards against companies.

The argument against arbitration (and for pending bills) goes like this: The legislation will not ban all arbitration--just mandatory arbitration provisions in consumer/employee/franchisee agreements.

If a consumer and a company prefer arbitration, they can always agree to it outside of some take-it-or-leave-it fine print form agreement.

Arbitration does not lead to just results--historically, it triggers lower awards for consumers, simply meaning it's fairer to companies.

Arbitrations are not necessarily cheaper; while public trials and judges are paid for by taxes, private arbitrators often charge more than $300 per hour.

Consumers who have small disputes can take their cases to small claims courts which are designed to quickly decide these uncomplicated disputes.

Arbitration is efficient, sometimes, to a fault; the opportunity to prepare a case, discover your opponent's evidence, call witnesses and introduce evidence is more restricted. There are no appellate rights to arbitration awards. Hence, there is nothing that can be done about an unfair, intellectually dishonest or otherwise wacky arbitration award.

While my experience with arbitration in complicated commercial matters has been mixed--therefore, my previously-expressed sentiments favoring nonjury trials--I believe there is a place for arbitration. That place is smaller consumer disputes.

And there are cures for standard complaints about arbitration. For instance, if companies include mandatory arbitration provisions in contracts, at a minimum, they should require that:

(1) the employer/seller/franchisor cover arbitration costs; (2) there's a single, independent arbitrator with no ties to either party or the industry in question; (3) the arbitrator explains the decision in writing; (4) similar claims be considered together; (5) the arbitration be conducted at a convenient place and time for the consumer; and (6) the consumer has a fair opportunity to discover key evidence and witnesses.

PHILIP G. KIRCHER is co-chairman of the commercial litigation department at the law firm of Cozen O'Connor.

September 15, 2008

Newsletter Sign-up