Legal disputes are resolved in one of three ways. The simplest is mediation, whereby the disputants ask a neutral third party—often but not necessarily a judge or lawyer—to bring them together to agree on a resolution. At the other end of the spectrum is litigation, which is a lawsuit requiring the court to resolve the matter, by a trial if necessary. Then there is arbitration, which is essentially an informal trial, presided over by a retired judge or a lawyer selected by the parties. If you can resolve your problem by mediating, that’s the way to go. But assuming that mediation is not in the cards, or that the parties have tried it unsuccessfully, they will often have a chance to choose between trial and arbitration. This choice may arise when the parties are drafting their contract (see our previous article about the importance of having a written contract, Three Crucial Reasons You Need a Written Business Contract) and must decide how any dispute will be handled. Or the parties may decide to ignore the written provisions and negotiate the forum for resolution. In either case you should be prepared to discuss with your attorney and the opposing party which route to choose. And that requires some knowledge of the benefits of each.

      This article will discuss some of the advantages of arbitration over litigation and will assume that you do not have a written contract with an arbitration or trial provision. There are many factors to consider, depending on the circumstances of the case. For example, a plaintiff in a personal injury or discrimination case will want to litigate in order to seek a larger award from a jury than he would likely get from an arbitrator. We will assume that your particular situation does not present facts that would naturally preclude arbitration.

litigate vs arbitration image    1. The parties get to select the decision maker. Judges and arbitrators differ as much from each other as any other people. If you litigate, you are assigned a judge, and while each side may reject the randomly selected judge, you have no input on who the finally selected judge will be. There are always judges who are very unpopular, and you might end up with one. By contrast, an arbitrator is chosen by the parties, after plenty of opportunity to find out all about the potential deciders. That will give you confidence that the person you select will do a proper job. In return for the confidence you show in the arbitrator, you mayexpect him to take a close interest in the case in order to do his best for both sides.

    A potentially more significant difference is that there are no juries in arbitration. Many lawyers are reluctant to put their client’s fate in the hands of a single decider, and prefer to “spread the risk” among the multiple jurors. But many other attorneys have discovered that, especially in technical or complex fact situations, jurors’ understanding and ability to apply the facts to law are not impressive. Some such lawyers will tell you that jurors often make the right decision for the wrong reason and therefore should not be relied on. I know some lawyers who won’t even discuss the case with jurors when it’s over, for fear of hearing that the jurors didn’t get it. Many lawyers will urge their clients to choose arbitration by a chosen retired judge (or qualified lawyer) because they believe the result will be easier to predict, and it will more likely hew to the evidence. Few things are more difficult for a conscientious trial lawyer than to find out that years ofdetailed, costly, time-consuming preparation went down the drain because the jurors heard and decided a case different from the one the lawyers presented.

    Of course, a lawyer who is relying on the fact-finder to award a huge amount of money based on being upset or angered by the evidence—such as in an employment discrimination case—will do all he can to keep the case in court and empanel the angriest jurors he can find, to stick it to de man.

    2. Arbitration generally consumes less time. The very purpose of arbitration is to provide a speedy resolution. Many lawyers can recall a time when a litigant could not hope to get to trial in less than five years. That was intolerable, for justice delayed is indeed justice denied. Litigants with money might opt out of the formal system and hire their own “private” judges. That is essentially what our legislature established in providing for private arbitration. While cases may get to trial in as little as a year, many will not for two or three years, depending on the courts’ backlog (which is precarious these days in view of the courts’ funding crisis). And many disputants don’t want to wait even a year. There is no valid reason to drag out the decision-making process, especially when the dispute is not complex, and involves few witnesses and documents. Arbitration, done right, is ideal for those cases. And don’t forget the time saved in the actual hearing: While the court’s “day” is usually from 9:30 or 10 a.m. until 12, then 1:30 to 4:30, even less time is devoted to trial; on the other hand, arbitrating parties can agree to whatever hours and days they please, with the frequent result that the session goes from 9 a.m. till lunchtime, then until 5 p.m. This can drasticallyshorten the total hearing time.

    Delay can be avoided if the parties are in good faith, and if the arbitrator keeps the parties’ feet to the fire. Whereas a judge in court will assign filing deadlines and hearings according to the court’s convenience, with minimal input from the parties, the arbitrator, dealing less formally and chosen by both sides, might be loathe to lay down rules and enforce them. This can result in matters dragging out, as the parties’ and their attorneys’ schedules and convenience rarely jibe. The unintended result may be the frustration and additional expense that the parties had hoped to avoid in choosing to arbitrate. 

    3. Arbitration should be less expensive. The cost of filing a case in L.A. Superior Court is presently $435, and there is no further significant administrative cost. Arbitrators’ fees, on the other hand, are usually based on an hourly rate, which the parties share (but which may be reallocated after the hearing). At several hundreds of dollars per hour, the process can become quite costly. But this is often mitigated by the parties’ ability to handle most of the process (other than the final hearing) over the phone, 

Image of the word arbitration and it's meaning

which prevents the many hours of travel time and sitting-around-in-court time that is the pricey bane of most litigators’ existence. Litigation is often much more expensive than arbitration also because the pre-hearing work is streamlined. For example, courts schedule regular hearings on many matters; as noted, arbitration proceedings can often be accomplished by phone. Most significantly, perhaps, is that unless the parties agree that they may conduct discovery, there is none in arbitration. Discovery often takes a great deal of time and expense. In a straightforward case, discovery may well not be necessary, thus enabling the parties to get to a prompt hearing that will not require much time.

    4. The parties create their own structure of dispute resolution. Many lawyers, in drafting contracts including arbitration provisions, foolishly and negligently treat such provisions with little thought, if they think at all about them. That is one important reason to have your contracts drafted by a litigator, who knows what can go wrong because he deals with breached contracts all the time. The typical provision says something like, “The parties agree to binding arbitrate before a retired judge.” That is woefully deficient since, for example, it does not provide for any particular arbitration company, which differ substantially from each other; it does not permit the client to conduct discovery (if that might be a concern); and it does not place any limitations on the power of the arbitrator, including a requirement that he decide the case according to the case law and statutes (the arbitrator need not follow the law or the evidence unless the agreement requires him to). The thoughtful drafter will, with the client, consider how and under what circumstances the dispute should be arbitrated or tried to the court or jury. Not to craft a detailed provision, tailored to suit yourself, is to miss a crucial opportunity to positively impact your potential dispute’s resolution.

    The California courts and the Legislature greatly favor arbitration and therefore allow the parties to agree on just about everything in designing their process. Therefore, give it real thought and avail yourself of the opportunity to get what you want in an agreement.

    5. The process is relatively informal. While court features a judge in a robe, with heaps of state statutes and local court rules to guide the judge and the litigants in almost every aspect of the litigation, arbitration features few strictures. The arbitrator selection process is informal. The initial “framing” discussions with the arbitrator, usually by phone, are informal. Problems during the process are usually handled informally, at least vis à vis scheduling and deadlines. And the most important element—the hearing itself—is quite informal, with the arbitrator, parties, and lawyers generally sitting around a conference-room table. The rules of evidence are usually relaxed, and the arbitrator will generally accept everything put before him rather than exclude evidence or argument on technical statutory grounds. The informality can reduce much of the time otherwise needed for the hearing. Another benefit of the informality is the reduced emotional stress on all the participants.

    The decision to arbitrate or litigate is often not an easy one and will often turn on the particular circumstances of the case. For instance, is a jury indispensable to your claim? Do you want the other side to be able to take discovery? Are you or the other party more likely to breach the contract? Is the arbitrator likely to favor your adversary because it might provide the arbitrator with future business (even if the arbitrator isn’t corrupt, it is difficult to avoid bias in favor of a possible repeat customer). These and other questions should be addressed in drafting the basic agreement, and even when a dispute arises, since the parties are bound to an agreement to arbitrate only if one of them insists on it—that is, the parties may waive the requirement. Before you waive your constitutional right to go before a jury, make sure that the tradeoff is worthwhile.

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This is not legal advice. This information is provided for educational and informational purposes, only. Nothing here is meant or intended to create an attorney-client relationship. For specific legal advice relating to your situation, contact us at (310)268-6666.