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The Blush Is off the Arbitration Rose

The honeymoon with contractual arbitration appears to be over. The advantages of arbitration are disappearing or being outweighed by the disadvantages more and more often, prompting a growing number of attorneys to advise their clients to take their chances in court.

In the past, many attorneys lauded contractual arbitration (as opposed to judicial arbitration, which is court-ordered in certain cases) as a fast and cheap nonjudicial way to resolve disputes based on the parties’ agreement. Arbitration agreements became popular in a variety of contracts — from medical insurance to employment agreements.

But it appears that the infatuation with arbitration is waning. reports that “litigators are starting to find the quicker, cheaper, more private aspects of arbitration have turned into lengthy, expensive and often public quasi-trials.”

In addition, many attorneys prefer the finality of a decision that comes with taking their cases to court, as well as the security of an appeal.

Because the rules governing arbitration of contract disputes are generally contained in the agreement itself, one way to address the problems arising with arbitration is to draft limitations into arbitration provisions. For example, the provision can provide specific limits on how long each side will have to present its case and/or how much discovery will be allowed. Of course, such drafting solutions are contingent on the contract drafters understanding the problems that the litigators have been experiencing, and there may be a bit of a lag in making that connection.

For an overview contractual arbitration, including its advantages and disadvantages, check out California Law of Contracts §§9.30-9.52 (Cal CEB 2007). For help with drafting contractual arbitration agreements, see Drafting Business Contracts: Principles, Techniques & Forms, chap 16 (Cal CEB 1994) and Advising California Employers and Employees, chap 20 (Cal CEB 2005).

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4 replies on “The Blush Is off the Arbitration Rose”

I believe that a contractual requirement to mediate before filing a law suit is a better alternative to arbitration and will serve two purposes. The first gives the parties an opportunity to resolve the matter in a confidential process over which they have complete control, which if the parties agree can be filed in court for enforcement. If the parties are unable to resolve the matter, both sides have an opportunity to size up the strengths and weakness of the oppositions case. This could save time and money, through elimination of unecesssary causes of action and discovery, and may even later lead to settlement of the matter.

My perception of arbitration is that it has become just like court litigation, except more expensive. The positives are quicker court dates and no fear of an excessive jury verdict. However, the added expense, the need to have the judgment entered by the trial court, the possibility of additional litigation to challenge the arbitration verdict, with a possible appeal of that decision negate the positives, in my view.
With respect to mediation, in Virginia, court ordered mediation is a requirement, and that gradually is becoming an expected part of litigation practice.

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