USEFULNESS OF ARBITRATION

Arbitration is an efficient and desirable means of reaching reasonable decisions in disputes that must be definitively resolved to end the uncertainty facing the parties, especially when an outcome is needed within a certain timeframe.

Arbitration Fundamentals. Arbitration is a form of alternative dispute resolution (ADR) in which one or more neutrals – the arbitrators – hear evidence in order to render a decision, in a role comparable to a judge. Because the neutrals actually make the decision, arbitration is more formal than mediation, with defined processes for accepting evidence and rendering a decision, and strict limits on ex parte contact by the parties. Arbitrated decisions can be ensured within the timeframe needed by the parties, unlike mediation settlements or court judgments. Moreover, the parties can agree in advance that the arbitration will be binding, so that once a decision is rendered there are no further delays for appeals or subsequent proceedings.

Reasonable arbitration decisions are likely based on choosing arbitrators with good judgment who are expert in the subject matter of the dispute. Without subject matter knowledge, the arbitrator may need extensive time to understand the issues and legal principles involved, which can slow resolution of the dispute. In antitrust and regulatory matters in particular, the nuances of the law are sufficiently challenging that there are significant benefits from using an arbitrator with extensive antitrust or regulatory experience. Matters may be particularly suitable for arbitration when the following needs or factors exist:

Ensure Decision Will Be Made. The single most important attribute of arbitration compared to mediation or litigation is the certainty that a decision – one way or the other – will be made, and made by the time that the parties need it. Disputes frequently arise in which the ongoing distraction of key business people, mounting legal fees, and debilitating uncertainty are more costly and harmful to the parties than any reasonable resolution of the case. While the issues or posture of the dispute may make the parties unable or unwilling to settle the case, both sides may recognize the value of an expeditious and reasonable arbitrated decision.

Control Timing and Costs. Arbitration cannot only ensure that a definitive outcome is reached, but that the decision is timely in order to meet the needs of the parties, which cannot be promised by mediation or litigation. This can be an important consideration, and also helps keep the costs of arbitration lower than litigation, although the formality of the arbitration process generally requires more time and expense than mediation. Complex civil litigation can consume years without any ability to predict when a decision will be rendered, much less when appeals will be final. Meanwhile, the market may rapidly evolve, particularly in cases involving technology, while the parties’ business strategies are hampered by the lack of certainty. Both excessive cost and delay – and especially critical diversion of executive time and focus – can be avoided by relying on arbitration.

Avoid Disclosure of Confidential Information. Many cases involve sensitive business information that one or both parties need to keep confidential. Often, even the dispute itself is something that the parties would rather not have reported publicly. Like mediation, arbitration can be conducted so that the parties have greater control over what – if anything – is made public.

Choose Decision-Maker. The ability of the parties to choose arbitrators who have subject matter expertise and good judgment is highly desirable to reach a reasonable decision, as opposed to reliance on randomly selected judges and jurors. Indeed, it is the ability of the parties to select the arbitrator or panel of arbitrators that can provide the confidence to make the outcome binding.

Avoid Disadvantageous Forum Selection. Arbitration, like mediation, avoids the disadvantages of a forum that may be problematic, either because of undesirable precedent within the jurisdiction or because of the speed (or other undesirable procedures) with which cases in the forum are handled.

Arbitration v. Mediation. Arbitration lacks the creativity and versatility of mediation, but does ensure a final determination within a reasonable timeframe. In some circumstances, this certainty may offset the other benefits of mediation, or mediation may not be appropriate or successful. Arbitration is neither as quick or inexpensive as mediation, and more importantly, the parties in arbitration do not have control over the outcome and are unlikely to achieve creative solutions that permit optimal future working relationships.

Arbitration historically developed as the first alternative to litigation in order to avoid excessive costs and burdens, and arbitration clauses have been widely incorporated in commercial agreements over many decades. However, in recent years these arbitration clauses have been interpreted liberally to permit the choice of mediation or other appropriate forms of efficient and satisfactory alternative dispute resolution. This allows the parties to analyze the options and agree on the process that is most likely to yield a desirable outcome for everyone involved.

Arbitration v. Litigation. Arbitration has impressive benefits when compared to litigation. The likelihood of obtaining more reasonable decisions more quickly and inexpensively than litigation makes the choice of arbitration an easy one for most parties, if mediation is not appropriate or has not been wholly successful. The ability of the parties to choose the arbitrator or panel, to make the arbitration binding, and to conduct the process privately are tremendous advantages over litigation.