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The Inside Scoop on Arbitration

ARBITRATION – it’s not what you think; it’s just another form of litigation, a form of private litigation without most of the rules to enforce your rights and sanction abuse of the process. And it is definitely not a good way to pursue business, contract or construction claims or defend against them. Do not believe what your lawyer or anyone else tells you about the benefits of arbitration; there aren’t any at this point.

Over the years the arbitration process has become the arbitration lawyers’ and arbitration organizations’ money maker; what once was somewhat of a more efficient, economical, and generally fair process for resolving contract, commercial, and construction claims and disputes has now become, in most cases, anything but efficient. Actually arbitration is now really, really inefficient. It is very costly and expensive, anything but economical, and is not at all fair or balanced. Worst of all, the outcome, that is, the arbitration award is usually not based on any substantive or meaningful legal reasoning or legal authority.

Truthfully, after more than 28 years as a litigator and arbitration attorney, I can think of no reason why any business person or business entity would have any basis at all to trust an arbitrator to decide their fate in a business dispute when the arbitration rules don’t require the arbitrator to strictly (or to even generally) follow the law or to detail the facts and law that support the arbitrator’s decision which is manifested in the arbitration award. But even worse, the currently prevailing state and federal court decisions bar any appeal or review of arbitration awards or arbitration processes, except for flagrant procedural problems or abuse of the arbitration process or procedures, such as collusion, fraud, improper exercise of arbitrator authority, legal incompetency of the arbitrator and so forth. What does this mean to the business party that just lost a substantial arbitration claim or was found liable for a substantial business claim? It means that the business entity is absolutely stuck with a negative result, usually amounting to a substantial monetary liability, and has absolutely no way of challenging any errors or mistakes made by the arbitrator. Essentially, the courts have held that if business disputants have agreed to arbitrate their business disputes and claims, then they can never return to the courts for any other or additional remedy or relief of any kind.

Since arbitration today can cost as much or more than litigation, it makes no sense to voluntarily participate in a dispute process that so severely limits or restricts a business entity’s rights and remedies to only those determined by an arbitrator. It is without question a dispute process gamble that is to be avoided at all costs. In the end, based on my knowledge and experience of litigating and arbitrating more than 28 years, any business entity is a lot better off making sure that its business contract requires claims and disputes to be processed by litigation (the contract can dictate or require the waiver of a trial by jury, if so desired) and only litigation for all matters and claims until the pre-trial process reaches the point for all pre-trial motions to be submitted. At that stage of the pre-trial litigation process and only at that stage, your business contract should reserve the exclusive right to you to mandate further litigation or, alternatively, mediation, then arbitration of any remaining claims or issues.