“Arbitration vs. Litigation – Draw your Battle Plan” by Christiaan D. Horton

With the growing pace of business, and the standardization of transaction documents and contracts, many business owners and individuals are called upon to make quick decisions about their election for dispute resolution. Most do not appreciate the distinction between arbitration and litigation and are not fully informed when making their election on this issue. Because both of these methods of dispute resolution have risks and benefits, every business owner and individual should understand this distinction. There is a great advantage to drawing a battle plan before the war begins.
Synopsis of Arbitration. Arbitration is often characterized as a fast-track process to resolve commercial law disputes. In fact, arbitration provisions in contract documents find great support within the merchant community which often seeks a faster method to resolve legal disputes than our traditional judicial system allows. Missouri has adopted special provisions governing arbitrations, and that body of law can be found in Section 435.350 of our Revised Statutes. State law prohibits a “sneak attack” by arbitration and mandates that such clauses be boldly and prominently contained within agreements. Thus, insertion of arbitration provisions in contract documents requires careful attention to insure that proper notice is given under state law due to the significance of the waiver of constitutional rights like the right to trial by jury. Because arbitrations accelerate the pace at which disputes are resolved, this often requires the parties to quickly gather documents, secure witness participation, and comply with a host of procedural requirements including those relating to the selection of the arbitrator or panel that will hear the dispute. It is also important to follow the particular arbitration rules and procedures of the governing body administering the arbitration. For example, the Missouri Association of Realtors has a particular set of arbitration rules and procedures that must be followed in disputes between realtors. The American Arbitration Association has its own set of rules and procedures that guide arbitrations before that tribunal. It is very common for these rules and procedures to be contained in lengthy manuals desired to guide the process and establish the “rules of the game.” Although some argue that arbitration is a less costly alternative to our traditional judicial model for dispute resolution, significant costs can be triggered in arbitration including filing fees, arbitrator compensation, tribunal management expenses, and costs to mobilize witnesses to attend arbitration hearings in person.
Considerations on Finality of Awards. Many people proceed to arbitration not realizing the potential finality of the decisions that can result from that process.They presume that the arbitration will allow them to “state their case” informally and do not consider the potential for redress in the event of an adverse “award”. Often the ability to challenge the award substantively is waived or severely limited, and in some cases, only procedural irregularities in the process may be challenged. Results of this nature are especially dangerous when the arbitrator is not trained in the law but must decide legal issues that affect the rights of the parties. Although most arbitrations will have a hearing transcript of the proceedings and allow the relaxing of evidentiary standards for proof and admissibility of documents and testimony, these safeguards are not applied uniformly and can create pitfalls for unsuspecting participants. Overturning an arbitration award is very difficult, and if competent legal counsel is not involved in the actual arbitration to make a proper legal record, due process rights in the hearing process can be significantly jeopardized.
Traditional Justice by Civil Action. Our Court system supplies trained Judges, funded by tax-payer dollars, to hear legal disputes. The Missouri Supreme Court promulgates civil rules that govern judicial proceedings across the State. Although civil rules may vary slightly county-by-county, they are essentially uniform in most respects. Licensed attorneys who litigate in our court system are very familiar with these civil rules which are designed to allow the parties an opportunity to engage in formal discovery so evidence can be fully developed by each side prior to a trial in the case. It is true that the “wheels of justice” turn more slowly in our court system, but there is ammunition within the body of civil rules that allow the parties to seek judicial relief on an expedited basis. Typically, the party filing the action will pay a nominal filing fee and service fees relating to the formal service of the petition and summons on defending parties, but no additional amounts are required to be paid to secure a position on the Court’s docket. Furthermore, Judges are required to follow the law that controls the case and are held accountable through the right of each litigant to appeal the judicial decisions made, even on substantive issues in the case. There certainly are more due process safeguards available in our traditional judicial model for dispute resolution, and many attorneys prefer the ability to carefully develop the evidence for their case before trial which takes time. However this model of dispute resolution can be very costly and attorney fees can escalate quickly, especially through the discovery process.
Which Battle Plan is Best? With these distinctions in mind, solid arguments can be made that arbitration is a better model for certain disputes while our traditional judicial model is better for others. Individuals who are presented with binding arbitration clauses should at least be fully informed on the arbitration process and procedures that will be invoked if a future dispute arises. Arbitration participants are strongly cautioned from proceeding in arbitration without legal counsel. Knowing the specific procedural rules of the arbitration tribunal is vital for the protection of legal rights and assurance of due process guarantees. Appreciating the risks involved in the finality of an award is also very important because redress from an adverse decision may be significantly limited. Except in exceptional circumstances, Courts rarely disturb an arbitration award once arbitration procedures have been followed and exhausted. Those submitting to arbitration need to be prepared to accept the arbitration award, good or bad, and move away from the battlefield in most cases. Those who elect the judicial path have a greater opportunity to appeal adverse decisions, but the potential for protracted litigation and the cost and expenses associated with “funding the war” carry consequences of their own. Before executing a contract or agreement that contains a standard arbitration clause, pause to consider the above distinctions and what may best serve your strategy in the event of a future dispute. If you are uncertain, obtaining a swift legal opinion on that topic is wise “intelligence” in the event war breaks out.