Bar News - November 3, 2006
Litigation To Arbitrate or Litigate? Factors to Consider in Choosing a Path
By: William C. Saturley and John C. Kissinger
Trial lawyers often have to counsel clients whether to choose an arbitration or litigation forum in which to resolve disputes. Counselors face this issue in drafting or negotiating terms of contracts. Which to choose? The following considers some of the factors that can help you make this decision.
William C. Saturley
John C. Kissinger
- Litigation: Both federal and state court rules permit attorney-driven discovery under a well-known set of rules. Discovery is nearly as wide as the parties wish and can afford, and disputes can be resolved by well-known means (though its effectiveness varies from court to court).
- The minimum period between commencing a lawsuit and going to trial is generally 12 months, and can be much longer, and discovery is generally available throughout that entire period.
- In arbitration, the extent of discovery can be established by ad hoc agreement, or by reference to a known set of rules that control its duration and scope, such as American Arbitration Association (AAA) or International Institute for Conflict Prevention & Resolution (CPR).
- The presumption in arbitration is for less discovery, conducted more quickly.
- Disputes arise more easily in arbitration, however, because of lack of agreement or unfamiliarity with the rules. Disputes may be more difficult to resolve, as there is no widely applicable enforcement mechanism.
- Comment: Parties are sometimes fooled into thinking arbitration will be less costly than litigation. Without clear rules guiding the process, and experience with them, or agreements amongst the parties on how to handle discovery, the supposed savings can prove to be very elusive.
- In litigation, judges are relatively familiar and comfortable with motions to dismiss on both procedural and substantive grounds (for example, statutes of limitations).
- Motions for summary judgment, though difficult to obtain, are both achievable in the proper case and useful as a settlement tactic.
- By comparison, a motion to dismiss or for summary judgment is rarely granted in arbitration.
Comment: Judges, dealing with crowded dockets, may feel less invested in any particular case and more apt to dispose of the case if a procedural or substantive route avails itself. A former judge, now sitting as an arbitrator, may be more likely to end a dispute in this fashion, based on prior experience. Consider whether arbitrators might have an economic motive that influences their judgment about disposing of cases.
- In litigation, rules of civil procedure provide a comprehensive and potentially enforceable limit on outlandish behavior. The attorneys have a reputation to uphold, and the parties frequently are institutional litigants.
- In arbitration, even though reference may be had to a system of procedural rules, enforcement is haphazard and may be difficult because of the ad hoc nature of the process.
- The rules of evidence are almost uniformly ignored.
- Comment: Lack of rules in arbitration means a more relaxed process. Nearly all evidence will be heard by the fact finder, whether it would be admissible in a trial court or not. Witnesses can not be readily controlled. Does this lack of control mean that the merits are more or less frequently addressed in the process?
- A fairly narrow range of options is available through the court system, determined by the residence of the parties.
- In arbitration, by contrast, the parties may set the location in advance by contract, or as part of the negotiation over how to settle a dispute.
- Comment: Can a consumer or employee, in a dispute with a product seller or employer, fight the forum selection clause as a contract of adhesion?
- Parties in the court system are bound by the court’s schedule as to the total time available, when the hearing is to occur, how long the trial day will take, and how many days are available.
- In arbitration, by contrast, these factors are scheduled at the parties’ convenience (and the arbitrator’s).
- Comment: Coordination of everyone’s schedule for arbitration can be tedious, and subject to multiple postponements. The court system, by contrast, operates on its own schedule to which the parties are largely bound. Postponements are relatively difficult to obtain. The certainty promotes resolution by the parties: “There is nothing like a court date to promote settlement.”
Logistics: Fact Finder
- In litigation, a very narrow choice, and luck of the draw.
- In arbitration, the parties have the luxury of finding a fact finder who is familiar with the issues, whose personality may suit the process and the parties, and who is relatively available for the parties’ needs.
Comment: Clear superiority of arbitration.
- The court system has seen almost every case before. Jury verdict analysis and historical input is available and valuable.
- Jurors tend to participate relatively infrequently, however, and their lack of expertise, coupled with lack of technical background, can lead to unpredictable results.
- Jurors may fall prey to the emotional element more than professional arbitrators.
- The Solomon Syndrome: where one person is rendering a decision, that person may be reluctant to author an award solely to the benefit of one party.
- Arbitrators, having familiarity with the technical background, may tend to avoid the extreme at either end of the award spectrum.
Comment: On technical cases, the more predictable results come from arbitrators.
- The opportunity to appeal interim rulings as well as the ultimate result is a crucial safeguard in litigation.
- Appeals can factor into the negotiation process.
- By design, statute, and heritage, the court system almost never interferes with an arbitration result, for reasons other than fraud.
Comment: There is little safeguard against a bad result in arbitration.
- Litigation is an expensive trip to a (frequently) unhappy result.
- Cost control may be achieved through budgets and discussion of risks and rewards at various steps in the process.
- The contingent fee mechanism allows many individual claimants to participate in litigation with little direct financial impact.
- Employers have increasingly chosen arbitration of employee disputes, leading to a greater familiarity with the system, and consequent diminished cost per proceeding.
- The parties may agree on an allocation of costs in an arbitration arrangement.
Comment: In a relatively low-exposure, few-document matter, in a pre-determined system, arbitration can be cost effective versus litigation. In complicated commercial disputes, however, arbitration may be just as time-consuming and frustrating as litigation, without the constitutionally-guaranteed free forum and fact finder, and with no avenue of appeal.
- In a potentially controversial or embarrassing matter, arbitration may be preferred, because of the ability to stay out of the public eye.
- The doctrines of res judicata and collateral estoppel are useful in the court room setting to prevent recurring litigation.
- Arbitration can offer confidentiality that the courtroom setting may not.
- Arbitrators are reluctant to issue any form of equitable form of relief.
The factors described here can help provide a context for determining what forum works best in a particular setting. Review them with the client to determine what may be most appropriate for the client’s specific needs.
Attorneys William C. Saturley and John C. Kissinger work in the Professional Liability and Commercial Litigation Practice Groups at Nelson, Kinder, Mosseau & Saturley, a litigation firm with offices in Manchester, Boston, and Portland, Maine.