Obviously, when a business dispute arises between or among individuals and/or entities and cannot be resolved by negotiation, one alternative is to file a lawsuit and resolve the dispute through a court proceeding. That is not the only alternative, however. The most often used alternative dispute resolution (“ADR”) methods are mediation and arbitration or some combination of the two. Another method that is gaining some traction especially in Georgia is litigation with the use of a special master, instead of a judge and/or jury, to resolve some or all issues in the dispute. Most business disputes arise out of, or are related in some way to, a written agreement.
If an agreement out of which a dispute arises is silent on the method of dispute resolution the parties will use, any party may insist on resolution through traditional litigation in a court. Agreements to use ADR, however, are generally considered by most courts to be in the public interest, and most state jurisdictions and the federal courts eagerly enforce properly drafted ADR provisions. Therefore, a critically important element of every business agreement is whether to include a provision regarding ADR, and if so, which method or methods should be proposed to the other side. To make this decision, one needs to know what the pros and cons are of the various alternatives. In this article, we will lay out the advantages and disadvantages of mediation versus arbitration, litigation, or special master assisted litigation. In following articles, we will do the same for arbitration, special master assisted litigation, and various combinations of all three of these ADR methods.
Arbitration is in many ways similar to litigation in a court in that each party presents evidence and arguments to a neutral party who has the power to decide the case. There are, however, important differences between court litigation and arbitration:
- Although arbitration can also be time-consuming and take months to reach a conclusion, arbitration is almost always less time-consuming and takes less time to complete than litigation.
- One of the biggest differences between litigation and arbitration is that, in litigation, one of the parties can usually insist that the fact issues be decided by a jury which may be composed of people who would rather not be sitting as jurors and others who should not be jurors, because they are not qualified to sit as jurors, at least not in highly complicated cases; in arbitration, there are no juries.
- In litigation, the parties are stuck with the judge assigned to the case, and the judge may or may not have expertise in the subject matter of the case; in arbitration, the parties get to decide who the arbitrator will be and can engage an arbitrator who has expertise in the subject matter of the case.
- In many states, such as Georgia, judges are elected and, while many elected judges are extremely intelligent and competent, some are not; in arbitration, the parties get to pick an arbitrator based upon his or her qualifications.
- In litigation, there are very strict formalities in virtually every phase of the litigation, and some of these formalities are archaic and waste time and money; in arbitration, the rules are relaxed. For example, in litigation, there are many restrictions on what facts can be presented under the strict rules of evidence; in arbitration, the rules of evidence are relaxed, and most arbitrators will hear offered evidence and then “give it the weight it deserves.”
- Litigation is often delayed for years as busy and overworked judges are often unable to get to motions and discovery disputes in a timely manner, and trials often take many months to work their way up the ladder to be heard. Also, in litigation, many motions are scheduled at the call of a motion “calendar” which means that all motions to be heard on a given day are called at the beginning of the day, and then the parties and lawyers sit around the courthouse waiting for their turn to be heard. This can be expensive and exasperating. In arbitration, matters are scheduled by the arbitrator and the parties.
- Aside from filing fees of hundreds of dollars, litigation is free. The parties do not have to pay the judge or jurors. Arbitrators get paid hundreds of dollars per hour for everything they do on a case while in the presence of the parties or while studying briefs and evidence in the arbitrator’s office. In this sense, arbitration costs a lot more than litigation. On the other hand, if a client is paying his or her lawyer by the hour, it may be less expensive to arbitrate if there are hundreds of fewer wasted attorney hours in arbitration than in the court system.
Strategy advice: If you decide you want to arbitrate any disputes concerning a given contract or written transaction, make sure you have a competent attorney draft an enforceable arbitration agreement that can be enforced if the other party decides he or she would be better off litigating. Typically, the leading arbitration associations that manage arbitration, such as the American Arbitration Association, have rules that call for three arbitrators for each case. That may be good for the “Arbitrators’ Full Employment Act,” but it is rarely a good idea for the parties. We have found arbitration to be far less expensive and time-consuming with a single arbitrator, with no noticeable difference in the quality of the decisions made.
If you have any questions or comments about this or any other legal issue don’t hesitate to contact Jim at any time. I would be happy to talk with you.