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Arbitration Agreements – A Primer

December 21, 2015

Many businesses are using arbitration agreements in their commercial and employment agreements, rather than allowing the parties to use the court systems to resolve disputes.  The perceived advantages are that the arbitration process is cheaper, faster and allows the dispute to be resolved by experienced industry professionals rather than a jury composed of people with unknown backgrounds, experiences and biases.
 
Yes, arbitration does have these advantages. In many arbitration proceedings, discovery – the process by which parties obtain information from each other about claims and defenses through an exchange of documents, written interrogatories or oral depositions of witnesses – typically is much more limited than in court actions.  Discovery is usually one of the biggest cost drivers in litigation, and the need to request and review potentially many thousands of pages of documents, correspondence and emails and then question a variety of witnesses about them can dramatically increase litigation expenses.  Many arbitration settings limit the amount of information to be exchange and limit or curtail entirely the taking of depositions.  This can be a huge cost saving and allow the parties to get to a dispositional hearing much sooner. 
 
In addition, arbitrators can be chosen by the parties and usually have some discernable track record for deciding other similar disputes.  In contrast, a jury pool is made up of all registered voters in a locale and the process of “picking  a jury is a bit of  a misnomer.  Jurors are usually seated based on a random order assigned by the Court staff and consist of those who were not “struck” or objected to by counsel and the parties.  Unlike on TV and in the movies, most courts do not allow questioning of prospective jurors to “pick” them, but rather, questioning is allowed only when the juror’s background indicates a possible basis for a strike, such as prior litigation experience, or a possible bias as to the parties or issues.  All litigators harbor a fear of a “runaway” juror, the individual who can deadlock the jury or, even worse, drive the jury panel away from a deliberate decision based on the evidence to one based on sympathy or antipathy toward a party.  Such a concern is particularly acute where the jury has the authority to award punitive damages.  On the other hand, recent court decisions have imposed limits on punitive damages and require a punitive damages award to be related to the size of the compensatory damages.  Thus, a $1,000 compensatory award generally won’t support a punitive damages award of more than $10,000, and a court can correct an aberrant award on a post-trial motion or appeal. 
 
Arbitrators and arbitration panels are often perceived as less likely to come up with an “irrational” award.  That view is based on a perception that, as experienced professionals, arbitrators will likely come up with a result that is generally in keeping with the parties’ forecast of a range of acceptable outcomes.  But arbitrators are human, and they, too, can be influenced by emotional facts.  “Runaway” arbitration awards, while not common, do occur.  And unlike a court setting, where any party can appeal, there is no appeal from an arbitration award.  At most, a party dissatisfied with an award can go to court and file a motion to vacate the award.  But whether that court action is filed in state or federal court, the grounds to vacate the award are very limited.  A party cannot just argue the arbitrators “got it wrong,” or misapplied the facts or the law.  Those arguments will not be successful.  Rather, a party seeking to vacate will have to establish some fundamental breakdown in the arbitration process, such as evident partiality or corruption by an arbitrator or an arbitrator’s refusal to permit some significant evidence.  Absent these bases, a party to an arbitral award may be stuck with the result. 
 
Is arbitration “better” than a court proceeding?  Sometimes.  But litigants should be careful about what they wish for.  If the arbitration result is not the one they wanted and predicted, their ability to get it corrected may be less than they thought.    
 
For more information contact David McComb at dfmccomb@zarwin.com

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