Arbitration Or Litigation?

So the oil company has short-changed you some royalties.  Or maybe you purchased some product online and it arrived in less than ideal condition. Or maybe the destination wedding venue hit you with some suspicious charges.  

When your inquisitive or angry phone call doesn’t fetch the desired result, your next call might be to your lawyer who will likely ask for a copy of the contract. 

Nestled somewhere in that lease, website license agreement or contract, is quite likely a provision that governs how disputes will be settled. By and large, these clauses typically require disputes be arbitrated privately – someplace far away from Youngstown, Ohio.

By signing the contract, or by clicking “I Agree,” you have bound yourself to this arrangement.   

But what is arbitration? How does it differ from conventional litigation in the court systems?  

Arbitration is an alternative dispute resolution method that was blessed by federal legislation way back in 1925. It differs largely from litigation in its transparency, or lack thereof.  

Arbitration is an entirely private affair, without publicly searchable dockets of cases, stacks of freely accessible files and exhibits stored in dusty courthouse basements.  What happens in arbitration stays in arbitration.  

Arbitration also differs from litigation in the respective lengths to resolution. If the subject dispute is large enough to be barred from the small claims court system, litigating it in common pleas court may take up to a year or longer, depending on the subsequent path through the appellate courts.  

By contrast, arbitration typically achieves resolution more quickly, if for no other reason than the opportunity for appeals are severely limited.  

If you do not prevail at arbitration, do not expect a local court to overturn that result.  

If arbitration is generally quicker, that means it is also less expensive than litigation, right?  Not necessarily.  

The cost of litigation turns on attorney and expert witness fees.  Arbitration, by contrast, includes these fees, as well as hourly rates the arbitrator charges that often surpass those of the participating attorneys.  

In addition, ongoing administrative and filing fees add to the burden. As of this writing, the filing fee for a commercial arbitration case with the American Arbitration Association is $925 for disputes valued at less than $75,000.  

There is not always a choice between arbitration and litigation; the contract speaks for itself. Your $1,500 dispute must be arbitrated in Oklahoma City if that’s what the contract says. Even so, the parties are free to waive the arbitration provision and pursue litigation instead.  

Similarly, the lack of an arbitration provision does not foreclose the opportunity to arbitrate a given dispute.

But absent these cooperative considerations, arbitration agreements are often wielded as a sword against inattentive consumers.   Given the private nature of the arbitration proceeding, and the drafter’s ability to name the arbitration’s location, it’s not hard to see why.  

Arbitration can be an appealing alternative to litigation, but only if the relevant contract so suggests. 

Copyright 2024 The Business Journal, Youngstown, Ohio.