In our last article, we examined the drawbacks to utilizing the conventional method – litigation – to resolve disputes. The cost, in both time and money, makes litigation an incredibly unattractive proposition.
Many people believe that the problems with litigation can be eliminated by resolving disputes through arbitration. Unfortunately, this is usually not the case. Surprisingly, arbitration can be every bit as costly as litigation, if not more so, and can drag on just as long.
When a dispute is submitted to arbitration, the case will be handled according to whatever rules or decisions the arbitrators make. Although you may think your dispute will be resolved quickly and cheaply, in fact, arbitrators often will employ the same rules and procedures used in court cases. Depositions, written discovery requests, motions, hearings – these all exist in arbitration in much the same way they do in litigation.
The important difference is that when you are in court, the taxpayer is paying most of the expense of the judge and the court staff. In arbitration, YOU are paying for the judge! Or judges – arbitrations often involve three arbitrators.
Arbitration fees are substantial. Filing a case with the American Arbitration Association (“AAA”), for example, requires thousands of dollars in arbitrations fees just to start. This amount goes up by the amount claimed – no matter how unrealistic the claim. If one party has dreamed up damages of a few million dollars, the arbitration administrative fees will be well over $10,000.
And these administrative fees are just the start, as they do not count fees that you have to pay the arbitrators themselves! You can also be paying hundreds of dollars per hour for each arbitrator. This includes not only time in the arbitration, but also “review time” and preparation time.
As expensive as conventional litigation is, at least the judge there has an interest in the case being resolved quickly. As you can see from the fees they collect however, arbitrators have the opposite interest – they have an interest in having the case drawn out, so they can collect more arbitration fees. Now you have your lawyers and your judges interested increasing your cost of litigation. Arbitrators typically are much less inclined to resolve a case by dismissal or an order of summary judgment. A recent study by Inside Counsel found that arbitrated cases cost just as much as similar litigated cases, and as we have seen, they can cost much more.
The costs of arbitration are much worse when the parties are stuck with it, because they have signed an agreement requiring arbitration before a particular forum such as the AAA. A recent study by Public Citizen found that in these circumstances, arbitration expenses are almost always much higher, because the parties are forced to use that forum and there is no price competition. NEVER sign an agreement requiring arbitration before AAA or a similar forum.
Because both litigation and arbitration involve significant cost, many people look to avoid these through mediation. However, mediation has its own set of issues, as we will find in our next installment.
Sam Ventola has a wide variety of experience in litigation, legal education, and mediation. He has been an attorney on both sides in business litigation, employment disputes, probate litigation, and personal injury cases. In addition to being an attorney, he has been a mediator, hearing officer, labor relations professor, and lecturer on litigation, employment and First Amendment issues. He has also achieved the rating of AV Preeminent® by Martindale Hubbell.