image_print

Just Like Thanksgiving and Black Friday:

Five Truisms about Arbitration — That Aren’t True

 by George Friedman*

The other day, I stumbled on a television show that debunked some commonly-held misperceptions about Thanksgiving. Who knew the Pilgrims didn’t wear black and white clothes and sport buckles? This got me to thinking about an article I co-authored more than ten years ago that refuted ten “truisms” about arbitration that were actually not true. Related to that thought was my recent blog post on ten things that critics of arbitration won’t tell you. In the spirit of Thanksgiving, I decided to update my list, and to shrink it to five things:

 

  1. Arbitrators split the baby in half
  2. An arbitration administrator gets in the way: parties can just as easily handle it themselves
  3. There’s no discovery in arbitration
  4. There are no rules of evidence in arbitration
  5. Arbitration costs more than court

 

  1. Arbitrators split the baby in half

 

Arbitration critics frequently say that arbitration is not necessary, because in the end arbitrators will end up splitting the baby. To that I respond “King Solomon didn’t split the baby and neither do arbitrators.” Research shows that arbitrators are actually quite decisive, tending to award in favor of one party or another. Moreover, as arbitration is forum of equity, arbitrators can award some monetary relief to a consumer, not because claimant proved respondent was legally liable, but rather as a matter of equity. Courts, in contrast, are generally constrained to rule as a matter of law.

 

Revised Truism: “Arbitrators, like Solomon, don’t split the baby in half.”

 

  1. An arbitration administrator gets in the way: parties can just as easily handle it themselves

An oft-repeated “truism” about arbitration is that administration of a case is not necessary and in fact can just as easily be handled by the party. The surprising answer is….”yes, this is true.” This response may come as a shock, being that this blog is authored by the former director of arbitration of the FINRA arbitration forum, which administers 99% of the securities arbitrations filed in the United States last year. But, it’s all true, subject to a few “ifs.” You can save money and administer it yourself IF:

 

  • you are not fainthearted;
  • you are prepared to make trips to the courthouse;
  • the parties are skilled in the arbitration process;
  • the attorneys are skilled in the arbitration process;
  • everyone operates in good faith at all times;
  • you are comfortable, as a party, doing everything yourself;
  • you are comfortable, as an arbitrator, doing everything yourself; and
  • you have lots of time to spare.

 

If you can’t answer “yes” to all of the above, be prepared for lots of aggravation. If not, pay for an arbitration administrator. And if you have a relatively modest claim, do it online with Arbitration Resolution Services. As I wrote recently, the dramatic and rapid advances in technology will make this choice an easy one for consumers, much like Amazon and other web-based entities have challenged brick-and-mortar shopping as the preferred method of commerce.[1] Put differently, why drag yourself to a hearing and wait around for snail-mail when you can accomplish the same things via the cloud in a fraction of the time and cost?[2]

 

Revised Truism: “Administered arbitration offers a good value for the parties.”

 

  1. There’s no discovery in arbitration

 

An often heard criticism of arbitration is that the parties are unable to obtain discovery in arbitration. A closer examination of the process shows that, consistent with the expedited nature of arbitration, there is indeed some level of discovery in arbitration. First, the discovery process in court (essentially, prehearing exchanges of evidence as well as depositions) is a grueling, expensive, long process. It becomes really expensive when one considers the cost of attorneys and court reporters who attend depositions, and the expense of producing documents. The latter has two costs: the actual cost to produce and the hidden cost of disruptions to business. Arbitration strikes a nice balance with some level of discovery written into the rules, along with clear notice that full-blown, litigation-like discovery is not countenanced. And arbitrators are authorized to resolve discovery disputes that arise between the parties. In short, discovery in arbitration is available to the parties through: 1) rule-based exchange of documents and/or information; 2) arbitrator-issued discovery directives; and 3) enforcement of orders issued by the arbitrators to parties (for example, arbitrators can preclude defenses or assume the validity of issues when a party disobeys a discovery order).

 

Revised Truism: “There is fair, adequate discovery in arbitration.”

 

  1. Arbitration costs more than court

 

Those critical of arbitration like to point out that arbitration fees can be as much as or more than court filing fees, and that as a result, it’s not such an economical process. This would actually be true if: 1) time had no value and 2) lawyers didn’t charge for all the work they put into motion practice, pretrial discovery (and the attendant costs and expenses), and appeals. On the latter, the Federal Arbitration Act, 9 U.S.C §§ 1 et seq., as well as state arbitration laws, provide for very limited court review of arbitration decisions, rendering arbitration awards essentially “final and binding.” Contrast this with litigation, with the opportunity for extensive appeals.

 

Revised Truism: “Factoring in the direct and indirect costs of litigation, arbitration is much more economical.”

 

  1. There are no rules of evidence in arbitration

 

The reality is that, while the strict rules of evidence need not apply in arbitration, the process is not a free-for-all. In fact, arbitrators are generally more sophisticated than the average juror; most are highly educated, experienced and successful. When presented with news clippings or generally immaterial evidence, arbitrators generally reject them. On the other hand, arbitration rules and the law requires arbitrators to accept relevant and material evidence. This strikes a nice balance: worthless evidence can be rejected, but relevant, material evidence will not be precluded because of an evidentiary technicality.

 

Revised Truism: “Arbitration is not a free-for-all.”

 

Conclusion

 

As you gather around the Thanksgiving table, or head out to the malls or your computer for some Black Friday shopping, bear in mind that the truisms you have come to accept year after year may not be so true after all! Happy Thanksgiving.

 

 

 [1] See Retailers, Are You Ready? Cyber Monday Overtakes Black Friday (Nov. 30, 2012), available at http://blogs.teradata.com/teradata-applications/retailers-are-you-ready-cyber-monday-overtakes-black-friday/ <visited 4/4/2014>. Also Cheng, Andria, UPS, FedEx Forecasts Suggest Black Friday Weekend will Again be Key for Retailers, Marketwatch.com (Nov. 17, 2014), available at http://blogs.marketwatch.com/behindthestorefront/2013/10/25/ups-fedex-forecasts-suggest-black-friday-weekend-will-again-be-key-for-retailers/ < visited 4/4/2014>, and Cyber Monday to be Busiest Day Ever for FedEx, CNN Money (Oct. 24, 2013), available at http://money.cnn.com/2013/10/23/pf/fedex-cyber-monday/ <visited Nov. 17, 2014>.

[2] See Friedman, George, “Road Trips” in Consumer Arbitration: there Must be a Better Way (Sep. 15, 2013) available at https://www.arbresolutions.com/road-trips-consumer-arbitration-must-better-way/#.VGo-x_ldX84 <visited 4/4/2014>.