Choosing Between Litigation And Arbitration – What’s At Stake?

The costs of litigation have risen dramatically in the past 10 to 20 years.  Many factors contribute to that rise, including expanded discovery processes, the proliferation of electronic data storage, and the costs associated with gathering and reviewing such data.

As the costs of litigation have risen, sophisticated consumers of legal services have looked to alternative processes for efficient disposition of disputes.  Mandatory mediation has become a docket management tool of many judicial venues.  Mandatory arbitration provisions have become common in commercial contracts.  And even voluntary arbitration has become a widely accepted means of resolving business disputes.

Mandatory Arbitration

Where a contract provides for arbitration of a dispute, either party can require all parties to the contract to submit the dispute to arbitration.   The provisions of the contract determine how the arbitration is to be conducted.  In most contracts requiring arbitration, the contract provides that the arbitration will proceed in accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA).

The AAA has developed extensive rules governing the filing of an arbitration demand, the selection of arbitrators, and the procedures to be followed.  The intent of the AAA rules is to expedite the resolution of the dispute, and to limit the cost of pre-hearing proceedings.  The AAA has also developed arbitration “panels” from which the parties may select the arbitrator or arbitrators to hear and decide the dispute. The arbitrator or arbitrators who are selected have a great deal of discretion in governing how the arbitration will proceed.  Therefore, the selection of the arbitrator can greatly influence both the cost and speed of the proceedings.

Voluntary Arbitration

Even where a contract does not provide for arbitration of disputes, if the parties can agree to arbitrate a dispute, they can submit the dispute for resolution under procedures they mutually adopt.  This option offers significant advantages with respect to the selection of the arbitrator(s), the extent of pre-hearing discovery, and the timing of the conclusion of the arbitration.  The additional advantage of such a process is that by self-administering the arbitration, the parties can save the sometimes very significant AAA filing fees.

Litigation

Unlike arbitration, voluntary or involuntary, the parties to a dispute have little control over litigation proceedings.  The judge is appointed without input from the parties.  In some jurisdictions, several different judges may consider and decide different parts of the proceedings.  Ultimately, the decision on contested issues of fact may be put into the hands of a jury.   The rules of procedure adopted by the jurisdiction in which the litigation is filed will govern the proceedings, setting limits (or more often, failing to set limits) on discovery, the speed with which a trial will be held, and the manner in which a hearing will be conducted.

I  could go on for pages discussing the differences, advantages and disadvantages of each of these types of dispute resolution proceedings.  But,to simplify this presentation, the table set forth below lists the critical differences on a comparative basis.