Alternative dispute resolution

Most business people have had the mantra beat into their heads — arbitration is better, faster and cheaper. Accordingly, many routinely include mandatory arbitration clauses in commercial contracts without
any real thought. Andrew Gold, a member of the law firm Kluger, Peretz, Kaplan & Berlin P.L. and past chairman of its litigation department, however, warns that arbitration is not always the best choice. Dispute resolution options include jury trial, bench trial and arbitration.

Smart Business talked to Gold about weighing the arbitration process versus jury and bench trials.

Why do companies put an arbitration provision in a contract?

Most people include arbitration clauses in their contracts as a knee-jerk reaction to years of hearing speeches touting the benefits. I agree that arbitration has its place. However, my experience has been that arbitration is not faster or cheaper to resolve complicated disputes. I recommend arbitration only where the matter involves a substantive area requiring a fact finder to have a particular expertise to ensure a fair resolution.

Why not arbitration?

First, the general consensus is that arbitration is faster than trial. In my experience, that’s not necessarily so. The arbitration panel is often composed of three busy professionals, whose schedules are difficult to coordinate. It’s very possible that you’ll end up scheduling seven to 10 days of arbitration scattered over many months.

Second, people assert that arbitration is cheaper. My experience is that it’s not cheaper because lawyers and their clients have to prepare for each hearing, instead of trying the case from start to finish at once, and the clients have to pay the arbitrators for their time.

Finally, it’s assumed that less discovery is generally involved in the arbitration process. Many arbitrators, however, allow significant discovery, defeating any cost savings. More importantly, limited discovery is often harmful to a corporate defendant. Often, a plaintiff will know its complaints, gather evidence and prepare the case for hearing. Without discovery, a defendant goes in blind, not knowing what witnesses to bring or what documents to use to impeach the plaintiff’s witnesses.

What are viable alternatives to arbitration?

It’s common to weigh arbitration versus a jury trial. But nonjury, or bench trials, are a wonderful alternative to more expensive jury trials while retaining the actual and supposed benefits of arbitration. In a bench trial you get one assigned judge who is not being paid — as opposed to arbitrators, who are paid. You avoid the high cost associated with a jury trial, while retaining the supposed benefit of avoiding the risk of a runaway jury. You don’t have to work around so many schedules — the judge has nothing to do but try cases, and you don’t have to pay the hourly rate for each of the arbitrators.

If arbitration is chosen, what should and should not be included in the arbitration provision?

Any arbitration provision should be specific. To avoid conflicts over the scope and implementation of the clause, the parties should address each of the following issues:

1) What dispute is the arbitration clause intended to cover? For example, will the clause apply only to a claimed breach of the subtract contract or to any dispute related to the transaction?

2) What types of damages are included within the scope of the arbitration clause? There is governing Florida law suggesting that in a business context claims for personal injury will not be included within an arbitration clause unless specifically noted.

3) What parties are included within the provision? This is very important in multiparty transactions. A mistake could result in a party litigating in multiple forums at once.

4) Who considers any potential award of attorney fees? Under the Florida statutory scheme, an arbitrator typically doesn’t award fees. That’s left to the circuit court. In my experience, that is a poor process requiring a long summary trial before the circuit court so that the sitting judge can learn enough about the case to make a meaningful decision.

5) What administrative body should oversee the procedure? There are many choices including general bodies, such as The American Arbitration Association, or industry specific bodies, such as The Construction Industry Association.

6) How many arbitrators will comprise the panel?

7) What kind of expertise — if any — must the arbitrators possess?

8) What method will be used to select the arbitrators?

9) Will discovery be allowed and if so, how much?

There isn’t any limit to what can be included in an arbitration agreement. The key is to think it through and specify the dispute resolution process at the time the parties are negotiating other deal terms. To view the article, please click here.

ANDREW GOLD is a member of the law firm Kluger, Peretz, Kaplan & Berlin P.L. and past chairman of its litigation department. Reach him at (305) 341-3120 or agold@kpkb.com.