Arbitration 101

Courtroom battles can be lengthy and subject a business to lots of undesired publicity. Over the years, many businesses and individuals have decided to resolve their legal disputes using alternative dispute resolution ("ADR") methods such as mediation or arbitration. These methods are much quicker, private, and at times less costly than traditional litigation. In fact, if you were to review many of the contracts that you have entered into over the years, you would discover many businesses require disputes to be resolved using some method of ADR - typically arbitration. This post will cover the basics of arbitration and the impact of choosing arbitration over traditional litigation. For a discussion of mediation, please see our post, “The 411 on Mediation”.

What is arbitration?

Arbitration is an ADR method in which a neutral person, or a group of persons, selected by the parties renders a decision to settle a dispute after hearing each party’s side of the case and reviewing the evidence.

How does arbitration work?

1. It is typically initiated by an agreement to arbitrate or initiated by order of the court.
2. The parties must select an arbitrator. (Since arbitration is not a judicial proceeding, court rules generally do not apply. Often contracts will require that the arbitration be governed by the American Arbitration Association's ("AAA") rules, or similar arbitration guidelines. Parties should be aware that a contract requiring the use of AAA's rules does not mean that they have to use the AAA for the actual arbitration or a AAA arbitrator. Any well-trained arbitrator should be versed in AAA's rules.)
3. The arbitrator may hold a pre-hearing/scheduling conference with the parties.
4. Discovery, if any, is conducted and briefs, if any, are submitted to the arbitrator.
5. The actual arbitration hearing is held.
6. The arbitrator makes a decision, which is commonly referred to as an award.

What is the arbitrator's role?

The arbitrator is essentially the judge for the arbitration. However, unlike traditional litigation where the parties have little to no choice over which judge they get, the parties usually select the arbitrator.  The arbitrator will preside over the proceedings, make rulings on briefs, resolve discovery disputes, settle evidentiary issues, evaluate the evidence presented, and then make a decision. You can choose whether the arbitrator issues a basic standard award, announcing only the outcome of the case, a reasoned award, explaining the arbitrator's reasoning behind the decision in addition to the decision itself, or a detailed award that includes findings of fact and conclusions of law in addition to the decision. 

Who can serve as an arbitrator? 

Anyone can serve as an arbitrator provided they have the requisite training or certification required by his or her respective state, country, or industry association. Typically, arbitrators are former judges, lawyers, or a professional with particular knowledge of the facts involved in the case.

What are the benefits of arbitration?

1. It is quicker and more efficient than litigation.
2. Less formal than litigation.
3. Parties have control over who will be their decision maker.
4. The process and the award can be completely confidential. 
5. The process can be more collegial than litigation, and a great way to preserve business relationships. 
6. Arbitrators typically issue the award within a set time frame after the hearing, often 30 days, whereas courts do not have similar time frames and can take months to issue an opinion.
7. The arbitrator's award is relatively final, because it is very hard to appeal or vacate the award.
8. The arbitrator's award can be confirmed by a court and become an enforceable order of the court.
   

What are the risks of arbitration?

1. While discovery is limited, an arbitrator can order witnesses to appear and can order the inspection of records, letters, and other evidence. 
2. The rules of evidence are more relaxed, so evidence that might be inadmissible in a court proceeding could be admissible in the arbitration.
3. There is no case precedent, meaning decisions from similar cases do not govern the arbitrator's decision and the arbitrator's award has no impact on future cases. Likewise, arbitrators are not constrained by statutes. 
4. The arbitrator's award is relatively final, because it is very hard to appeal or vacate the award.
5. Arbitration can be more costly than traditional litigation. 

Arbitration vs. Mediation

The goal of arbitration is for a third party to reach a decision for the parties involved in a case, while the goal of mediation is for the parties to resolve the case themselves. In arbitration, the decision is made entirely by the arbitrator. On the other hand, in mediation the mediator hears each party’s side of the case and then assists the parties in negotiating with the hopes that the parties can reach a settlement. It is possible that parties will participate in a mediation, fail to reach a resolution, and then engage in arbitration regarding the same dispute.

Deciding whether to litigate, mediate, or arbitrate can be difficult. There are benefits and risks with all three. If you would like to discuss your legal matter and the various avenues available for resolution, or you are looking for an experienced neutral to serve as either an arbitrator or mediator for your case, please do not hesitate to contact Simmons Rogers, LLC at 404-445-8260 or [email protected].

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