Business Owners: Should You Arbitrate or Should You Litigate in Court?

By Gail Lamarche on April 20, 2016Posted in Litigation

Guest post by Henderson Franklin Attorneys Suzanne Boy and Carlos Kelly

These are important questions, and like many questions involving the law, the answer is “It depends.” There are pros and cons to both arbitration and a traditional lawsuit in court. Arbitration can be (but is not always) faster. But faster doesn’t necessarily mean cheaper all the way around.

Is faster better?

For example, the filing and arbitrator fees can be significantly higher (at least double) than filing fees for many civil lawsuits. And, if arbitration is quicker than resolving a dispute in the court system, that may not necessarily translate to significantly smaller legal fees. Instead, a similar amount of work (discovery, pre-trial motions, and exchanging exhibits, for example) could take place in a shorter amount of time.

Arbitration can be useful if you have a dispute that you want to keep out of the public eye, though a noisy party on the other side of the case could still bring media or social media attention.

Proceeding through the court system can be (but is not always) slower than resolving a dispute through arbitration.

Can you appeal the decision?

The biggest advantage that use of the court system has over arbitration is the power of a court order and the ability to seek review from a higher authority for a variety of reasons.

By contrast, arbitration has notoriously narrow grounds available to “vacate” an arbitration award. For example, a party may be required to show the award was the award was procured by corruption, fraud, or other undue means; that the arbitrator was partial to one side; or that there was corruption by an arbitrator. The grounds to “correct or modify” an arbitration award are even narrower. 

Typically, a party must show there was an evident miscalculation of figures or an evident mistake in the description of any person, thing, or property referred to in the award; the arbitrator made an award on a matter not submitted in the arbitration and the award may be corrected without affecting the merits of the decision upon the issues submitted; or the award is imperfect as a matter of form, not affecting the merits of the controversy.

In a lawsuit, if the judge makes a legal error, broader grounds for appeal may exist, including, in some circumstances, “de novo” review, which means the appellate court reviews the case completely anew. On the other hand, if an arbitrator makes a legal error, you may be stuck.

Bottom line

A number of business contracts may include an arbitration provision. Talk to your business lawyer and your business lawyer’s litigation partner before you agree to use of an arbitration provision. Sometimes they make sense, but not always. If you have questions about arbitration or the appellate process, please feel free to contact us at suzanne.boy@henlaw.com or carlos.kelly@henlaw.com.

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