Arbitration: Do You Want To Use It?

By Susan Linden McGreevy Construction Attorney I know that no one reading this column wants to think about getting into disputes. You just want to concentrate on your business and ways to improve it. the law of averages tells us, however, that once in a while you will have disputes and, if you do, the odds are that arbitration will be an option (if not the only way) to resolve them. So, it seems that

By Susan Linden McGreevy
Construction Attorney

I know that no one reading this column wants to think about getting into disputes. You just want to concentrate on your business and ways to improve it. the law of averages tells us, however, that once in a while you will have disputes and, if you do, the odds are that arbitration will be an option (if not the only way) to resolve them. So, it seems that it should be worth the time it takes to read this column to educate yourself on the pros and cons of using arbitration.

In this country, the typical lawsuit filed is a fender-bender, slip-and-fall, employment-discrimination or other fairly simple scenario that would take one to two days, at most, to try. these cases don't result in six- or seven-figure verdicts, and they don't end up as scripts for "L.a. Law," "Ally McBeal" or "Boston Legal," but they are the reality of litigation.

Contrast this with the average commercial or construction dispute, where the facts are such that the average person has never encountered them before and couldn't care less about them, and the legal issues may never have arisen for the judge before. the reality is that our conventional court system is not well suited to resolve many business disputes — particularly construction.

Arbitration, where the parties choose a third party to make a binding decision on their disputes, is very popular in construction for these reasons.

Reasons to arbitrate:
Often there are out-of-town parties. out-of-towners risk prejudice against them by local judges and juries. arbitration takes this risk out of the equation.

Often they involve out-of-town witnesses and experts. they may have difficulty being available when the court calls up their case for trial. the more they can be accommodated, the quicker and better proceedings will go. arbitration sessions can be scheduled at different times and places to accommodate them all.

Few triers of fact will have had experience with the facts. the specifics are frequently technical. Because the parties themselves select the trier of fact, they can search for individals with the credentials to fully and quickly understand the problem before them.

Few judges have had enough of these cases. Judges typically are not familiar with lien filing requirements; interpretation of surety bonds; UCC vs. common-law warranties, etc. Experienced construction arbitrators will know in an instant what you are talking about.

Lengthier hearings are tough on juries. Plus judges often won't commit multiple-week blocks of time to trials. with few exceptions, arbitrators will let the parties put on all their evidence.

Site inspections. there are many logistical reasons why most juries do not get on buses and go out to jobsites and climb up on the roof of stadiums to observe roofing conditions, yet it is not at all unusual for arbitrators to do exactly that.

Reasons not to arbitrate:
There is almost no right to appeal. G e n e r a l l y, t h e grounds for appeal are extremely limited and meant to be that way. however, in truth, the number of court decisions appealed is small, and the odds of their being reversed even smaller, so you aren't giving up much. oh, and what if you were the one who won in the arbitration?

There is a lot less "discovery." this means more to lawyers than to their clients. arbitration was intended to cut down on the time and expense of litigation, so discovery was discouraged and, in some cases, not permitted.

You have to pay filing fees. It is true that virtually all dispute resolution sponsors or organizations charge fees for their services (so do courts, but it comes out of your taxes). Some of these fees are high and bear no relation to the amount of work that the organization may have to do.

You have to pay the arbitrators. The additional cost of paying arbitrators can be high. three lawyers charging $300/hour for a two-week arbitration will run more than $70,000 — not counting study, travel or drafting time. where a dispute is small and a hearing can be scheduled quickly, the expense saved in not having discovery can offset the cost of the arbitrator's fee. where the dispute is large, and hundreds of thousands, if not millions, of dollars are involved, the price paid for people who are willing to dig in and understand the complex facts is a bargain.

You can't join others in the arbitration. Since arbitration is a voluntary process in which parties cannot be compelled to participate without their agreement, this can be a problem. It can be solved by drafting the contracts to allow all parties to be in the same room, however.

Arbitrators tend to give compromise decisions. this used to be more widely reported (or hypothesized) than of late, but it still comes up frequently — and leads to the objection to finality of decisions. Statistics amassed by the american arbitration association indicate that for aaa-administered arbitrations, there is very little evidence to show that this occurs. the majority of awards are all or nothing, based on the final presentations of the parties.

So, it may be that arbitration is better for you than going to court, but it sure is worth reading your contract and giving some thought to the issue rather than just assuming that it is always good or always bad for you.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., telephone 816/421-4800, e-mail to susan. [email protected].