What is arbitration?

You may have seen “arbitration” clauses in contracts and your practice might even include them in contracts that you enter into with employees, partners, vendors and others. These will often specify rules which may apply, such as “AAA Arbitration” rules. So, what is all this about?

In the old days, people used to settle disputes with pistols. President Andrew Jackson shot several people and even killed one in a duel in 1806, after Jackson was shot first in the chest by Charles Diskinson. In modern times, we do things with a bit more civility, but at a cost.

Court Resolution. If parties have a dispute, they can go to court. Anyone with roughly $300 can file a lawsuit against anybody, subject to having a judge throw the case out if it is unmeritorious. While the judge in a courtroom is paid by public dollars, the lawyers are paid by the litigants. There are rules regarding “discovery” which require a great deal of time and expense.

Court filings are also usually very public documents which can end up reported in news sources (divorce and family law case filings are more and more frequently, not available to the public, due to the often questionable allegations made by warring spouses and the fact that innocent children are involved.)

But for everyone else in commercial disputes, warring litigants can say pretty much anything they want in pleadings, without much fear of repercussions.Pleadings just have to pass what lawyers call the “laugh test” (you just have to be able to say it with a straight face.)

This can be a big problem in healthcare cases, where the allegations might draw attention of members of the local constabulary, rival businesses, medical boards and even the FBI.

Arbitration. Arbitration, on the other hand, is private and not open to the public. No one even knows it has been filed, other than the litigants. There must first be an agreement to arbitrate in a contract, such as an employment agreement. Parties can also agree to arbitrate after the fact, if there wasn’t an original agreement, but the parties then decide to go the arbitration route.

As far as cost, the arbitrator is paid by the parties, not the public. Therefore, it could be said that litigants must pay “two lawyers,” their own and the arbitrator. Usually, in a two party case, each party is responsible for half the arbitrator’s fee.

This is also a very good reason not to specify that there be three arbitrators in the panel.Only very, very affluent litigants can afford to have three arbitrators. It would be foolish to have three arbitrators in any case less than a million dollars. And you can so specify, that if the case involves less than a certain sum, there will only be one arbitrator.

But, under most rules in employment cases, the employer almost usually pay both sides, the employee’s part of the arbitration fee and its own. (Because employees are almost always broke and the employer is usually the one that wrote the contract, arbitration firms finally got wise and just made it a rule, that the employer has to pay the fee for the employee.)

Discovery is more limited in arbitration, which is part of the reason people like arbitration. It answers the old saying, that lawsuits aren’t tried anymore, so much as “discovered to death.”

Also, arbitration can be filed by filling out a form no more complicated than one of those little magazine subscription cards that always fall out into your lap at the dentist waiting room. Well, almost that easy. You don’t have to file a 100-page pleading (although you can.)

But, the best part is that arbitration can be over and done much more quickly than court case for one very simple reason. Arbitration trials almost always are tried when they are set. Not so in court cases.

In a court case, the parties could be set for trial as many as five to seven times, before the case is actually reached. The parties must pay their own lawyers to get ready each time this happens. This is because the court doesn’t know which cases will be settled. If the court only set one case per week, and that case settled, then the court would sit empty for the week. By setting five or more cases for trial every week, if two of the five settle, then the court still has three cases to chose from and it usually picks the oldest case to go first.

Arbitration, on the other hand, involves only one case per week and the arbitrator is usually a practicing lawyer. If the case settles, the arbitrator simply does some other work for his own clients that week, instead of trying the case.

Finally, there is usually no appeal from an arbitration decision. So, with few exceptions, the arbitration decision, and the litigation cost, is “final.” This can be very helpful both in holding down expenses and encouraging parties to seriously consider settling.

Martin Merritt is a health lawyer and health care litigator at Martin Merritt PLLC, as well as past president of the Texas Health Lawyers Association and past chairman of the Dallas Bar Association Health Law Section. He can be reached at Martin@martinmerritt.com.