Arbitration vs. Litigation: Choosing Arbitration in Lieu of Litigation May Seem Appealing Given the Current Backlogs in Court, but One Should Understand the Protections that Are Relinquished by Making such a Choice.
By Sarah A. Johnson, Esq.
The shutdowns and delays caused by the COVID-19 pandemic have significantly increased the backlogs in civil courts across the country, leading to an even longer period between when a case is filed and when it proceeds to trial. Given such delays, parties may be tempted to revisit binding arbitration as a quicker route to resolution than civil litigation. However, prior to determining whether to engage in binding arbitration, the engineer should evaluate the pros and cons of arbitration (as opposed to litigation) with the engineer’s counsel.
Traditionally, arbitration has been lauded as a faster and cheaper method of dispute resolution than litigation. However, while arbitration by and large remains a faster method of dispute resolution, it is often not cheaper than litigation. This is because the parties generally must pay for the arbitrator’s time at a high hourly rate, which is often higher than the hourly rate they are paying their attorneys. In contrast, the parties typically do not pay for the judge’s time in litigation as the judge is paid by the municipality (with taxpayer dollars).
Another often touted benefit of arbitration is the opportunity to engage an arbitrator or arbitrators with subject area expertise. However, it is important to keep in mind that if the parties cannot agree on an arbitrator, both parties are likely to end up with an arbitrator that neither requested thrust upon them. In short, if the parties can agree on an arbitrator, then they are usually pleased with the selection. However, if they cannot agree on the arbitrator, then often neither party is pleased with the selection.
Further, the parties are placing their fate in the hands of the arbitrator(s) given that the rules of evidence often do not apply and/or are simply not followed in arbitration and there is typically no way to appeal the arbitrator’s decision if the arbitrator simply failed to apply the law correctly.1 Most attorneys can cite a handful of arbitration awards that they feel were the result of misapplication of the law or even an outcome determinative decision by the arbitrator rendered without consideration of the applicable law.
In most jurisdictions, the only grounds for vacating an arbitration award are as follows: the award was procured by corruption, fraud, or undue means; impartiality or misconduct by the arbitrator; the arbitrator exceeded their powers; the arbitrator refused to postpone a hearing upon good cause being shown or refused to hear material evidence; the arbitrator failed to disclose grounds for disqualification; and/or there was no agreement to arbitrate and such was timely objected to by the party seeking to vacate the award.2
Another purported benefit of arbitration is privacy as the documents used in arbitration are not public records and the documents filed in civil litigation are. However, after an arbitration award is rendered, the prevailing party usually files the arbitration award in court to obtain a judgment that is enforceable through the courts. Accordingly, the arbitration award may very well become public record unless the parties successfully move to seal the records.
It is important that engineers understand and evaluate what they are giving up in exchange for the expediency and limited privacy of arbitration if they agree to forgo litigation in favor of binding arbitration. We have seen an increase in arbitration clauses requiring parties to arbitrate claims only if they are below a certain threshold in value, such as where the amount at issue is less than $10,000, $50,000, or $100,000. This limitation on arbitration clauses may serve as a useful way of expediting some claims via arbitration without losing the ability to litigate the more expensive and serious claims.
Engineers should consult their local counsel prior to including an arbitration clause in their contracts.
1See e.g., Managed Care Ins. Consultants, Inc. v. United Healthcare Ins., 228 So.3d 588, 593 (Fla Ct. App. 2017 (finding that a claim of legal errors by the arbitration panel is not a ground to vacate an arbitration awards); Green Earth Tech Solutions, Inc. v. Gel Tech. Solutions, Inc., 150 So.3d 1200, 1202 (Fla Ct. App. 2014) (finding erroneous conclusion as to prevailing party is not a basis to reverse arbitration award); Edward Elect. v. Automation, Inc., 593 N.E.2d 833, 839 (Ill. App. Ct. 1992) (“[A]n arbitration award will not be vacated on the ground that the arbitrators misinterpreted the applicable law.”).
2710 Ill Comp. Stat. Ann. 5/12 (LexisNexis 2022); Cal. Civ. Proc. Code § 1282.2 (Deering 2022); Fla. Stat. Ann. § 682.13 (LexisNexis 2022).
