ADR -- Part II:  Arbitration
A Legal Moment

Alternative Dispute Resolution -- Part II:  Arbitration

   In this second installment1 of our series discussing alternative dispute resolution, we discuss a forum frequently required in form contracts including construction projects and insurance agreements, among others.

   Arbitration is the private, judicial resolution of a dispute.  In an arbitration, rather than litigating their dispute in a court of law, the disputing parties delegate their power to decide the dispute to one or more arbitrators.  Dissimilar to voluntary settlement agreements reached in mediation or after negotiations, the arbitrator(s) decision is, generally, final and binding.
    An independent third-party (“the arbitrator”) reviews and presides over an abbreviated presentation of the parties’ positions. The independent third-party in an arbitration hearing may be simply one arbitrator or a panel of arbitrators.  An arbitration panel typically consists of three arbitrators but any number of arbitrators may be utilized as set forth in the arbitration agreement ‒ usually, there is an odd number of arbitrators on the panel in the interest of avoiding a tie.

Commencement of Proceedings

   Arbitration is usually initiated by the request of one party (the “claimant”).  Although the process of arbitration differs among cases, the following is a summary of the main events or steps one can expect to occur in an arbitration proceeding:
   Arbitrators are appointed in one of three ways: (1) directly by the disputing parties; (2) by other existing Arbitrator panel members (e.g. each side appoints one arbitrator and then the two arbitrators jointly appoint a third arbitrator); or (3) by an external party or association (e.g., the court, the Better Business Bureau or the American Arbitration Association). 
   Once selected, the arbitrator(s) will typically conduct a pre-arbitration meeting with the parties and legal counsel, to identify the issues and discuss the process, rules and timetable for the arbitration hearing. The claimant sets out a summary of the matters in dispute and the remedy sought in a “statement of claim.” The statement of claim informs the responding party (the respondent) what needs to be resolved or answered. It summarizes the claimant’s allegations, but does not include the evidence through which the allegations may be proven. The “statement of response” from the other party (the “respondent”) is to admit or deny the claimant’s allegations. The respondent may also assert a counterclaim, which in turn requires a reply from the claimant.

Abbreviated Discovery

   The arbitrator(s) may allow the parties to conduct discovery through interrogatories and/or depositions, but discovery is usually limited in scope and breadth as compared to litigation.  At a minimum, each party will identify and list all relevant documents in their control. The parties may then ‘inspect’ the discovered documents and agree upon a selection of documents for the arbitrator(s). The documents are exchanged and given to the arbitrator(s) to review prior to the hearing.

The Hearing

   Generally speaking, an arbitration typically involves a hearing at which the parties put forward their respective cases while the arbitrator listens and considers any oral statements by the parties or their counsel, physical evidence, and witness testimony, asking for clarification of certain allegations or positions. 
   A hearing may be avoided if the parties agree that the issues can be dealt with entirely from the evidentiary documents.  In that case Counsel for the respective parties will submit to the arbitrator a summary of their evidence, the applicable laws, and what they request to be the ruling. These submissions may be made orally, in writing, or both.
   Subsequent to the hearing, the arbitrator is charged with reviewing all of the relevant documents, statements, testimony and other information, and then making the decision (called the “award”).  The arbitrator will write the award which may include a summary of the proceedings and basis for the decision (a “reasoned” award) or simply state the final ruling without rationale (a “summary” award).

Pros and Cons

   As is the case with any forum utilized to resolve conflict, there are pros and cons to arbitration. Proponents of arbitration point to a number of advantages it may offer over trials and court hearings.  By agreeing to the general procedure and tending to substantially participate in the presentation of their position, the parties may find themselves working together peaceably rather than litigating with increasing hostility as often arises in formal court litigation.
   Generally, arbitration tends to be faster than a court proceeding:  it typically takes between 12 to 15 months to resolve a dispute in arbitration compared to taking 18 months to three years to resolve the dispute by trial before a judge and a jury.  Additionally, unlike court proceedings, which must be calendared and structured into the court’s trial and work-day schedules, arbitrators can work with the parties to be flexible in scheduling and the presentation of the evidence.
   Another “pro” is that arbitration proceedings are generally held in private. And parties sometimes agree to keep the proceedings and terms of the final resolution confidential. Both of these safeguards can be a boon if the subject matter of the dispute might cause some embarrassment or reveal private information, such as a company's client list.
   Being aware of the possible “cons” of arbitration may help you make an informed decision regarding whether to arbitrate a dispute. For example, a binding arbitration decision is extremely hard to overturn on appeal. If the arbitrator's decision is unfair or illogical, the losing party may well be stuck with it and barred forever from airing the underlying claim in court.
   Another concern is that the process of choosing the arbitrator(s) is not an objective one. One side or the other may advocate for a certain arbitrator, especially where the possible arbitrators are drawn from a discrete pool of potential decision-makers. Additionally, an arbitrator chosen by a party within an industry may be less objective, and more likely to be biased in favor of the commercial party.
   As mentioned, the fact that arbitration hearings are generally held in private ‒ although typically considered a benefit ‒ in some situations this very lack of transparency may render the process more likely to be tainted or biased. 
   Finally, while there is general agreement that arbitration is less costly than litigation, its costs are increasing. According to a recent survey by Public Citizen, a consumer watchdog group, the cost of initiating an arbitration is significantly higher than the cost of filing a lawsuit:  $6,650 to $11,625 to initiate a consumer claim worth $80,000 in arbitration versus $221 to file that same action in a particular county court. Add to that the arbitrator's fees -- multiplied by three if a panel is involved -- and the process appears to be less of a bargain.
   Arbitration now appears to be the method of choice in form contracts signed by consumers and merchants, internet providers and e-merchants, as well as construction contracts and employment/labor disputes. In North Carolina, matters before the superior court are required to undergo mediation; however, arbitration may be substituted for mediation by the agreement of the parties.
   You should contact an attorney of your choice before determining if arbitration is suitable for your dispute or if you find yourself in an arbitration proceeding. Our seasoned attorneys at Marshall, Roth & Gregory have substantial experience in arbitration and have also served as arbitrators in certain matters.

     1 See Part 1: Mediation.

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Clifford C. ("Kip") Marshall is a trial attorney with, and President of, Marshall, Roth & Gregory, PC.  Recognized as a "Best Lawyer"™ (Government Relations Practice) for the past six years -- most recently in 2017 -- Kip's practice encompasses all forms of land and title litigation, commercial litigation and catastrophic injury.
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