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The Uncertainty of Binding Arbitration

  • By: Robert Klein

I recently tried a case before the American Arbitration Association that was submitted to binding arbitration based upon a contract between the parties. The contract was for construction services and contained an arbitration clause which essentially stated that any dispute arising out of the contract was to be subject to binding arbitration before the American Arbitration Association.

At the conclusion of the arbitration I felt that submitting disputes to binding arbitration can be less predictable and riskier than having a jury decide the case. The reason I felt that way is because the arbitrator does not have to follow California law but can decide the case anyway he or she sees fit. I was defending a breach of contract action and felt certain I should prevail based upon the facts and law. However, I sensed the arbitrator was going to rule against us for equitable reasons. If he had done so, he would have essentially rewritten the contract between my client and the claimant.

To my surprise and delight the arbitrator ruled in our favor but it made me question whether I would advise clients to sign arbitration agreements and to waive the right to a trial by jury.

Here are some of the pros and cons. It is often thought arbitration is less expensive. That may not always be true. I have seen arbitrator fees ranging from $400 to $600 per hour. In the court system you do not have to pay the judge to hear your case.

Often times you have no right to conduct discovery in arbitrations. While discovery can be expensive, without discovery you are shooting in the dark and can be surprised or ambushed at the arbitration. You may be presented with documents you never knew existed and you will need to cross examine witnesses without the benefit of taking a deposition.

In jury trials you have a judge who will decide if certain evidence will be excluded in what is known as motions in limine. This allows the judge to exclude irrelevant or overly prejudicial evidence. This way the jury never hears evidence that could result in an unfair verdict because it is not directly relevant in deciding the dispute. The judge also reads detailed jury instructions on the law to the jurors and tells them it is their obligation to follow the law. In arbitration you do not know if the arbitrator will follow the law which it makes the outcome less predictable.

Arbitrations are binding meaning there is no right to appeal. In a jury trial if the court made an error or if the jury verdict is not supported by the evidence at least you have the court of appeal to correct any mistakes. You do not have that in arbitration.

One should consider all these issues before agreeing to submitting disputes to binding arbitration.

Robert Klein

About the Author Attorney Robert Klein is a former CPA and known for
finding creative solutions to complex business lawsuits.