It is now commonplace to find an arbitration clause in a wide variety of contracts or agreements. Many consumer contracts now contain arbitration clauses. Contracts with doctors, cell phone providers, cable, satellite and video streaming services, banks, auto dealerships, banks, credit card companies and real estate sales are just a small sample of the many companies and transactions that may require arbitration of a dispute. Also, many statutes provide for mandatory arbitration of a dispute. (See California Civil Code §2860(c) providing for arbitration of fee disputes between an insurance carrier and independent counsel). Similarly, commercial business disputes are routinely arbitrated based on an arbitration clause in a contract between the businesses. Quite often, the parties elect to enter into an agreement to arbitrate after a dispute arises.
There are many virtues of arbitration. A significant one is the ability to select the decision maker or arbitrator. This can be particularly important if the parties desire to select an arbitrator with expertise in the subject matter of the dispute. By bypassing courtroom litigation and choosing an arbitrator, the parties may avoid a biased judge or jury that may be predisposed to rule in a certain way.
More often than not, arbitration is a less expensive and expeditious alternative to traditional civil litigation in court. Discovery is more limited and informal. Interrogatories and depositions are more restricted and may proceed only as authorized by the arbitrator. Also, motion practice is more streamlined. Arbitrators are usually accessible on an as needed basis. Motions can be decided promptly or eliminated altogether with a phone call to the arbitrator. There are very limited grounds to appeal an arbitration award, as opposed to a civil judgment that can be appealed on a wide variety of grounds. The arbitrator has greater scheduling flexibility than a civil judge, and that means the schedules of the parties and counsel can more easily be accommodated.
As for the hearing itself, the arbitrator will most often devote full consecutive days to the hearing, as opposed to a civil judge who must attend to other matters and may only have limited availability on any given day or week. In the arbitration hearing, evidentiary rules are relaxed with fewer restrictions on admissibility. The arbitrator separates the wheat from the chaff.
As a result of the above, the shelf life of an arbitrated matter is usually significantly less than a matter proceeding through the court system. As a general proposition, the shorter shelf life results in lower legal expense.
Furthermore, the parties can agree, (or the arbitrator may rule), that the arbitration and any award is private thereby avoiding any negative publicity to the parties that would be associated with a trial and judgment in civil court.
The above presents just a few of the many virtues of arbitration.
While not typically commonplace, it should be recognized that there are times where a complex commercial arbitration may become more like courtroom litigation. But in such instances, it may be that the nature of the case merits full-blown discovery, motion practice, and a longer hearing. After all, in some cases, the additional time and expense may be in the best interests of the parties. However, even where arbitration more closely resembles courtroom litigation, the many virtues of arbitration will generally outweigh proceeding with litigation in a civil court.