Arbitration: The Future of Litigation?

By Frank Johnson
Deputy City Attorney, City of Gaithersburg

Most of us are subject to using arbitration if we have a claim against an online or even in-person merchant, whether in using eBay or Amazon, or buying from anyone else. The same may be true for computer and electronics equipment, not to mention the telecommunication services making them operate.

Yet we may not realize how extensive the system of arbitration has become, as it has grown consistently since the 1925 U.S. Arbitration Act. In many ways, even while serving absolute needs, arbitration has grown into a private justice system rivaling the power of our more public court systems.

This is especially true given the U.S. Supreme Court holdings over the last several years that have strenuously supported arbitration agreements and preserving arbitration awards in many cases. In many ways, arbitration can be similar to a court proceeding, because specific procedural rules do apply.

The American Arbitration Association, a nonprofit providing one of the more extensively used platforms, has multiple sets of rules that apply to various proceedings, such as construction, consumer, employment, and commercial claims, to name a few. Yet another provider, known as JAMS (formerly known as the “Judicial Arbitration and Mediation Services”), claims to be the largest, handling 18,000 cases on average every year, worldwide.

Overall, each arbitration proceeding requires a claim, allows an answer, goes through some sort of discovery process, and results in a hearing, followed by an order as well, typically known as an arbitration award. Yet, unlike a court proceeding, arbitration is not publicly funded; instead, the parties have to pay the full costs.

Fees are thus required for the arbitration demand and administrative costs throughout the process, and can stretch into thousands of dollars. Additionally, the parties also have to pay the arbitrator or arbitrators directly, which can be an expensive prospect, especially when many participants are also represented by private attorneys.

It falls to the agreement establishing arbitration to determine whether parties pay a proportionate share or one party, such as the claimant, pays, though in many consumer claims the larger company pays. In an arbitration proceeding, there is also no guarantee that the law applies – unless the arbitration agreement specifies that (which it normally does, but not always).

Arbitration is also different than a court system, in which a judge typically issues an order at almost every level, as it depends to some extent on the agreement of the parties about aspects of the process — such where to hold the hearing, whether to use a panel or a single arbitrator, discovery timelines, and even the type of final award. The arbitrator will only issue a decision in that regard if the parties can’t agree. Arbitration is also unlike court in that, unlike having a judge appointed, each party will have some influence on who is selected to serve as the arbitrator, usually with the chance to review a list, veto any objectionable options, and rank the others.

Arbitration is generally a more private proceeding than that provided by a court, such that filings may or may not be public, and hearings are conducted in private. While some awards are publicly shared if the arbitration agreement allows, there is generally not the same system of court precedents and “stare decisis” that attorneys depend on in working through the court system.

Arbitration is also typically, by definition, binding. Thus, unlike a court proceeding, an arbitration award is typically not subject to any appeal, unless the agreement establishing arbitration specifically allows that. As a binding award, it is also typically not subject to revision on the merits; often the only revision permitted is to correct a technical, minor, clerical, typographical, or computational error.

Arbitration is a powerful tool that many of us depend upon in selling or buying products, online and otherwise, but it should not be taken for granted as simply another court proceeding – costs, publicity, and the right of appeal are prominent examples of significant differences from court proceedings.