ARBITRATION
V. LITIGATION - WHICH SHOULD YOU FIGHT FOR?
By Daniel A. Platt, Partner, Katten Muchin Rosenman
LLP
At
some point in time, most businesses need to decide whether they
prefer arbitration provisions in their agreements or not. In order
to make an informed decision, and to make sure your lawyer understands
what your needs and interests are, there are a few basic issues,
which should be addressed. In order to make an informed decision,
you will need to understand the not only the nature of the agreement,
but how your company functions and what types of disputes are
most likely to occur.
Arbitration
v. Litigation
What Do
You Have To Hide?
Unfortunately, a lawsuit involves a public airing of dirty laundry.
Absent agreements to keep information confidential, any documents
filed in court proceedings become a matter of public record. If
you anticipate that certain information, which might become the
subject of a lawsuit is confidential or proprietary, or that there
is information which you would rather not be made public, a well-crafted
arbitration agreement is probably your best protection. That said,
you should be aware that any equitable relief, such as injunctions
and prejudgment writs, are usually available only through the
court.
Don't Be
Penny Wise And Pound Foolish
Many people believe that arbitration is less expensive than going
to court, and it usually is. Arbitrations tend to be less expensive
in relatively simple cases where extensive discovery in not necessary,
or in repetitive cases, such as consumer claims. However, in a
complex case, the parties must consider the cost of the arbitrator,
or panel of arbitrators, and, depending on what the terms of the
arbitration provision are, attorneys' fees may not be significantly
less. It should also be noted that just like in Court, attorneys'
fees are generally only recoverable by the prevailing party if
the agreement provides for it.
Things
to Consider If You Choose Arbitration
Not All
Arbitration Provisions Are Created Equally
There are many variables in arbitration agreements, including
the choice of the arbitrator, the number of arbitrators, the rules
of the arbitration, the law to be applied, the mediation process
preceding arbitration, and its scope. A properly drafted arbitration
clause needs to take into account all of the anticipated issues
discussed above, as well as an analysis of the various state laws
the parties can agree will apply.
There Are
No Rules
One of the advantages of arbitration to a conventional lawsuit
in court is that the parties can create any mechanism they choose
to litigate their disputes. These mechanism range from conventional
arbitration, to an arbitration before a panel of arbitrators,
to jury trials to binding mediation, as well as anything and everything
in between, including hybrids and multi-faceted approaches. Your
legal counsel is best able to understand the varying complexities
and will be well aware of all of the different approaches and
be able to guide you accordingly with input from you, the client,
on what you are trying to achieve.
Know Your
Audience
If your friends' eyes glaze over when you describe your next big
deal to them because they do not understand it due to technicalities
or complexities, you run the risk that a jury, or even a judge,
might not fully appreciate your brilliance as well. When dealing
with highly complex or technical issues, it is often wise to make
sure the parties to the agreement have some degree of control
over who will decide the dispute, as well as whether the matter
requires more than one arbitrator. This can be accomplished by
deciding in advance who the arbitrator(s) will be, who will decide,
or the process by which the arbitrator(s) will be selected. The
alternative dispute resolution services have rules for selecting
mediators and arbitrators, and those rules can be adopted by the
parties to a contract, modified, or replaced.
Choosing
An Arbitration Provider
When choosing to arbitrate a dispute, the parties can craft their
own dispute resolution process, they can choose a process off
the shelf by selecting an organization that has rules and procedures
in place, or they can agree to adapt an ADR organization's rules
to meet their needs. When selecting an ADR provider, in addition
to cost, one must consider the types of neutrals typically employed
by the service, e.g., lawyers, retired judges or industry experts,
the amount of discovery permissible, and whether it has a reputation
for making hard but firm decisions as compared to looking for
a middle ground, or splitting the baby. The two largest ADR providers
in California are Judicial Arbitration and Mediation Services,
known as JAMS, and the American Arbitration Association, knows
as the AAA.
So what
does all of this mean?
You should speak to your lawyer about including an arbitration
provision in your next agreement if:
- In the
event there is a lawsuit, you believe you are more likely to
be the defendant than the plaintiff.
- The contract
is one to which many people with whom you have no relationship
will be a party, such as a licensing agreement.
- The likely
subject of a lawsuit will require the finder of fact to have
a certain expertise few people possess.
- The likely
subject of a lawsuit is something you prefer to keep confidential.
You may want
to avoid an arbitration provision if:
- You believe
that in the event of a dispute, a jury is better suited to decide
your claims.
- You are
not concerned about confidentiality.
- The costs
of the litigation are worth the ability to conduct full discovery
and present the facts and theories to a judge or jury.
Daniel A. Platt is a partner at Katten Muchin Rosenman LLP. He
is a trial lawyer who represents companies in a vast array of
industries, including software, hardware, internet, search, aviation,
partnership disputes, contracts, banking, financial services,
real estate, healthcare and employment. Dan also has an entrepreneurial
background. Immediately prior to joining Katten Muchin Rosenman
LLP, he was President, Director and Executive Vice President of
two joint venture projects with United Technologies Corporation.
Those two companies collectively managed the largest transitioning
fleet of commercial aircraft in the world. Dan can be reached
in the Los Angeles office of Katten Muchin Rosenman, LLP, an AmLaw
Global 100 and BTI Top 30 Client Service law firm. Please feel
free to share your comments and thoughts. His email is daniel.platt@kattenlaw.com.
