Many contracts today, particularly in the construction arena, contain clauses that require the parties to arbitrate rather than litigate any dispute arising out of the contract. A typical arbitration clause will state that “all claims and disputes arising under or relating to this contract are to be settled by binding arbitration.” In certain instances, the clause also will specify that the parties must use the rules and procedures of a particular arbitral body, such as the American Arbitration Association (“AAA”).
At its core, arbitration is an alternative form of dispute resolution in which the parties select a neutral third party to hear the evidence in their dispute and then render a decision. The arbitrator serves as the judge and, typically, the arbitrator’s decision is binding upon both parties with very limited rights of appeal.
If a contract contains an arbitration clause, and if the language of the clause covers the dispute, then litigation in court is not an option. If a party does try to file a lawsuit in court, the other party to the contract likely will ask the court to refer the case to arbitration. Courts in almost every case immediately will do so, as a very strong presumption in the law exists in favor of enforcing arbitration clauses.
Arbitration differs significantly from litigation in court in several respects. The following are some of the advantages and disadvantages to arbitration versus litigation:
- The speed to resolution of a dispute in an arbitration case is considerably faster than litigation. A typical court case takes a least one year to reach trial. Most arbitrations, particularly for smaller cases, will take less than half that time.
- The parties have a great deal of control over the arbitration process, beginning with the selection of the third party neutral who will serve as the judge for the case. Parties may agree on an arbitrator who has particular expertise in the area of their dispute, such as construction contracts or commercial disputes. In a court case, parties have no say over who will hear their case.
- Parties also work with the arbitrator to set the schedule for the proceeding, its location, the amount and timing of pre-hearing discovery, and the level of detail the parties want the arbitrator to include in his or her written decision. In a court case, statutes and rules govern these details, with little or no chance for input from the parties.
- The arbitration process itself is less formal than a court proceeding. For example, evidentiary rules are relaxed, allowing the parties to have their documents seen and testimony heard by the arbitrator more easily than before a judge.
- An arbitration is a private proceeding, whereas a court case takes place in public, with court filings typically available to anyone.
- Courts have the power to enforce arbitrator’s awards of money and other damages.
- The costs of an arbitration can be significant compared to a court case. For example, the filing fee for a civil complaint in the D.C. Superior Court is $120. In contrast, the AAA requires payment of filing fees that depend on the size of the case. For example, the filing fee for a case with less with than $75,000 in damages is $925, and the administrative final fee is $800. For cases involving damages of between $150,000-$300,000, the AAA charges a filing fee of $2,900 and a final administrative fee of $2,200.
- In addition, the parties typically must split payment for the arbitrator’s fee, which the arbitrator usually charges by the hour, plus his or her expenses.
- Third party discovery is very difficult in an arbitration. If a party needs documents or testimony from an unwilling person or entity not in the case, the arbitrator’s power to compel that party or entity to cooperate is very limited. In a court case, the party seeking the materials or testimony has the subpoena power of the court to rely upon.
- The grounds for appeal of an arbitrator’s decision are very narrow. Vacating an arbitrator’s decision requires showing a court that the arbitrator acted corruptly, in an overtly biased manner, or greatly exceeded his or her authority. Courts are very reluctant to vacate an arbitrator’s decision.
At Antonoplos & Associates, we have a great deal of experience litigating matters both in court and in an arbitration setting. If your contract has an arbitration clause in it, we can help you successfully navigate what’s next. For more information regarding contract litigation and arbitration contact us at 202-803-5676 or schedule a complimentary consultation through our website.
Authored by: John Letteri, Esq. Mr. Letteri is a senior counsel with Antonoplos & Associates and has almost 30 years of experience with all aspects of a wide range of complex commercial litigation, including cases involving banking, securities, and real estate matters.