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Arbitration vs. Litigation: Choosing the Best Forum for Your Legal Dispute

By Heidi Culbertson

March 25, 2019   Colorado Blog

In theory, every legal dispute should be decided in a manner that focuses on the law and the facts of the case. It should not matter who is deciding the matter nor in what kind of environment the case is being heard. But in practice, the individuals who are appointed to decide the matter, and where the case is heard, can render a significant difference in the outcome.  In this post, we discuss some of the “pros” and “cons” of arbitration vs. court trial.

Arbitration vs. Litigation: Choosing the Best Forum for Your Legal Dispute

Arbitration

Arbitration is a private, confidential, and out-of-court alternative method of dispute resolution where the parties seeking resolution mutually agree on an impartial third party who will decide the matter. By agreeing to arbitration, the parties agree to waive their constitutional right to a trial by jury. The arbitrator considers the arguments of both parties, reviews the evidence provided, and seeks to make a decision that is fair and equitable. Unless otherwise agreed, the arbitrator’s decision is legally binding and cannot be appealed, except in very limited circumstances.

Litigation

Litigation is a formal process where the legal matter is brought before a court of law and, often, a jury. Litigation is a public proceeding before a judge in the district with jurisdiction over the matter.  Litigation can be a “bench trial” wherein the Judge renders his or her decision on the issue after considering the arguments, evidence, and facts presented by the lawyers who represent the parties. Litigation can also be a “jury trial” wherein the Judge supervises a jury of the parties’ peers in making the decision.  Following a trial, certain errors in the process can be appealed by the litigants.

Advantages and Disadvantages

Both litigation and arbitration have advantages and disadvantages depending on the specifics of the legal matter and the needs of the parties involved.  Choosing the “right” method of dispute resolution depends entirely on the strategy needed to obtain the best possible outcome. There is no “one size fits all” model and no clear cut formula that clearly identifies the best forum for your legal matter, but consulting with a highly experienced business and commercial litigation attorney will help you to consider your options and choose the best strategy for your case.

Arbitrations are generally more costly than court litigation, but they are private and often-times concluded more rapidly.  Court litigation is subject to the Rules of Procedure and Evidence and affords an appeal if appropriate, while arbitrations do not necessarily follow the Rules and have limited appeal rights.  Jury trials are an important part of our justice system and are not available in arbitrations.  There are many factors to be considered in deciding on whether or not to proceed with arbitration or a court proceeding.

Jury trials are a process whereby members of the community who do not know the parties and have no stake in the outcome of the dispute decide the facts, based on the law as the judge instructs them, and returns a verdict.  Civil jury trials are “the great equalizer” between those with power and money and those without.  Civil jury trials allow the humble consumer to have her/his “day in court” just like whatever corporation or person of means may be on the other side of the case.  Jury trials depend on common citizens – a jury of “peers” to the parties to the lawsuit – to hear, evaluate, and decide the case.

Understanding Your Legal Rights When Signing Contractual Agreements

Arbitration provisions have become more common and now appear regularly in contractual agreements that employees and consumers sign every day. Over the past several years arbitration has become a common option as an alternative method of dispute resolution.  As noted above, arbitrations do not offer a trial by jury.

The Costs of Resolving Your Dispute

Although banks and business entities often claim that arbitration is a more efficient and less costly process for consumer claims, what many people do not know is that the arbitration costs can exceed the costs of litigation.  When you combine the fees of an arbitrator, or in complex cases, a tribunal of arbitrators, with ongoing administrative costs, and the fees for administrative agents, lawyers, and professional experts, the costs associated with arbitration can be even greater than having your case heard before a court of law.

Should you Waive Your Right to Litigation?

Arbitration offers an alternative method of dispute resolution to litigation, but consumers and employees are encouraged to consider many factors before signing documents that waive their rights to have a legal dispute heard before a court of law. Before you sign an agreement with an arbitration clause, you should consider the pros and cons of each forum. In the event that you need to file a legal claim, it is important to understand your options so you can structure your legal strategy and maximize your opportunity to achieve your objectives.

To Arbitrate or Litigate? That is the Question

When choosing litigation vs. arbitration for your legal matter, it is important to discuss the advantages and disadvantages of each forum with your attorney.

Some Key Differences Between Arbitration and Litigation

The Process

  • Arbitration is an out-of-court alternative method of dispute resolution. A neutral third party is appointed to study the dispute, consider the arguments of the parties, and then make a final decision.
  • Litigation is a legal process in which the parties conduct the proceedings in a court of law for the trial of disputes before a judge and jury.

Public vs. Private

  • Arbitration proceedings between the two parties can be private, informal, and the final resolution is confidential.
  • Litigation is a highly formalized process conducted in a public courtroom, and the final resolution is part of public record.

Location

  • In arbitration, the parties seeking resolution mutually decide on the location of the forum.
  • Litigation takes place in a courtroom in the venue having jurisdiction over the dispute. Litigation may be conducted in State, local, or Federal courtrooms.

Time Frame

  • The arbitration process typically provides a faster resolution than court proceedings.  Once the arbitrator has been selected, the case can generally be heard quickly and reach final resolution within a period of months.
  • Conversely, the time it takes for a litigation case to progress from filing to decision in the court system can generally take from 12 to 18 months, and in some cases much longer.

Flexibility

  • Arbitration has some flexibility for the arbiter and the parties to agree on the mechanism for conducting the arbitration. Arbitrations often have limited discovery, streamlined rules for presenting evidence, and schedules designed to accommodate the parties and witnesses.  Further, the parties often have some input into selection of the 3rd party (the arbiter) who will decide the case.
  • Litigation is generally controlled by statutory and procedural rules and guidelines, and the proceedings are handled by a judge according to the court rules and the court’s schedule. Judges are assigned to the case.

Rules of Evidence

  • Generally, an arbitrator has the flexibility to accept evidence without rigid application of the Rules of Evidence. An Arbitration is a proceeding in equity, and so the arbiter is required to consider “fairness” when making her/his decision.
  • Litigation requires compliance with all Rules of Court, as well as all statutes and regulations applicable to the claims and defenses. Detailed procedure is set out for conducting litigation, both before and during trial.    In general, when cases are heard before a court of law, decisions are based on the law as set out in statutes, cases, and rules, and the procedure is governed by the rules of evidence and procedure.

Disclosure

  • The rules governing arbitration usually provide for some limited kind of pre-hearing disclosures, but typically do not allow for the kind of “discovery” found in civil trials. Most arbitrations are not transcribed, although the parties and arbiter have the flexibility to agree on a “record”.
  • In litigation, discovery is the pre-trial phase that adheres to the rules of civil procedure where each party thoroughly investigates the facts of a case and obtains admissible evidence from the opposing party. Most jury or court trials are “on the record”, so if judicial error occurs, it is possible to file an appeal and ask that the court’s decision be reviewed by a higher court.

The Decision-Maker

  • In matters of arbitration, the arbitrator is agreed upon by the parties to decide the matter. Many arbitrators are selected based on their expert knowledge and experience within a specific industry. Others are chosen for their depth of understanding regarding legal process, i.e., former judges or highly experienced attorneys.
  • In matters of litigation, a judge, who is assigned by the court, will decide the outcome of the case.

Arbitrator vs. Judge

The soundness of an adjudication can be significantly influenced by the quality and potential bias of the decision-maker.

  • In an arbitration, the parties involved are afforded the opportunity to jointly select a neutral decision maker who will preside throughout the entire process and decide the case. In appropriate cases, a panel of multiple arbiters can be appointed (typically three), but this obviously increases the cost of the arbitration.  While the parties can request arbitrators with certain qualifications, there are no guarantees about the training and experience of the individual who will preside over the arbitration.  The panel from which an arbiter may be selected may be extensive, or it may be limited, and that fact alone may have a significant impact on who is selected to sit as an arbiter.  Often arbiters have industry-specific experience, which can mean that they have a bias or opinion about the matters to be arbitrated.
  • When the dispute is litigated in a court of law, a judge is assigned by the court without the input from either party. During the litigation process, there may be multiple judges who are involved in adjudicating pre-trial disputes. The Judicial Officer may have experience in the area of the dispute, or may not.  When a jury is empaneled, their level of knowledge and sophistication may influence the decision they render.

Expertise

Arbitrators are often selected from industry experts, i.e., a group of experienced professionals who bring a greater degree of case-specific or subject-specific expertise to the case than a judge, whose expertise is in law. Arbitrators are sometimes case experts who have more practical experience specific to a particular subject than a judge may have, and have an increased capability to comprehend the issues and scrutinize the liability and damages claims that are specific to the legal matter.  Of course, with experience comes experiences, and so the closer the decision-maker is to the subject the more likely s/he is to have opinions about the matter in dispute.

Recourse

  • The decision made by the arbitrator is final and binding. Unless otherwise agreed, the parties to an arbitration generally have limited rights of appeal. Reasons for an appeal, for example, could include fraud or bias in the conduct of the arbitrator. But, even though an appeals clause exists, it may be difficult to overturn the arbitrator’s final decision because many arbitration proceedings are not recorded or transcribed.
  • Although trial court verdicts are not easily reversed, judges occasionally make legal errors. Those who choose to litigate their legal matter have the right to request a review of a decision by an appellate panel. This is an important procedural safeguard provided by the United States legal system that apply to matters of litigation.

Leveling the Playing Field

  • There can be a “take-it-or-leave-it” aspect that exists within mandatory arbitration clauses of many contractual agreements. These clauses limit the consumer’s ability to seek justice against businesses and financial institutions and generally favor the large corporation. The employee or consumer is often placed in a less-than-desirable position of having to face a powerful, experienced, and more resourceful adversary. Arbitration clauses in contracts are often enforced.
  • However, in the absence of an agreement to arbitrate, when consumers are confronted with “David and Goliath” situations, they have a fundamental right to have their legal matter heard by a judge and a jury of their peers. Having a case heard before a court of law can level the playing field between an individual and a deep-pocketed corporation. Additionally, it is the opinion of these authors that the jury system is one of the greatest safeguards provided by American jurisprudence.

Choosing a Legal Strategy: Don’t Bring a Knife to a Gunfight

Arbitration may offer a viable alternative to litigation, but consumers should consider many factors before signing documents that waive their right to have their case heard before a court of law. When you and your attorney are deciding whether to arbitrate or litigate your legal matter, it is important to consider the pros and cons of each forum, so you can structure your legal strategy and maximize your opportunity for a successful outcome.

Discuss your legal matter with a Burg Simpson attorney who has had years of experience in mediation, arbitration, and litigation. The Colorado commercial litigation lawyers at Burg Simpson will meet with you and discuss the details of your dispute, and your rights and options. Contact us at Burg Simpson for a FREE CONSULTATION as soon as possible by calling 303-792-5595.

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Shareholders David P. Hersh and David K. TeSelle are trial lawyers who chair the Burg Simpson business and commercial department. Mr. Hersh and Mr. TeSelle handle legal matters associated with litigation and arbitration.

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