Infotech and the Law: Some conflicts do better without arbitration

Devon Hewitt

Over the past few years, there has been a big push toward arbitration and away from resolving disputes through traditional litigation processes. The common claim of alternative dispute resolution enthusiasts is that arbitration is faster and cheaper than litigation. But is arbitration indeed a more streamlined, economic method of resolving disputes than litigation?

Arbitration is a creature of contract. Instead of relying on the judicial system sponsored by the state or federal government, two contracting parties agree to rely on arbitration to resolve disputes arising out of performance. While the parties are generally free to determine the specifics of the arbitration process in the contract, most contracts instead state that the rules of a third-party arbitration organization, such as the American Arbitration Association, will govern the process.

In complex commercial cases, AAA rules allow the parties to adopt a process that can be as lengthy and costly as traditional litigation. For example, while it typically costs less than $200 to file a case before state or federal courts, the filing fees for an arbitration case filed with AAA can cost thousands of dollars. Parties to an arbitration must also pay the fees of the arbitrators mediating the case, and most of them charge a daily rate of more than $1,000. Accordingly, a panel of three arbitrators hearing a case for a week or more can generate significant costs, in addition to those generated by the attorneys and witnesses participating in the hearing.

Arbitration advocates are quick to point out that parties to an arbitration typically save money overall by eliminating the discovery process. Discovery involves the exchange of information and documents and can include taking depositions. The state and federal courts have rules that prescribe the time frames for submission and responses to requests for information and documents.

Discovery can involve a good deal of attorney time and can take several months or years, depending on the size of the case.

The AAA rules, however, allow the parties to request the same type of discovery that is allowed in state and federal courts. Most attorneys attempt to secure as much discovery as possible in order to better represent their clients at an arbitration hearing.

This tendency, combined with the fact that the arbitration rules allow more flexibility than standard court discovery rules, often results in parties in arbitration spending more time on discovery than would be typically allowed by a court.

Another advantage frequently associated with arbitration is that the parties can secure review of the case by a specialist in the field. But in a recent government contract case involving technology and security issues, the AAA provided a list of arbitrators, most of which specialized in construction law. Even if a party's arbitrator is a specialist in the field of the dispute, this advantage may be outweighed by the flexible nature of the arbitration process.

A trial judge is bound by rules governing the nature and type of evidence that may be considered in reaching a decision. Arbitrators are not required to be lawyers and are not required to consider cases before them within any type of evidentiary constraint.

Arbitration, therefore, is not necessarily faster or cheaper in large commercial cases. At the time a contract is executed, however, parties rarely know whether disputes will be large or small. In this situation, arbitration can be as much a gamble as traditional litigation. *

Devon Hewitt is a partner of Government Practices at ShawPittman in McLean, Va. She can be reached at devon.hewitt@shawpittman.com.

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