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Litigation: Avoiding the Arbitration Trap | Inside Counsel

August 31, 2010 By Leave a Comment

Courts, bar associations, alternative dispute resolution organizations and private attorneys who serve as arbitrators all frequently laud the benefits of contractual arbitration. Obviously, each has his own financial or institutional bias for encouraging alternative dispute resolutions (ADR); therefore, they frequently describe arbitration as less costly, more efficient and ideally suited for a prompt resolution of disputes with guaranteed finality—a preferable alternative to formal litigation. Unless the contractual arbitration clause is drafted clearly and thoughtfully, however, the risks of arbitration for most corporate clients outweigh the rewards.

I offer no statistical proof for the following hypothesis, only anecdotal experience from more than 20 years of practicing in complex civil litigation in state and federal court systems and in all types of arbitration proceedings: Arbitrations are almost invariably more expensive for parties; less certain and far more contentious than judge-supervised litigation; and, of course, the results are almost never reviewable.  Rules (to the extent that any are actually intended to apply) are often flouted, delays are the norm, arbitrator and ADR-facilitator billing is virtually unreviewable, and the results are unpredictable and often based on erroneous and uncorrectable interpretations of law and fact.

via Litigation: Avoiding the Arbitration Trap.

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Commentary: Will the Supreme Court let corporate America judge itself? | McClatchy

April 12, 2010 By Leave a Comment

Suppose you buy a new house that turns out to be plagued by toxic mold. The home builder refuses to make repairs. You want to sue, but you learn that the fine print of your purchase contract requires you to arbitrate your dispute.

It also requires you to cough up an enormous fee – let’s say $50,000 – before going to arbitration. And, worst of all, it turns out that the arbitrator works for the local association of home builders. He gets paid by the home builders and he relies on their repeat business. The deck is stacked against you.

Outrageous, right? Under current law, consumers and workers can go to court and ask a judge to find the arbitration agreement “unconscionable” and therefore unenforceable.

But depending how the U.S. Supreme Court rules in Rent-A-Center v. Jackson, which it hears April 26, consumers and workers might not have that option much longer. Instead, guess who would rule on whether the arbitration clause was too outrageous to enforce?

The company’s arbitrator.

That's right. The question presented to the Supreme Court in Rent-A-Center is, essentially: Can a corporation’s hand-picked arbitrator decide whether it is fair for the company to hand-pick its arbitrator?

A conflict of interest? You bet. And given that research shows arbitration overwhelmingly favors the company over the consumer, this tightening of the rules would give Corporate America yet another advantage over consumers, employees, franchisees and others who sign arbitration clauses, often without even realizing it. Citizens would have no other place to turn.

Recently, in Citizens United v. Federal Election Commission, the Supreme Court dramatically expanded corporate rights. In decreeing that corporations have a First Amendment right to spend unlimited amounts of money to influence elections, the court in January upended a century of precedent and gave corporations a much bigger voice in government than “We, the People.”

Now, in Rent-A-Center, the court could again stack the deck in the battle between average citizens and powerful corporations. The court is expected to issue a decision by the end of June.

Many others are concerned about the outcome of this case; a broad coalition of civil rights groups, labor unions and consumer advocacy organizations – everything from Lawyers’ Committee for Civil Rights Under Law and the National Women’s Law Center to Consumer Action) – have filed friend-of-the-court briefs. Even 23 prominent professional arbitrators and arbitration scholars, including arbitrators for Major League Baseball and the National Basketball Association, agree that arbitrators shouldn’t decide whether the arbitration process itself is fair. Instead, they say, courts must step in to prevent abuses.

via Commentary: Will the Supreme Court let corporate America judge itself? | McClatchy.

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Drafting International Arbitration Clauses – IBA Draft Guidelines Published | Kluwer Arbitration Blog

March 25, 2010 By

Given that the arbitration clause is often relegated to the status of boiler-plate during contractual negotiations, it will come as no surprise that arbitration clauses may be inadequately drafted. While not every clause will be so deficient as to be ‘pathological’, many readers of this blog will have first-hand experience of dealing with the fall-out from an arbitration clause which has suffered from ambiguities in drafting or a lack of comprehensiveness of thought.

The ‘IBA Guidelines for Drafting International Arbitration Clauses’, recently published in draft form (at http://www.ibanet.org/LPD/Dispute_Resolution_Section/Arbitration/Default.aspx) will surely improve appreciation of the complexities surrounding this indispensible clause. The draft Guidelines are the IBA’s latest addition in their growing, influential contribution to international arbitration, already comprising the ‘Guidelines on Conflicts of Interest in International Arbitration’, the ‘Rules on the Taking of Evidence in International Arbitration’ and ‘Rules of Ethics for International Arbitrators. The draft Guidelines are now open for comment from the wider international arbitration community.

The Guidelines comprise a series of rules or ‘guidelines’, followed by model clauses which put into practice the advice given in relation to each of the Guidelines. The Guidelines are wide-reaching in scope and not only offer advice in relation to generic arbitration clauses, but also deal with more specific clauses and situations, including multi-tier dispute resolution clauses, arbitration clauses for multi-party contracts, and arbitration clauses in the multi-contract context.

One recurring theme is the need for certainty and to agree on as many elements in the arbitration clause as possible in advance, rather than waiting for a dispute to materialise when agreement between the parties on such matters may be less forthcoming. The greater degree of certainty embodied in a comprehensive arbitration clause allows the parties to consider the strategy to adopt in resolving disputes and, in theory at least, a more efficient means to obtaining a final and binding decision.

via Kluwer Arbitration Blog » Blog Archive » Drafting International Arbitration Clauses – IBA Draft Guidelines Published.

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How Developing World Businesses Can Make American Arbitration Work for Them – Legal

January 5, 2010 By Leave a Comment

As the volume of business transacted between the developing and developed world businesses grows, so too does the need for a fair and efficient process for resolving disputes arising therefrom. Frequently, American businesses demand that an arbitration clause be included in business contracts so that any dispute will be resolved in a United States arbitration forum. Developing world businesses might be suspicious of this demand and assume that the process must favor the U.S. party: Why else would a U.S. Fortune 500 company demand arbitration under the auspices of an American arbitration organization?

A closer look, however, reveals that American arbitration can offer several advantages for the developing world business, among them, flexibility, efficiency, fairness and knowledgeable adjudicators. However, these advantages are attainable only if the developing country business identifies its particular needs and negotiates a process that meets them.

U.S. LAW SUPPORTS AND ENCOURAGES ARBITRATION

The United States is several decades ahead of most other countries in developing an arbitration system that courts and the business community trust and support. Over the last half century, laws have been enacted and courts have issued rulings that encourage parties to resolve their business disputes through arbitration. American courts read arbitration clauses broadly and routinely enforce them. American courts rarely overturn an arbitral result, doing so only where fraud or some other extreme deficiency has corrupted the process. Finally, U.S. courts generally enforce arbitral awards, giving it the same dignity and legitimacy as a court-entered judgment.

via How Developing World Businesses Can Make American Arbitration Work for Them – Legal.

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