The headline of a recent article on Lexology grabbed my attention: “How to Guarantee the HOA Can’t Litigate the Condo Construction Defect Claims.” The authors’ means to preventing litigation of construction defect claims was even more intriguing: arbitration clauses.
How can arbitration clauses guarantee that no ligation over construction defect claims occurs? It can’t. Arbitration is litigation just decided in a different forum. Like many, the authors appear to misunderstand what arbitration is and what the parties can expect.
The misunderstanding of the arbitration process leads to a misguided bias for and against the process. In construction defect cases, plaintiff’s counsel, in particular, bristle at the prospect of arbitrating a construction defect claim clinging to the belief that juries render larger awards. On the other hand, defense counsel champion arbitration as a means to chill potential claims, snuff out allegedly frivolous claims, and to avoid the unhinged damages awards of juries. These misplaced beliefs are grounded in a lack of understanding of the arbitration process and certain myths regarding arbitration.
Myth #1: A Jury Will Give Me A Larger Damage Award.
In the early 1990′s, Professor Ted Eisenberg of Cornell Law School published a famous law review article that examined plaintiff success rates and damage awards in jury trials and bench (Judge) trials. To the surprise of many, the Professor Eisenberg’s revealed that plaintiffs won more frequently and received larger average awards in bench trials. Despite empirically data to the contrary, there remains a widespread perception that jury awards are larger.
This misconception extends to arbitration panels. Among many plaintiff’s attorneys, arbitrators are more disfavored than judges. However, as those regularly litigating construction disputes in arbitration already know, arbitration panels regularly award extremely large damage awards.
Myth #2: Arbitration Is Too Expensive Up Front.
It is true that the fees to initiate an arbitration proceeding are larger compared to the fees for filing a complaint in state or federal court. Alas, litigation expenses are not limited to the initial cost of filing suit. The overwhelming amount of attorneys fees in litigation are spent on discovery (interrogatories, document production and review, and depositions). In arbitration, discovery is either limited by statute or agreement of the parties. The result is usually a cost saving for the parties.
There is also a costs savings to be appreciated at the “trial” portion of the arbitration. Because the rules of evidence and procedure are relaxed (that does not mean not followed it means relaxed) the hearings are run more efficiently. Moreover, particularly in construction defect cases, the parties benefit from the experience of the arbitration panel when it come time to explain technical areas of the construction critical to the claims. Obviously, it is much more efficient, and thereby costs less, to have an expert explain a technical area related to the construction of an certain portion of the structure to a panel of arbitrators, who is likely already familiar with the terminology and methods described, than it is a jury, who likely has no experience with construction.
Finally, there are very few grounds for appeal of an arbitration award (much to the chagrin of those opposed to arbitration). These efficiencies result (usually) in a lower overall litigation cost to the parties involved.
Myth #3: Arbitration Panels Are Defense Biased.
As someone who has been on litigated cases in front of a panel of arbitrators on behalf of both claimants (in arbitration plaintiffs are called claimants) and defendants (in arbitration defendants are called respondents), I can attest that is certainly not the case. I am unclear where this mistaken belief comes from. However, I suspect that it comes from the unfamiliarity with the process and litigation folklore. The fact is a good case, a good expert, and a good presentation yield good results no matter what the forum.
All of this is not to suggest arbitration is perfect. However, it is certainly not the judicial purgatory as some believe it is.