Should Arbitration Be Avoided At All Costs?

ENR has an interesting blog post about a panel discussion on claims held at the Structural Congress of the American Society of Civil Engineers in March where the topic of arbitration was discussed.

I know there remains a small but vocal anti-arbitration bias among  attorneys but I found the advice of the attorney on the panel particularly surprising and perhaps reckless.   According to the post, the attorney on the panel believed  that arbitration should be avoided at all costs and that “[t]welve unemployed postal workers” could reach a better decision “than the engineer and two lawyers on the arbitration panel.”   According to the post, the reason for the panel’s anti-arbitration fervor is:

When you sign a contract with a clause mandating binding arbitration, you also sign away your right to appeal the decision, excluding some extraordinary finding of misconduct on the part of the arbitrators. That’s also very bad.

Under arbitration, the arbitrators do not have to follow the law. That’s astounding and very bad!”

Are these reasons really so “so very bad” as to make a jury trial a more appealing (pun intended) route?  First, while it is true that under the Federal Arbitration Act – and most state arbitration statutes – your basis for overturning an arbitration award on appeal is limited to gross misconduct on part of the arbitration panel (fraud, corruption, evident partiality) or that the award rendered is unconscionable in some way, under the Seventh Amendment, a jury’s award is even more sacrosanct.

Second, the conclusion that arbitrators do not have to follow the law is misleading.  Arbitration panels “do not have to follow the law” any more than Judges do.  Presumably, the law that the panelists felt the arbitrators failed to follow was the law that their side wanted the panel to adopt.  Hardly, does a prevailing party leave an arbitration victorious but also wondering if the arbitrators reached their decision based on the law the prevailing party advocated or if they simple flipped a coin and decided.

I find that most of the anti-arbitration bias exists not because of the lack of appeal rights and arbitrators not following the law, but rather because defense attorneys cannot avail themselves of various procedural devices as part of a grind it out litigation strategy.  That same strategy includes appealing decisions on any and every procedural ground in order to craft a settlement more favorable than the verdict.  I also find that the bias exists because an attorney was embarrassed jilted by an arbitration panel in a case in which they were sure they would prevail.

In my opinion arbitration is still the preferred route in design and construction claims.  I like to think that my opinion is shared by a majority of construction attorneys.  My experience has been there is no indication that arbitration panels reach wrong decisions any more frequent than juries.  Moreover, while the costs has increased, an arbitration generally less expensive overall than a jury trial.  Finally, stripped of the potential for discovery disputes, it also breads a certain level of collegiality among opposing counsel.  For the most part, I have always had a better relationship with opposing counsel in an arbitration setting.

I am curious to hear what others think about the advice to avoid arbitration at all costs.

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