Many agreements, such as franchise agreements, include provisions requiring arbitration in lieu of litigation. The rationale for that inclusion is the perception that arbitration offers a quicker resolution at less cost.
In a recent New York Law Journal article, Victoria A. Kummer opines that standard arbitration provisions do not guarantee “a speedy and inexpensive alternative to court proceedings.” Ms. Kummer argues that using boilerplate arbitration provisions may result in prolonged arbitration proceedings, resulting from extensive discovery and weeks or months of hearings, all of which can cost the participants upwards of millions of dollars.
Ms. Kummer suggests that contract parties should revise their arbitration provisions to clearly identify: (i) the forum (e.g. JAMS, AAA, etc.); (ii) the number of arbitrators; (iii) the powers of the arbitrator(s); (iv) the jurisdiction of choice; (v) applicable procedural limitations; (vi) discovery rules, obligations and limitations; (vii) the timing and nature of the proceedings; and (viii) the types of relief available to the parties. This results in a far lengthier arbitration provision, but one which in theory offers an outline for a procedure that brings the parties closer to what has been perceived as arbitration’s original advantages.
Our view is that Ms. Kummer is correct in her assessment of arbitration’s current flaws. There is no question that the traditional contractual arbitration boilerplate no longer works. However, in our practice we have moved away from arbitration provisions entirely. For the reasons stated in Ms. Kummer’s article and others, we do not recommend to our clients that their agreements provide for arbitration. We believe that litigation is no less predictable in its outcome and generally does not take longer nor cost more than arbitration.
We are concerned that providing for the detailed procedure in the agreement, as Ms. Kummer suggests, only serves to give the parties more to fight about. Obviously, there are issues and flaws in both dispute resolution approaches. We feel that an experienced litigator can achieve the best result for his or her clients in court.
We’d be interested in hearing what you think.