SCOTUS and the Mandatory Arbitration Revolution: Part 4/7 (Supposed Advantages of Arbitration)

Advantages of Mandatory Arbitration

Mandatory arbitration has often been praised as an effective decision to help eliminate much of the bloat occurring within the U.S. state and federal legal systems. According to its advocates, mandatory arbitration has several advantages over litigation which include (1) duration of time, (2) overall costs, (3) flexibility, (4) privacy/confidentiality, and (5) finality. The proclaimed successes of arbitration that have been derived from these advantages make it ultimately worth preserving and protecting. Advocates are thus ultimately supportive of the trend of Supreme Court rulings on arbitration.1

Time/Duration

A first claimed benefit is that the process of arbitration, generally speaking, takes less time than litigation because arbitration and litigation make use of different kinds of legal structures in rendering their decisions. For instance, arbitration does not utilize pre-trial motion practice and exhaustive discovery as is the case with the rules of civil procedures. Nor does arbitration draw upon the help of a jury; there is thus no jury interview process, something which saves both parties a significant amount of time. Similarly, arbitration is able to avoid many of the controversial issues that protract a civil case’s progress such as “evidentiary issues, voir dire, jury charges, proposed findings of fact, endless authentication of documents, qualification of experts, and cumulative witnesses.”2

According to the statistics gathered and analyzed by the American Arbitration Association (AAA) in 2008, the median length of time it took, from filing a request for arbitration to the final award, in domestic, commercial cases was about eight months.3 In comparison, in 2011, the median length of time it took, from filing through to the trial phase of a civil case was just shy of two years, often longer for some of the busier district courts.4 On a similar note, in 2011, the median length of time it took, from the filing of a civil case to the disposition of an appeal was two and a half years, also often longer some of the busier courts of appeal.5 All of these statistics paint a striking picture. Arbitration seems undoubtedly faster and more efficient as resolving disputes between a consumer and a business/corporation than litigation.

Costs Incurred

A second claimed benefit of arbitration is that it is, generally speaking, cheaper than litigation. Litigation requires the use of lawyers who may charge anywhere from hundreds to even thousands of dollars per day for their services. This is not to mention the cost of expert testimony, those witnesses who are also normally paid for their court involvement, which increases the amount of legal costs for the consumer.6 In addition, litigation’s procedures, as previously mentioned, take longer to complete which racks up more legal costs. Finally, with regards to litigation costs, there are other considerations such as the practical costs of traveling to court including, but limited to, missing work, hiring a babysitter for your children, making necessary travel arrangements (taxi, Uber/Lyft, public bus, etc. in the case that one does not own a car), and other relevant factors, that seem to make arbitration cheaper overall.7 So not only does arbitration speed up the dispute resolution process, but also it saves the consumers some money in comparison to litigation.

Another aspect of this lower cost benefit is that the increasing cost of litigation could, in theory, be passed on to the consumer indirectly.8 Since the business/company would have to spend more money on litigation, an expensive endeavor, it would have to increase prices or decrease costs (i.e. quality) of its good/service in order to be able to pay its legal fees and continue to, hopefully, turn a profit for its stakeholders (and shareholders if it is a socially responsible business/corporation). Thus, it is actually in consumers’ best interest to utilize and support arbitration efforts because they stand to gain from the coupons, savings, and various sales events associated with that particular business/company.

Structural Flexibility

A third claimed benefit of arbitration is its structural flexibility. Whereas litigation has a general set form for its proceedings (filing, discovery, trial, verdict, award), arbitration can be relatively more flexible to the needs/preferences of the two parties in dispute. The opportunity to decide together on the legal structures of their dispute resolution, so long as it is a part of their MAA, is a feature that is absent from litigation. To give a better idea, some of the legal features that can be modified in an arbitration proceeding are:9

  • where/when to meet (satisfying both sides’ schedules)
  • the nature/scope of discovery (e.g., whether to allow depositions)
  • how to conduct the proceeding (e.g. conference call, in-person, etc.)
  • how to gather witness/expert testimony (all at once, one immediately after another, etc.)
  • how to accept witness/expert testimony (e.g. written, rather than oral, statements)
  • whether to continue the arbitration after business hours (speeding up the process for both parties)
  • the allotted time for the entire process (satisfying both sides’ preferences)

All of this works to the alleged benefit of the consumer by reducing the overall incurred costs of time and money.10 Advocates of arbitration would also likely explain that this flexibility is valuable because it enhances the degree and scope of each party’s autonomy within the confines of non-judicial dispute resolution. Rather than having all of the elements of their proceeding chosen for them, both parties can select (wherever applicable), what they do and do not want to include, within certain confines of their arbitration proceeding.11 It seems, therefore, that both parties then have a better sense of “owning” the solution together based on this structural flexibility, something that is missing from litigation.12

Privacy/Confidentiality

A fourth claimed benefit of arbitration is its privacy/confidentiality. First, the arbitration proceedings themselves can be held in extremely private locations and do not have to be opened up to the public.13 Next, the arbitrator’s proceedings (notes, decisions, documents, evidence, etc.) are entirely confidential.14 The arbitrator has no post-arbitration interview or follow-up with any state or federal or public agency. He/she does not have to file any documents or evidence within the state or federal legal systems. He/she does not have to make anything available to the public afterwards, all of this in contrast to litigation.15 Finally, the only time the results of an arbitration are made public is when there is resulting litigation. As a result, there is a strong element of privacy/confidentiality of arbitration.16

Finality

A fifth and final claimed benefit of arbitration, according to its advocates, is its finality. Given that litigation appeals often take much time to processed, not to mention the interruption to the daily functioning of both individuals and businesses/corporations, one advantage of arbitration is that its verdict is final. There are only limited appeals to an arbitration-based award based on four grounds: fraud, arbitrator bias, arbitrator refusal to hear relevant evidence, and/or the arbitrator exceed his/her authority as set out in the arbitration agreement.17

For all of these reasons, as well as some others that have not been addressed here, advocates of arbitration have supported the Supreme Court’s expansive interpretation (i.e. judicial activism) of the Federal Arbitration Act. Advocates of arbitration see the increasing scope and degree of the FAA as a positive phenomenon that should be encouraged. Insofar as these advocates understand the situation, the benefits of arbitration outweigh the costs and the process of arbitration is more efficient at resolving disputes than litigation is. But is mandatory arbitration genuinely a better or more satisfactory option to litigation? I argue that it is not for numerous reasons.


Notes

1 Gross, “Justice Scalia’s Hat Trick,” 116.

 

2 Richard W. Evans, “What is Arbitration?,” (State Bar of Texas: 2015), 3.

 

3 Evans, “What is Arbitration?,” 2.

 

4 United States Courts, “Table C-5-U.S. District Courts–Civil Judicial Business,” Statistics and Reports, (published September 30, 2011, accessed February 13, 2018), http://www.uscourts.gov/statistics/table/c-5/judicial-business/2011/09/30.

 

5 United States Courts, “Table B-4-U.S. Court of Appeals Judicial Business,” Statistics and Reports, (published September 30, 2011, accessed February 13, 2018), http://www.uscourts.gov/uscourts/Statistics/JudicialBusiness/2011/appendices/B04Sep11.pdf.

 

6 Though some arbitration proceedings may involve expert testimony, depending on the case/circumstances, it is not always certain that there will be a need for it.

 

7 Advocates of arbitration will assert that these practical costs are alleviated, to some extent, by the next claimed benefit of arbitration (‘flexibility’).

 

8 Barnes, “How Mandatory Arbitration Agreements and Class Action Waivers Undermine Consumer Rights,” 341.

 

9 Even prior to the arbitration proceeding, both parties (so long as it is not stipulated to the contrary in their product or service contracts) can, in some cases, collectively decide on an arbitrator. This allows them to choose someone who is well-versed in the matter at hand. For example, arbitration involving a construction company’s service contract may result in both parties wanting an arbitrator with significant background, if not downright expertise, in construction industry based matters. This is just a deeper level of flexibility, conceptually and chronologically prior to the arbitration proceeding itself. Yet it must be noted this is not standard or uniform across the board. In fact, according to AAA’s internal arbitration procedures and rules, the arbitrator-selection process is much more limited.

 

10 Evans, “What is Arbitration?,” 4.

 

11 Ibid.

 

12 Due to the methodological limitation caused by the next ‘advantage’ of arbitration to be discussed (i.e. finality), there is a lack of non-anecdotal evidence to determine how often companies includes MACs that allow such customization and, conversely, how often they do not. Thus, there is an empirical vagueness about this claimed advantage that makes it difficult to corroborate or falsify.

 

13 Evans, “What is Arbitration?,” 5.

 

14 Ibid.

 

15 Aschen, “Tearing Down the Wall,” 63.

 

16 Though advocates of arbitration do not explicitly claim this, presumably out of fear of the consequences, this privacy concern pertains more to the business than the consumer. The business, in general, has more to lose economically and reputation wise than the consumer does. Anecdotally, think of how often major companies have gone under as a result of bad publicity and accompanying political/legal action. They have a strong interest in preventing the exposure of any negative information or data about them, their goods/services, and their employees.

 

17 9 U.S.C. §10.

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