June 01, 2011

Reimagining Arbitration

Critics feel that arbitration has become as expensive and time-consuming as a trial, but an advocate argues that with rules that hold down costs and time spent, arbitration has a bright future.

Richard Chernick, Zela Claiborne

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The growth of commercial arbitration over the past three decades is principally attributable to the Supreme Court’s broad embrace of the arbitration process and its rejection of legal doctrines that attempt to limit its effective use. Arbitration was transformed in the 1980s and 1990s by a series of decisions interpreting the Federal Arbitration Act (FAA) that have made arbitration more accessible and its enforcement more predictable. This development in turn has encouraged business users to consider arbitration for many of their larger and more important disputes and has encouraged arbitrators and providers to promote arbitration as an effective alternative to the court system.

Popularity has not been without drawbacks. As counsel have become more sophisticated in dispute process design, arbitrations now often incorporate many elements of a court trial, which, in turn, has complicated the management and conduct of those proceedings. Litigation constructs such as pleadings, broad-based discovery, provisional relief, dispositive motions, and formal rules of evidence are now commonly a part of arbitration, as is the review of arbitration orders and awards on the merits and for procedural error. One only has to consider the number of process issues included in the 2000 revision of the Uniform Arbitration Act to see this dynamic change. This trend also explains why there are so many more decided cases addressing arbitration issues. Arbitration is now often referred to as the “new litigation” or by such portmanteau terms as “Litarbigation,” as recently featured in an advertisement for the JAMS arbitration practice.

One consequence of these changes has been increased expense and delay. Many traditional users of arbitration have realized that they cannot have their cake and eat it too. The more processes parties employ, the slower and more expensive the arbitration. It is even possible that such an arbitration will take as much time as, or more time than, equivalent court litigation. In these circumstances, where there is no effective right to appeal arbitral awards, the litigation choice may become preferable.

What has caused this shift of opinion about commercial arbitration, and what changes to the process will again make it a viable alternative to litigation?


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