October 17, 2019 Feature

An Unhappy Bargain: The Downsides of Arbitration

The benefits of arbitration come at a price that can make it an unhappy bargain.

Katie Burghardt Kramer and Amiad Kushner

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Be careful what you wish for, lest it come true. And be forewarned: Arbitration is not the shimmering nirvana for parties in dispute. Yet, clients and their lawyers contract for it all the time and sometimes choose to submit to it even absent an agreement requiring that they do so.

While many have championed the cause of arbitration, arguing that it offers a streamlined, compelling, and economical alternative to litigation, that is true only to some extent. There are also some sneaky downsides and underappreciated risks, often ignored in the rush to embrace something other than the prospect of slogging through years of discovery and seemingly infinite pages of documents, with all of the resultant tedium and protracted motion practice.

We’ve all heard that one benefit of arbitration is that it is subject to only extremely narrow judicial review. In a word, it’s final.

That benefit carries a big price. There is no mechanism to reverse even the most egregious errors of fact or law by arbitrators. When you commit to arbitration, you’re agreeing to be bound by what may turn out to be—in the words of various courts—an “ugly,” “whacky,” or flat-out wrong decision.

As compared with a trial court decision that may be reversed by one or more levels of appellate courts, an arbitration award typically can’t be challenged on the merits. In fact, numerous courts have concluded that they were obligated to confirm arbitration awards that are simply wrong.

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