Arbitration? Not So Fast My Friend!

Arbitration is supposed to provide a cheap and inexpensive forum to resolve disputes.

The reality is that it can be slow and expensive like traditional litigation.

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Why is arbitration not as fast as it is supposed to be?

First, there are often disputes over whether a claim  is arbitrable.   This is  true when an individual sues a corporation.  Typically, the corporation wants to arbitrate and the individual wants to litigate in state court.  This results in litigation over arbitrability in the trial court or can lead to a federal court action to compel arbitration.

State court trial judges are sometimes reluctant to compel arbitration, and if a party moves to compel arbitration and loses, they will be faced with a slow and expensive appellate process.  I have had cases where the trial judge denied a motion to compel arbitration, the intermediate trial  court compelled arbitration and on a writ of certiorari the Mississippi Supreme Court found the claims not to be arbitrable.  This process took more than two years and was very expensive.

A recent federal court case illustrates how long even a federal action to compel arbitration can last.  In  Douglas v. Regions Bank, 757 F. 3d 460(5th Cir. 2014)  a bank customer sued the bank.  In response,  the Bank filed  motion to compel arbitration of the plaintiff’s claims.  The trial court ruled that the claims were not arbitrable and three judge panel of the fifth Circuit ruled that the claims were not arbitrable.

The arbitration agreement at issue contained a “delegation clause” in the arbitration agreement that required that the issue of arbitrability be decided by an arbitrator.   The Fifth Circuit ruled that the delegation clause did not apply where the Bank’s contention that her claims fell within the scope of the arbitration agreement was wholly groundless.  Undeterred, the Bank has asked for en banc consideration by the full Fifth Circuit.  The initial case was filed in 2012, so arbitrability has now been litigated for over two  years.

Another issue is delay in the actual process of selecting arbitrators and setting hearing dates.  Clever lawyers can gum up the arbitrator selection process which delays the start of the process.  I have also had lawyers raise  innumerable  “conflicts” that push the hearing date well out into the future.  Arbitrators  can be  reluctant to push on these kinds of issues(they might not get picked again if they step on toes) and don’t have the leverage of judges in pushing matters to resolution.

How can you speed arbitration up?

To speed things along, use abritration provisions that only require 1 arbitrator(and add in the AAA optional appellate rules in case you get a crazy result).  Additionally, set a time deadline to have a hearing and/or use expedited procedures.  Finally, consider using a delegation clause.  This might help, but it can lead to satellite litigation like in the Douglas case cited above.

Update your arbitration agreements

It is important for businesses to have updated arbitration agreements in place to make sure they are drafted in a fashion that leads to the fastest resolution possible, while adding the safety net of the new appellate rules that are now available.

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