What’s the difference between litigation and arbitration?
When your company has a dispute, there are many ways that it can be resolved short of filing a lawsuit. And, although litigation has its benefits in some situations, most businesses want to resolve disputes quietly and amicably whenever possible.
For many businesses, arbitration is often the first and best choice when conflict cannot be resolved through negotiations or mediation. In some cases, however, it may be necessary to file or defend a lawsuit. If your company has the choice between litigation or arbitration, you must know the differences.
Below, we will look at the difference between litigation and arbitration and why many businesses choose to arbitrate disputes, including:
- Speed of the proceedings,
- Publicity, and
Flexibility: Arbitration is More Flexible than Litigation
Once a lawsuit is filed, the parties are bound by the rules of civil procedure, the evidence rules, the court’s docket, and a judge’s schedule. The proceedings follow a strict format that cannot be changed – the rules are the rules, and, if you don’t follow them, your claims or defenses might fail on procedural grounds without ever reaching the merits of a case.
Arbitration tends to be more flexible, allowing the parties to choose:
- The arbitrator – the parties can choose an arbitrator who has some expertise in the area of dispute, rather than having a random judge assigned to their case,
- The rules that will govern the proceedings – the parties can choose the rules that will govern discovery, presentation of evidence, and other procedural matters,
- The length of time that the proceedings will take – where a lawsuit and subsequent appeals may take years, arbitration can be completed within months, and
- The time and location of the arbitration hearing and other meetings – instead of allowing the court’s docket to dictate the timing of court dates, hearings, and trial, the parties can agree on dates, times, and locations that fit their schedules.
The flexibility of arbitration also allows for problem solving and creative solutions. While an arbitrator must operate within the bounds of the law, they might also have the freedom to craft an equitable result that is more likely to satisfy both sides.
Predictability: Eliminating the X-Factor
Predictability may be the most important aspect of dispute resolution for businesses.
When a lawsuit is filed, there are several “x-factors” that may introduce an element of chaos into the proceedings. For example:
- Inexperienced judges: while parties to arbitration can choose an arbitrator who has some expertise in their field and the area of dispute, a random judge will be assigned to hear a lawsuit who is not likely to understand the complexities of your industry and who will be relying on the attorneys and expert witnesses to inform them,
- Inexperienced jurors: similarly, jurors at a trial are not likely to have expertise in your technical field, and they will be relying on the attorneys and witnesses to persuade them one way or another.
Jurors, and sometimes judges, are more likely to be influenced by appeals to emotion or by questionable claims presented in court, whereas an arbitrator is more likely to be grounded by their knowledge of the industry that gave rise to the dispute.
Appeals: Litigation can be Appealed, Arbitration Cannot
In most cases, arbitration is binding and cannot be appealed. Once the arbitrator has issued a decision, it’s over.
That finality is important to many businesses – it also provides predictability, speeds the process up, and keeps expenses lower. Litigation, on the other hand, can stretch on for years as the parties prepare for trial, litigate issues, try their case, appeal issues from the trial, and sometimes re-try their case.
Speed: Arbitration Moves Faster than Litigation
Many disputes involve sums of money, property, or other capital that the parties need to continue their business operations – when there is a dispute, the parties want it resolved now, not years from now.
Procedural disputes, extended discovery, motion practice, and the court’s docket can result in excessive delays before a case comes to trial – even if you don’t consider the time it takes for appeals and to retry a case when necessary.
Arbitration cuts through much of the gamesmanship and delay that is involved in litigation, and an arbitration hearing can be scheduled and completed within months instead of years.
Publicity: Court Filings and Trials are Public, Arbitration is Not
When you file a lawsuit, with few exceptions, it is a matter of public record. Each motion that is filed, every hearing that is held, and the trial itself are all a matter of public record. Reporters, bloggers, employees, and competitors all have access to most details of the proceedings, and the publicity can damage a company’s reputation and business dealings.
Plaintiff’s attorneys often attempt to use this publicity as leverage in their negotiations – even when allegations of misconduct or shady business dealings are untrue and cannot be proven, the fact that the allegations were made in a very public way can harm your company’s business interests.
Arbitration proceedings, on the other hand, are usually private. There are no public filings, and reporters, bloggers, or competitors cannot go to the courthouse and pull the formal pleadings that must be filed in a lawsuit.
Expense: Litigation Costs More than Arbitration
Litigation costs money:
- Attorney fees to draft and file pleadings, respond to pleadings, request and respond to discovery, conduct depositions, prepare for court hearings, argue matters in court, prepare for trial, try the case, and argue appeals,
- Expert witnesses and consultants to help the attorneys prepare the claims and defenses and to present your claims or defenses to the judge in court hearings and to jurors at trial,
- Employees and executives must assist the attorneys, appear at depositions, respond to discovery requests, attend strategy sessions, and appear at hearings and trial as witnesses and representatives of the company, and
- Other litigation expenses must be paid by the company, many of which may be unanticipated.
Arbitration also costs money, but the expense is significantly less than the costs of litigation. Arbitration usually involves less attorney time, less time spent by company employees, limited discovery, and a much shorter process than litigation.
What About Mediation?
Arbitration is not the only form of alternative dispute resolution that is available.
In many disputes, the parties may agree to use a mediator to resolve their differences.
Although mediation is not binding like arbitration, a trained mediator can often facilitate negotiation and help the parties come to an agreement without the need for arbitration or litigation.
Because a mediator is free to facilitate negotiations instead of just hearing evidence and making a decision, they might be able to help the parties find a solution that makes everyone happy. This could include creative solutions that can involve more than just one side paying money to the other side…
When the parties are willing to negotiate but have simply reached an impasse, mediation may be a way to reach a resolution amicably and more quickly than would be possible with arbitration or litigation.
Resolving Disputes Before They Arise
Effective dispute resolution begins long before a dispute arises, and many companies will include arbitration clauses or other forms of dispute resolution in their contracts with customers, other businesses, and service providers.
Unambiguous terms in your contracts are often enough to avoid disputes or to easily resolve disputes when they arise. When this is not enough, your company can:
- Resolve disputes quickly and quietly through negotiations with the other side,
- Request mediation for difficult disputes, and
- Resolve matters through arbitration, either by agreement or by enforcing an arbitration clause that was agreed to in your contracts.
Please feel free to contact any of our Murray Lobb attorneys with your litigation or arbitration questions so we can help you better protect all your commercial and contractual rights. We also remain available to draft any new contracts or others documents that you may currently require.