The Death of Arbitration?

Apr 24, 2018

By Tom Lerner | Related Practices: Litigation

Seattle is blessed with a wealth of smart, thoughtful, experienced arbitrators, and this article offers no criticism of any of them.  Indeed, the best remaining reason for choosing to arbitrate is the opportunity to choose an individual from that community to adjudicate your case.  Unlike with Superior Court, you will have one person follow your case from beginning to end, without need for periodic re-education on the dispute, or concern that in 6 months someone else will rotate in to take their place. 

Gavel

The thesis for this article, however, is that the other primary reasons for choosing arbitration have largely been undermined by the manner in which the process has evolved.  In addition to selection of an adjudicator, the principal advantages of arbitration have long been held to be (a) cost efficiency; (b) privacy and (c) speed.  Whether much of that still holds true in a metropolitan area like Seattle is worth debate [1].

Cost efficiency 

Whether arbitration is any more cost-efficient than bringing the dispute to Superior Court largely depends upon the rules governing discovery and motion practice.  Notwithstanding, if the parties inform the arbitrator that a fair presentation of the case requires at least some discovery, the arbitrator will likely permit the parties to negotiate reasonable discovery parameters. In a more complex case, the scope of discovery is likely to widen.  In these days of electronic data storage, there are added outside costs inherent in being sure that a thorough search for responsive documents has been performed, and a searchable database of relevant documents is preserved.  

This is also true in Superior Court cases.  In most instances, parties will seek to scale the discovery to the nature and dollar amount of the dispute.  Viewed in that light, it is not the forum that promotes cost efficiency, but responsible lawyering. One additional consideration is that unlike in Superior Court, if your case is governed by the Federal Arbitration Act, the arbitrator will not have authority to order a third party to produce documents as part of prehearing discovery.  CVS Health Corp. v. Vividus LLC, 878 F.3rd 703 (9th Cir. 2017).  A subpoena may still issue to a third party, but your first look at the documents will be limited to during an arbitration hearing.  Id. 

An arbitration clause offers no certainty that you will avoid the Superior Court or Court of Appeals.  A threshold question with arbitration provisions is whether they are enforceable.  Challenges to arbitration clauses arise based on procedural and substantive unconscionability, e.g. Zuver v. Airtouch Commc'ns, Inc., 153 Wn.2d 293 (2004); Adler v. Fred Lind Manor, 153 Wn.2d 331, (2004) or involve subject matter that is preempted by the Federal Arbitration Act.  See AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011); Gandee v. LDL Freedom Enterprises, Inc., 176 Wn.2d 598 (2013). 

An added cost factor is that the arbitrators chosen to decide your case are entitled to be paid a reasonable fee for their time and effort.  Being an arbitrator only looks easy, after all, but it is not.  The gravitas of an arbitrator comes at a higher price, and AAA administrative fees (for example) add another layer of cost.  With all that in mind, is arbitration of commercial cases truly more cost-efficient than litigation in Superior Court? 

With the exception of very narrow issues around confirmation of an award, another virtue of arbitration is that it eliminates the prospect and costs of an appeal. This is no small thing, but the countervailing consideration is that the risk of an appeal does serve as a constraint against overreaching or even a lack of diligence in the development of a record.  In short, the risk of an appeal being brought may lead to better lawyering.  But not every adjudicated case is fully litigated through trial, and fewer still are appealed.  In that light, the value of avoidance of an appeal can easily be overstated. 

Privacy 

In 2017, aside from federal court litigation over the Trump immigration bans, the most high-profile lawsuit filed in King County was the litigation involving former Mayor Ed Murray.  The second most high-profile case was the $17.5 million arbitration award in favor of Dr. David Newell against Swedish Hospital.  The Swedish Hospital case got front page coverage in the Seattle Times and the truly interested could continue to follow the case as it made its way into Superior Court as Swedish challenged confirmation of the arbitration award.  There was no shortage of public information about the dispute between Dr. Newell and Swedish Hospital, and the choice of arbitration spared neither of them from publicity. 

While the Swedish case was an anomaly, the typical Superior Court case draws no more attention than does the typical arbitration case.  Nor does an arbitration requirement offer any certainty that one will avoid a visit to the courthouse—to compel arbitration or later, to enforce an award.  So, how valuable is the prospect of a private dispute resolution process, if either the fact of the dispute or its outcomes are a matter of public record? 

Speed

Not long ago, the time from filing to trial in King County was 18 months.  Through enhanced case management methods, the Court has reduced that time period to about a year.  For a case with a reasonable amount of discovery, scheduling coordination and case management, the time from commencement of an arbitration case to trial may be no quicker.  Can cases proceed to trial on a faster track?  Less complicated cases certainly can, and for those cases, the cost of going to trial weighs more heavily in favor of a pretrial resolution, with or without the aid of a mediator. 

Arbitration Clauses

Often, mandatory arbitration clauses are drafted into contracts by attorneys with neither the experience nor desire to litigate. For a process that is designed to require a specific form of adjudicated dispute resolution, the result is that mandatory arbitration clauses are often silent or ambiguous about what rules should govern a dispute, and almost always silent regarding discovery.  Rather, sometimes an arbitration agency may be identified and its rules adopted.  Sometimes, there is a mix of arbitration agencies with rules imported from elsewhere.  Sometimes, the agreement is silent on how the arbitration should proceed at all. 

Even in contentious cases, parties are typically able to agree on an arbitrator who all agree is capable, neutral and fair.  Thus, the easiest part of this is the selection of an arbitrator.  Discussions then migrate into the procedural issues.  Will the trial court Rules of Evidence apply or will they only apply in some modified form that lets all information come in to be weighed by the arbitrator as to its authenticity, provenance and credibility?  There are reasons for rules about hearsay evidence, and there are also ways to address those rules.  None of these are unsolvable questions, but add another layer of procedural issues to be resolved.  By comparison, in Superior Court, the rules are well known and need not be bargained over from the outset. 

Conclusion 

None of this means we should stop arbitrating cases.  It does suggest, however, that we should strongly reconsider the tendency to include mandatory arbitration clauses in all sorts of contracts, whether they are LLC Operating Agreements, employment agreements or service contracts.  Each agreement merits its own analysis—is arbitration the right vehicle for resolving disputes in this agreement?  Should arbitration be triggered only above certain dollar levels?  Are some disputes better left to the Courts?  Is the public airing of bad conduct its own antiseptic? 

As noted at the outset, the best remaining reason to choose to arbitrate is the quality of the arbitrators available in our community.  The corollary to that, regrettably, is that for those with a choice, the decision to arbitrate often reflects a lack of confidence in the suitability of judges to adjudicate complex civil disputes.  Because of cost, happenstance, habit or expediency, only a tiny fraction of civil disputes filed in court are resolved at trial.  The heaviest load carried by Superior Court judges is the criminal docket, and as a result, it is often criminal law practitioners who are drawn to judicial service. When the confidence of the civil law community in our judges’ abilities to adjudicate civil cases equals the confidence in our arbitrators, a new balance may be struck.


[1] Different dynamics exist in smaller communities, where fewer judges are available to move both civil and criminal dockets, the community of skilled arbitrators may be smaller, and courthouse news may get more local press attention.