The Arbitration Debate

In general, the ground rules of arbitration are set by the arbitrator or the panel. Or, as is often the case, the parties will agree to proceed under the rules of an established organization, such as the National Arbitration Forum; JAMS, a provider of dispute-resolution services that’s particularly active in the western United States; or, most commonly, the New York City–based American Arbitration Association, which Holstein describes as “the granddaddy of the arbitration world.”

Arbitrators are generally paid by the hour; their fees typically are dictated by their experience and expertise. Arbitrators provided by the National Arbitration Forum, for example, command hourly rates ranging from $100 to $600, according to Haydock. The arbitrator bill typically is shared by defendant and plaintiff, unless the loser is instructed to pick up the tab.

In addition to paying for the arbitrator’s time, both sides of a dispute must cover their own attorney fees and the cost of conducting their discovery. Also, if an organization like the American Arbitration Association is chosen to administer the case, filing and service fees, which vary based on the dollar figure of the dispute, are assessed. “Say you have a $500,000 to $1 million case and you wanted to bring that to arbitration—there is a $6,000 filing fee and a $2,500 service fee. On top of that, you have to pay for the cost of the arbitrator’s time—let’s say that’s $250 to $350 an hour, which may be split—plus your own attorney fees,” McDonough says.

“Contrast that with going to Hennepin County to file your action,” she adds. “No matter what your damages are, the filing fee is $252, the jury is $75, and the judge is paid by your taxes. You don’t have to pay on an hourly basis for the use of the court system. So people think that arbitration is going to be cheaper, and that’s not necessarily true.”

Attorneys generally seem to agree that though the cost and duration of arbitration proceedings can rival that of court cases, those who decide to arbitrate typically can secure hearing dates quicker than they would if they were waiting on the court system. McDonough, for example, filed a case in Cook County, Illinois, four years ago, and a court date is still nowhere in sight. “You’re going to get to a resolution more quickly with arbitration,” Holstein says.

Case-by-Case Consideration

The bottom line is that the pros and cons of arbitration are circumstance dependent. So how do you know when you’re better off taking your case outside the courtroom? In many cases, the choice of arbitration is decided for you. Pre-dispute arbitration clauses are routinely included in such consumer and business-to-business literature as investment documents, employee or executive contracts, customer and vendor agreements, real estate and construction contracts, and joint-venture agreements or buy-sell agreements between owners of closely held businesses.