The Arbitration Debate

•How substantial are the damages you’re seeking? Arbitrators and arbitration panels are notorious for “splitting the baby”—legalese used to describe the act of sending both parties home winners, to some degree, rather than definitively siding in favor of one side or another. “There is a pronounced tendency towards baby splitting,” Shroyer notes.

Wacholz adds that arbitrators also tend to shy away from making substantial financial awards to plaintiffs, or awarding punitive damages. “The top-end awards don’t seem to happen in arbitration very often,” he says. “If you really want to ring the bell big, juries are probably the way to go.” The reason, at least in part: Juries are capable of being swayed by emotion, or the so-called “sympathy factor.” Industry-expert arbitrators have a tendency to empathize with a defendant in their own industry and go easy on them in a settlement.

•Are you arbitrating for the right reasons? Arbitration agreements are flexible and can be tightly structured to be more fleet and require fewer funds than litigation. “You can make the arbitration process to be very simple and very inexpensive. If both sides agree, for example, your clause can say, ‘There will be a one-day discovery, it will be a one-day hearing, and the dispute will be resolved with binding arbitration in that one day,’” Wacholz says. “You can do that, but you run the risk of that perhaps not being a quality result for you. Have the factors that truly matter to doing justice, which is what everyone wants from this process, really been considered? Has the evidence been worked up in a way that’s reliable? Do you have adequate expertise at the table to make the decision? Have they had adequate time to hear what’s going on?

“It’s a tradeoff between the quality of the process and the quality of the decision you want,” he continues. “It’s not necessarily the case, of course, that the longer and more involved the process is, the better the quality of the decision will be. But there’s a threshold you’ve got to get to first.”