Philadelphia Reflections

Arbitration

Arbitration

The choice of "arbitration" as a term to describe a legal process seems a strange one, since it conflicts with the ordinary use of "arbitrary" as equivalent to a decision made without the use of logic or precedence, and even with "arbitrage" which implies slipping between the cracks. Nevertheless, frequent use of the terms seems to keep their meanings usably separate, at least in a city like Philadelphia which has a lot of lawyers. At any rate, when a lawyer who specializes in arbitration recently agreed to discuss the subject before a recent meeting of the Right Angle Club, the room had very few empty seats.

Arbitrage

Arbitration settles the same sort of dispute as damage suits, except there is no jury, and the decision of the Arbiter/Judge is final, without appeal. Most of the cases concern disputes between an individual and a corporation, where the two disputants have previously voluntarily decided to do business with each other, but had a falling out because of some misunderstanding. This puts the corporation in a position to insist on using arbitration in the event of a dispute, and the customer has accepted this condition as a requirement of doing business. Although it is true that inclusion of such a requirement in a business contract is often unthinkingly accepted as part of a many-page fine-print boiler-plate provision, the requirement is so common it can often be regarded as well-understood. However, often it is not so well understood by a client, and more serious criticism is that the company writes the detailed language, specifying who the arbitrator is to be.

Arbitration Cases

Nevertheless, arbitration is cheaper and quicker than litigation, so the customer gets some real advantages from it, and the arbitrator generally is more expert in the subject matter than a random jury would be. In the event that a client is offered some choice of litigation in place of arbitration, he is often subjected to rather intense pressure to desist in the effort. Judges often quite openly admit they prefer a more rapid way to clear their calendar, and in the event of some technical complexity are even a little afraid to be drawn in over their heads by it. Right or wrong, when an arbitration decision is rendered, it is final. That is, there is no longer any danger a decision will be reversed on appeal. Most arbitration cases are disputes between investment broker/dealers, or commercial firms, and their clients, where the corporation has some hesitation in harming its commercial reputation by seeming to abuse clients. Therefore the situation tends to encourage a fair amount of brow-beating in order to get the client to sign some agreement that he has been satisfied.

In a sense, arbitration takes on the role of the Courts of Equity of an earlier era. A Court of Equity is designed to cope with a situation in which some obvious wrong exists, but no law exists to address it. As legislatures have had several centuries to pass legislation, Courts of Equity have lacked much use; in fact, the current problem is probably that we have too much legislation. Therefore it is probably true that more important cases end up as litigation, while more routine or commercial cases congregate in arbitration. A random jury serves the purpose of speaking on behalf of Society in an area where the legislature has already had a chance to express the overall attitudes of Society; a jury speaks for fairness, as our civilization views fairness to be. Since an arbitration judge generally concentrates in a certain type of case, he generally is fairly expert in the law of the subject, and it seems likely he renders a better opinion of the law surrounding that particular topic. Whether he renders a better opinion of the merits of the case probably depends on whether his expertise has expanded with experience or merely frozen with the passage of time.

Court of Equity

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When the lecture was over, it was time for questions from the audience. It appears that club members were mainly entranced by the question of whether the choice of arbitration or litigation leads to a better outcome. In one way or another, the same question got the same cluster of answers: arbitration is cheaper, quicker and more final. But the questions kept getting re-phrased in different ways: is the outcome more or less fair than litigation? Finally, one old codger had the floor. "It seems to me, sir, that the plaintiff generally only has one case in a lifetime, whereas the defendant corporation may have thousands of cases. And the defendant gets to pick the arbitrator. Doesn't that seem to create an incentive for the arbitrator to favor the company which can send him more business?"

And the answer came quickly back, "Well, that's how it is. Just suck it up."

As the group filed out of the room, several members told the old codger, "Your question was better than the answer."

Originally published: Tuesday, June 03, 2014; most-recently modified: Monday, May 13, 2019