When lawyers hear the words “alternative dispute resolution,” most of them immediately think of mediation. And why not? Mediation is a familiar process. It is one most litigators have a great deal of experience with and how most cases are resolved these days. It also provides the parties with the greatest degree of control they will have over the resolution of their claims.
The principal limitation on mediation is that, ultimately, the parties must agree. While good mediators can facilitate that result, it is not always achieved.
On the other hand, there is the less familiar, and less comfortable, process of arbitration. Many lawyers look at arbitration and try to stay as far away from it as possible. In my experience representing a large oilfield service company with an arbitration process as part of its conditions of employment, I have had plaintiff’s counsel dismiss claims after we have compelled arbitration. On at least a couple of occasions, counsel has told me that arbitration was “just too much trouble” and they “aren’t comfortable with it.”
However, when you understand how the entire arbitration process can work, you’re likely to see the many advantages that arbitration can provide.
Arbitration as a Creature of Contract
While most of the time mediation is entered into voluntarily, that’s not the case for arbitration. Arbitration is generally a creature of contract, and the courts generally favor the enforcement of arbitration contracts. Under the Federal Arbitration Act, arbitration agreements must be treated like any other contract and must be enforced unless there is some contractual infirmity that would affect any other contract present in the agreement having the arbitration provision.
For purposes of this article, we will assume that an arbitration agreement exists and that it is enforceable. With that in mind, let’s look at why some attorneys dislike arbitration — and why those attorneys may be misinformed.
Potential Advantages of Arbitration
So, why arbitrate? There are a number of reasons but generally arbitration gives practitioners more control over the proceedings than they may realize. Importantly, under most proceedings, there is the right to select the arbitrators or at least one of the arbitrators.
Generally, the parties can control how much discovery will occur, can limit the issues if agreed, and usually can control the timing of the hearing. That includes not needing to be on a docket and waiting to see if your case is reached. Overall, most of us would find this to be a much-preferred way to litigate.
Potential Drawbacks of Arbitration
There are some drawbacks. Plaintiff’s counsel may not like that there is no jury. A defense lawyer may perceive that arbitrators tend to “split the baby” and are hesitant to find entirely for one side. But both sides seem may be concerned that there is no effective way to have the arbitrator’s award reviewed in a meaningful way.
There is basis for the concern with respect to any judicial appellate review of an award. Under the FAA, the bases for a vacatur of an arbitrator’s award are generally focused on procedural integrity (eg., fraud, corruption or partiality), clerical type errors (e.g. errors of math or misnomer) rather than substantive error of fact or law. And, significantly, under the FAA the parties cannot agree by contract to expand those bases. It is the inability to get judicial relief from errors of fact or law that is one of the most frustrating aspects of a process that otherwise should be a quite useful method to resolve disputes when the parties cannot agree.
I have felt that frustration. I represented a client whose oil rig manager had harassed a new employee while both were working on an offshore location. The rig manager was a large man who had physically harassed and roughly treated employees in the guise of seeing if they were “tough enough” to work on an oil rig in the past. In this case, the rig manager injured the new employee, a much smaller man, when the former threw him down on the ground. Needless to say, the rig manager physically assaulting the new employee was outside the course and scope of the rig manager’s employment. The new employee brought claims against both the employer and the rig manager.
Because an arbitration provision was a part of the employee’s conditions of employment, the claims proceeded to arbitration. I successfully established that the rig manager was not within the course and scope and that the employer had policies prohibiting the actions of the rig manager. The arbitrator agreed that the employer had no direct liability but had vicarious liability for the actions of the rig manager without any explanation as to how the actions were within the rig manager’s course and scope of employment.
This was simply a misapplication of the facts and, due to the interplay of the relevant workers’ compensation scheme, he law. Unfortunately, there was no relief under judicial appeal for these errors, and the employer had to pay the award after it was reduced to judgment.
Options for Reviewing an Award
This result led the employer to look for some way to prevent this from happening again. Notably, the case law interpreting the Texas Arbitration Act (the Texas state law equivalent of the FAA) holds that the grounds for judicial review of arbitral awards can be expanded by the parties. Specifically, the parties can agree that arbitral awards can be reviewed by the appropriate appellate court for mistakes of law or fact. While this is one means of addressing the concern, it still has the issues endemic to appellate procedure, including everything from loss of control over briefing schedules, to creating a satisfactory record, to concerns about the appellate panel.
There is another approach that addresses the concerns about not being able to correct errors of the arbitrator without losing the other advantages of arbitration. That option is using an appellate review process available through the arbitration company. Some arbitration providers offer a panel of respected appellate specialists who can review the award for error. Within that process, the parties can, by agreement, set the parameters of the appellate review within the arbitration. And, of course, the parties will be able to agree on the reviewing appellate specialists.
Simply put, through contractual agreements, the parties can eliminate concerns about arbitrary or erroneous awards by preserving appellate review within the arbitration process or by judicial review. This is another consideration and factor to consider when determining whether arbitration may be an appropriate option for your case.
Tommy Smith is a mediator and arbitrator at Miles Mediation & Arbitration in Houston.