Court vs. Arbitration: The Case for Each, and Neither
By Benny L. Kass
Saturday, June 30, 2007
reprinted courtesy Washington Post.com 7/1/07
Q: We bought our house about a year ago and recently discovered a number of defects that were not disclosed to us by the sellers. For example, we were told that the electricity had been upgraded, but it had not. We were also told that there was never a water problem in the basement, but some recent storms have flooded the downstairs. We have reason to believe that the sellers flat-out misrepresented facts in the disclosure form they gave us.
It will cost about $9,000 to repair these problems. We sent a demand letter to the sellers, and they have denied making any false statements. Our sales contract provides that any dispute between buyer and seller must first be mediated. Accordingly, we went to mediation, but without success.
The mediator suggested that instead of filing a lawsuit, we should go to binding arbitration. What is the difference between litigation and arbitration?
A: First, do you really want to spend a lot of time fighting over this? While I am not belittling the cost of your repairs, if you decide to retain a lawyer, the legal fees may well exceed your damages. Sometimes it pays to accept that you may have been misled, correct the problems and move on with your life. Sitting in a court -- or appearing before an arbitrator -- can be traumatic and frustrating.
Litigation is time-consuming and expensive. Courts have excessive case loads, and despite the efforts of judges and court administrators, litigation can drag on for years. And, as we saw recently in the infamous "missing pants" lawsuit, frivolous, vexatious lawsuits can also be brought -- even by judges.
Arbitration offers another path. If both parties to a dispute agree to take their case to binding arbitration, then, under most circumstances, the proceeding can be completed in less than a year, often in less than six months.
More corporations are requiring arbitration for consumer disputes. Courts are divided on whether such arbitration clauses in boilerplate contracts are valid and enforceable. Some courts take the position that unless the consumer fully understood the consequences of arbitration when he or she signed the contract, that clause cannot be enforced. Other courts have taken the opposite position.
However, when two parties have voluntarily entered into a contract that requires arbitration, in most cases the courts will not permit the dispute to be litigated.
If you are interested in arbitration, here is how it works: If you are using the American Arbitration Association, the leading organization in the field, you file your complaint with the association's local office. There is a fee that's based on the amount you claim.
The association assigns a caseworker to coordinate the proceedings. Both parties receive a list of about 20 potential arbitrators, with brief biographies of each. Either side can, for whatever reason (or no reason) cross off as many names as they wish. An arbitrator, or panel of three arbitrators, is selected from the remaining names.
The arbitrator submits a calendar to both parties, who cross off dates that are not available for the hearing. Once the arbitrator receives the list of available dates and determines approximately how much time the proceeding will take, a date is set.
Under some circumstances, the rules of the arbitration association permit the parties to engage in a form of discovery proceeding, whereby either side may pose questions that must promptly be answered in writing. Discovery is at the discretion of the arbitrator.
The arbitrator then conducts a relatively informal hearing. People often sit around a conference table at the local office of the arbitration association or in the arbitrator's office.
Once the arbitrator issues an opinion, it generally is binding on all sides. Case law is very clear that mandatory, binding arbitration will rarely be overruled by the courts. Courts will overturn the decision only if it was arbitrary or capricious.
I used to be a strong advocate of arbitration. Over the years, I have changed my mind.
For one thing, I used to think that arbitration was less expensive than litigation. However, several years ago, Public Citizen, a public-interest nonprofit organization, issued a report indicating that arbitration may be more expensive for consumers and employees than using the courts.
For example, arbitration may cost each participant several hundred dollars just to start the process; filing a suit in D.C. Superior Court costs you only $120.
Additionally, Public Citizen found, "arbitration saddles claimants with a plethora of extra fees that they would not be charged if they went to court."
But my concerns go beyond cost. In court, there are due-process protections afforded both sides that may not be available with arbitration. The rules of evidence -- no matter how archaic they may seem -- exclude certain information that has no place in court. For example, hearsay evidence, whereby one person testifies about what someone else said, is generally not admissible in court.
In an arbitration proceeding, however, the arbitrator usually admits all evidence from both sides. The rules are lax, and the arbitrator makes the call.
Another drawback is that the arbitrator is not required to file a written opinion. Often the arbitrator provides a one-paragraph decision, awarding money to one side or the other. The losing party should be entitled to know why he or she lost, but in the absence of a written explanation, parties can be confused and upset.
In a court, all of the parties in the litigation usually understand the rationale behind the judge's opinion -- whether or not they agree with the final order. The judge will either give an opinion from the bench with a lengthy explanation or write a comprehensive decision to accompany the court order.
Finally, one of the hallmarks of our legal system is the right to appeal a lower court's decision. Judges are human and can make mistakes. The appeals process gives the losing party another bite at the apple. The appellate court will not overrule the trial court's determination of facts but will carefully analyze the facts as they relate to legal principles.
Clearly, there is merit to arbitration in many instances. If a dispute is in the range of $5,000 to $20,000, it may not pay to spend the same amount of money in litigation.
Often, small-claims courts are the best means to resolve small disputes. You should check the amount for the small-claims court in the county or the city where you live.
In Maryland, Virginia and the District, small-claims court is available for disputes of $5,000 or less. Your claim is for $9,000. If you are willing to reduce your claim to $5,000, you do not need a lawyer to file in small-claims court. Often, the mere filing of the suit will spur the other side to try to reach a settlement.
Benny L. Kass is a Washington
lawyer. For a free copy of the booklet "A Guide to Settlement on Your New
Home," send a self-addressed stamped envelope to Benny L. Kass, 1050
17th St. NW, Suite 1100, Washington, D.C. 20036.
Readers may also send questions to him at that address or contact him through
his Web site, http:/
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