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Last Rev. 10/29/16 10:50am

Choosing between Litigation and Arbitration

Years ago, it was true that arbitration generally was less costly than litigation (in the courts). The same is not true today in many instances. First of all, I want to alert you to the problem of mandated arbitration resulting from form agreements, such as with your securities broker or other provider of products or services. Many of them put a mandatory arbitration provision in their agreements for customers to sign, and in such cases the selected arbitration service has an inherent bias in favor of the company providing so much business to the arbitration service. The arbitration service or the selected arbitrators are or may be fearful of losing the business if they provide too much justice to the persons such as yourself who in rare instances are forced into arbitrating differences with the brokerage firm or other institutional organization. The brokerage firm probably has 500 arbitrations in progress at any one time, and that represents a huge amount of income for the arbitration service and the individual arbitrators who sign up to provide paid services as arbitrators when selected. You, the newcomer, don't know how any specific proposed arbitrator has been deciding cases, but the brokerage firm knows, and will now select an arbitrator who can be expected to render favorable decisions to an aggrieved customer.

There is another matter, however, and that is that arbitration has now reached the level of compliance with legal niceties such as discovery and rules of law so that the cost of arbitration from the standpoint of fees paid to arbitrators has reached huge proportions, far outside of the pocketbook of the party who thinks that arbitration will be a way of saving money. If you are able to obtain a lawyer on a contingent-fee basis, in whole or in part, you have to seriously look at the schedule of fees for the arbitrator service and see if you can afford 100 hours of arbitrator services at a cost of $400 per hour or something like that. 100 x $400 = $40,000, and you would be required to pay 50% of that amount. This is shocking, but true. The price of arbitration may now be exceeding its value. Form has prevailed over substance in the world of arbitration.

What happens if a defendant is unable to pay these costs? The plaintiff would have to pay all of the costs to continue the arbitration and the defendant would not be allowed, more than likely, to maintain any counterclaims.