This article presents a structure for determining if litigation or arbitration is the better path for the resolution of a given dispute. We refer to a court adjudication as “litigation” and a private adjudication by, typically, one or three arbitrators as “arbitration.” The dispute resolution procedures are similar between the two, but there are differences that could be important. Although litigation is the default, and you do not often get to choose, there are times when you will be called on to decide whether to opt for litigation or arbitration. How will you approach that decision?

LITIGATION V. ARBITRATION

Here is a suggestion. Think about which aspects of your dispute are most important to your client and, based on these priorities, decide which of the two forums offers the benefits that matter. For example, is it more important that your adversary feels the threat of your claims, or would you prefer a confidential and relatively quick proceeding? Here are some aspects of litigation versus arbitration that might help you make your choice.

KEY LITIGATION ADVANTAGES

• Intimidation: Few cases make it to trial. Often, the act of filing a lawsuit is enough to bring about a settlement. It is fair to assume that a recipient of a complaint will be more nervous about that lawsuit than he would be had he received an arbitration demand. There is something about the weight of tradition and governmental power that makes litigation feel more significant than arbitration. If you wish to intimidate your opponent into an early (and, perhaps, more favorable) settlement, litigation may be the better course.
• Compulsion: If your opponent wishes to avoid or delay a dispute, you are better off in litigation than arbitration, as it is easier to get a court to take compulsory action — like forcing a party to appear or follow a schedule — than it is to get an arbitrator to do so. If you have reason to believe that your adversary (or adversary’s counsel) will play games, a courtroom can be better than a private office.
• Appeal: You have the right to appeal a trial court decision. Although one technically can appeal an arbitration decision to a court, arbitration decisions will only be set aside for a few limited reasons. As humans are fallible, the right to appeal can be important. If you want a second bite of the apple, lean toward litigation. But note that an appeal in arbitration may be less important considering that you and your adversary get to choose the decision-maker.
• Precedent/Public: You may want your dispute to be public and to set a precedent so that you do not have to relitigate the same dispute repeatedly. For example, a purchaser who makes clear through litigation that it will not accept price increases can use publicly available material from that litigation to dissuade future suppliers from trying to get a price increase.
• Juries: Our judicial system is not perfect, but it is pretty amazing. On any given day, you have a group of six to twelve strangers sitting in a courtroom and deciding the fate of a person or company. Although juries have been known to make baffling decisions, there is a comfort in having multiple people who consider and debate the significance of the evidence. This might be attractive in comparison to a single arbitrator or even a panel of three, where personal biases can — sometimes unconsciously — lead an arbitrator astray.

KEY ARBITRATION ADVANTAGES

• Confidentiality: Your client may wish to keep its “dirty laundry” private. If so, the client may be better off in arbitration, where you can control the outflow of confidential information more easily. Much of what happens in litigation and almost everything that happens at trial is publicly available.
• Control: You cannot choose your judge, but you can choose your arbitrator, subject to your adversary’s veto. As the identity of the decision-maker can be critical, this increased control can be attractive. For example, if you have a technical issue, you may derive comfort from choosing an arbitrator with an engineering background. In one arbitration that we handled, we were able to choose one of the three arbitrators; we carefully selected a lawyer whom we thought was likely to be able to persuade the third, neutral, arbitrator of the merits of our client’s position. If you opt for a jury trial, this factor becomes less significant, but you may derive some comfort in having a person with a known background making a decision on your behalf as opposed to a group of strangers.
• Speed/Cost: On average, arbitration takes less time and so is generally less expensive than litigation. This advantage is offset to an extent, however, by the fact that your client will have to pay for the arbitrator(s) but the public pays for the judge through tax dollars.
• Foreign Enforcement: Generally, it is relatively easy to confirm an arbitration award by bringing it before the appropriate court within one year of that award. Courts rarely set aside arbitration awards [Federal Arbitration Act, 9 U.S.C. § 9].¹ If you wish to enforce a United States arbitration award in a foreign country, the process is likewise relatively straightforward. The New York Convention — formally, Convention on the Recognition of Foreign Arbitral Awards — is a treaty signed by 172 countries that allows a foreign court to confirm a U.S. arbitration award subject only to limited grounds for refusal.² Conversely, some foreign courts are reluctant to enforce a U.S. judgment, concerned about the possibility of inflated awards and litigation procedures that are not consistent with local practice or custom. And some legal remedies are treated differently outside the U.S. For example, foreign countries limit noncompetition agreements and method patents to a greater extent than in the U.S.

CHART OF ADVANTAGES

CONCLUSION

If confidentiality, foreign enforcement of an award, and choosing your decision-maker are important factors, lean toward arbitration. If intimidation, precedent setting, and the jury deliberation process are important, lean toward litigation.