October 15, 2009

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Out-of-court or In-court?

Understanding the Pros and Cons of Arbitration and Litigation

By Romaine Marshall

October 15, 2009

Handling legal matters is a necessary responsibility for any successful business, but few businesses relish the idea of being involved in litigation. Deciding beforehand whether lawsuits should be resolved through litigation or arbitration methods can make a difference. Although thousands of cases nationwide are still tried by a jury, arbitrations are on the rise. Close to 160,000 cases are handled annually by the American Arbitration Association, which administers out-of-court cases. Making the Choice Businesses typically encounter the need to make a decision regarding arbitration on two occasions. The first is when a contract is being negotiated. Often provisions can be inserted in a contract making arbitration either an option or a requirement, should the parties be unable to resolve a dispute. The second situation is when a dispute reaches a point where litigation is being pursued. Lacking a contract provision for alternative dispute resolution, the parties must choose a method to resolve their dispute. The choice often comes down to arbitration or litigation. In either circumstance, businesses must weigh the pros and cons of arbitration versus litigation. Although the jury is still out on how arbitration compares with actual jury trials, recent studies shed light on how verdict results differ between the two methods. Holland and Hart’s litigation support division, Persuasion Strategies, teamed with Inside Counsel magazine to conduct the fifth annual national juror survey in concert with a national arbitrator survey. As part of its research regarding the outcome of cases decided by a jury or an arbitrator, Persuasion Strategies simultaneously conducted a mock trial and mock arbitration, presenting the same live case to a panel of 10 jurors and, via closed-circuit television, to two experienced arbitrators. The nationwide survey results, combined with various mock trial decisions and 18 years of research, shows jurors tend to favor a common-sense outcome while arbitrators are more likely to return a more-legally sound decision. Jurors are more likely to be less educated than arbitrators, many of whom are retired judges and, therefore, usually view issues more simplistically. Also, jurors tend to be pro-plaintiff and have anti-corporate biases. Additionally, the decisions reached in Persuasion Strategies’ simultaneous mock trial and mock arbitration—and the path to those decisions—revealed some important similarities and differences. Juries and Arbitrators Communicate Differently The 10 jurors in Persuasion Strategies’ mock trial ultimately reached a decision similar to that reached by the two arbitrators. But differences in communication styles between the two groups were obvious. The 10 jurors were less systematic, expressing opinions openly, often several at a time, without reaching a clear understanding or closure on a single point before moving to the next point. They began their deliberation by sharing their impressions of fault. They then took sides and worked to persuade those on the opposing side. In contrast, the two arbitrators initiated their deliberation by discussing the case point-by-point, in a clear, collegial and systematic way. Unlike the 10 jurors, who tended to stake out and articulate personal positions, the two arbitrators posed questions and discussed the relative strengths and weaknesses of each side before seeking a consensus among themselves. One similarity between the 10 jurors and the two arbitrators was that they each scrutinized not only the defendant’s actions, but they also looked very carefully at the plaintiff’s actions. Without any pre-conceived notion of blame on either side, they pegged the plaintiff with the burden of showing that it had acted responsibly and that it had controlled what it could. In fact, much of the 10 jurors’ discussion focused on what the plaintiff should have done differently. Juries and Arbitrators Apply Their Own Knowledge In cases involving technical matters—such as a case involving construction defects—experience, as well as evidence enters the equation. The jurors or arbitrators with relevant experience in the mock trial relied on their knowledge and applied their own experience as they interpreted the facts in the case. But ultimately, most cases come down to the credibility and believability of the plaintiff and defendant’s witnesses. Both jurors and arbitrators apply their common sense, involving the basic exercise of human judgment and experience. No One-size-fits-all Remedy Neither arbitration nor litigation is a sure thing for any case. Many factors, including estimated costs for any dispute resolution method, can affect the decision. Before opting for either method, the possibility of mediation, typically a non-binding resolution method, should also be considered. When businesses must decide on a dispute resolution method, they should understand the pros and cons related to each one. That knowledge will assist businesses in making decisions that are the best for their given situations. Romaine Marshall is an attorney in the Salt Lake office of Holland & Hart LLP. He practices primarily in the areas of complex commercial and natural resources litigation. Marshall may be contacted at rmarshall@hollandhart.com.
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