Dispelling Arbitration Myths

Business Conflict Blog by Peter Phillips

A panel at the ABA Annual Meeting in Chicago once again engaged in “Myth Busting,” using facts and logic to dispel many of the notions that, without factual basis, encumber user perceptions of arbitration. Among these are that arbitrators “split the baby” and that arbitration is as costly and lengthy as litigation, but without the right of appeal.

The presenters included Mark Morril of Viacom, Eric Tuchmann of the American Arbitration Association, Nikolaus Pitkowitz of Vienna, Edna Sussman of New York, and Roy Weinstein of Micronomics Inc.

Two main themes arose. The first is that actual outcomes in arbitration do not support the proposition that arbitrators compromise claims. The materials for the panel included the 2001 AAA report titled “Arbitrators Do Not ‘Split the Baby’: Empirical Evidence from International Business Arbitrations.” That venerable paper demonstrates that arbitrators rarely, if ever, split an award between disputants. That finding was echoed in a more recent study, showing that the practice simply doesn’t happen. Yet the recent Rand Report notes that many corporate counsel nevertheless believe that arbitrators will award something to each party, for fear of offending someone.

It’s not often that a community of specially bright folks persists in a conviction that is inconsistent with widely available facts. Loch Ness monster, anyone?

The second area of emphasis was party control, a feature that is at the very heart of arbitration but that is too seldom exercised. Edna Sussman reminded the audience that, insofar as arbitration is the creature of contract, the parties who agree to arbitrate may also agree to fashion the arbitration process. Parties who are concerned with splitting the baby may require the arbitrator to find for one party or the other. Parties afraid of runaway costs may contractually limit discovery. Parties concerned with extended processes may limit the time between filing and hearing, the duration of the hearings, or the time between hearing and award. More important than any other component, as Mark Morril pointed out, was party supervision of arbitration counsel. If a business simply hands over the process to outside counsel, it cannot be heard to complain about a loss of control that the business itself ceded.

Arbitration can offer distinct advantages over business litigation. But as Tom Stipanowich often reminds us, its most salient feature is flexibility. Parties are well advised to use it, and to craft a process that avoids whatever terrors concern them.

                       

F. Peter Phillips

F. Peter Phillips is a commercial arbitrator and mediator with substantial experience providing consultation on the management of business disputes to companies around the globe. A cum laude graduate of Dartmouth College and a magna cum laude graduate of New York Law School, Mr. Phillips served for nearly ten years… MORE >