Dirty Little Secrets About Arbitration Law Offices of Sanford F. Young, P.C. Attorneys New York New York

Dirty Little Secrets About Mandatory Arbitration by Sanford F. Young
Posted by: Sanford Young
May 08, 2007

Dirty Little Secrets About Mandatory ArbitrationBy Sanford F. Young While the courts and legislatures are quick to jump on the band- wagon for imposing mandatory arbitration and broad enforcement of any and all arbitration clauses, there is a little known secret that consumers and small businesses do not realize -- until it is too late. It is fairly well known that arbitration insulates errant defendants from incurring the wrath of unforgiving juries and potential of punitive awards. What is less well known is that arbitration deters most claims from ever seeing the light of day. When victims of fraud, misrepresentation, breach of contract or negligence sue in Court, the fee for admission is relatively modest (court filing fees typically ranging from $45 to $210). In the case of arbitration, however, the filing fees that must be advanced by the claimant can run into the tens of thousands of dollars. In addition to filing and administrative fees, the parties must pay for the arbitrators= time -- usually at full rates.

Unlike judges, whose salaries are paid out of municipal, state of federal budgets, arbitrators are private rent-a-judges whose income depends upon the rates they are paid by the litigants. Most arbitrators, who tend to be retired judges, experienced lawyers or industry experts, command hourly fees typically ranging from $250 to $500 or more. Thus, if someone seeks to bring a claim where arbitration is mandatory -- due to the fact that their right to sue in court has been waived by contract or abrogated by law -- that party will have to front a hefty administrative/filing fee with the arbitration forum to pay for administrative costs and use of pseudo court facilities. On top of that, they will also have to advance the anticipated hourly charges for the arbitrators. In a typical case, where three arbitrators are required, a three-day proceeding could run up a tab of over $25,000 (21 hours time $400 times 3 arbitrators), plus administrative and other case service fees (such as for use of facilities). If the litigant cannot afford the fee, they are out of luck. Another misunderstood fact is that disclosure is limited or non-existent in arbitration. Unlike a lawsuit, where the parties can compel the other to open up and reveal documents and other non-public information, that right is severely limited in arbitration, and is dependent upon the discretion, whim and fancy of the arbitrators, whose decision on the matter is final. Arbitration thus favors the party who does not want to reveal who, what, when and why they did something that may expose them to liability. Last but not least, arbitration leaves the parties at the mercy of unknown and unsupervised arbitrators. Unlike a court suit, where judges are answerable to those who elect or appoint them, and consistently subject to appellate courts who can overturn erroneous and arbitrary judicial decisions, arbitration decisions are almost always final and binding with substantially no right to appeal. Thus, no matter how off-the-wall, irrational or unfair the decision, the parties are stuck with the result. And, adding the final insult to injury, the losing party usually gets stuck with paying the arbitrators for their services.

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