Arbitration: Examining the Benefits Before Including in Your Contracts

Arbitration: Examining the Benefits Before
Including in Your Contracts
Hala Sandridge
Fowler White Boggs PA
February 16, 2012
Tampa FL
Why Choose Arbitration?
Reduce Expense
Eliminate jury passion
Speed of resolution
Eliminate protracted pretrial
• Eliminate attorney’s fee awards
But whom do these benefits
actually benefit?
Are each of these purposes served
under the current state of
Downside To Arbitration
• Expense
 Adds extra layer to the litigation, including multiple
trial and appellate proceedings
Motion to compel arbitration
Appeal of order on motion to compel arbitration (except federal
Litigation over attorney’s fees
Subject to attack in circuit court on motion to vacate
Subject to appeal from order on motion to vacate
Can go on for weeks in remote locations
Attorney’s fees available
Defending in two forums if not all parties subject to
Who Believes Arbitration Is Less Expensive
Than Litigation?
Expense (continued)…..
“In litigating this case without good basis through
the district court and now through this Court,
Harbert has deprived Hercules and the judicial
system itself of the principal benefits of
arbitration. Instead of costing less, the resolution
of this dispute has cost more than it would have
had there been no arbitration agreement.”
COMPANY, 441 F. 3d 905, 913 (11th Cir. 2006)
Downside To Arbitration (Continued)….
• Arbitrators not constrained by the law
 Federal courts apply the “manifest disregard of the law”
Arbitrators cannot be reversed for errors or misinterpretations
of law. Montes v. Shearson Lehman Bros., Inc., 128 F. 3d
1456, 1460 (11th Cir. 1997).
Under the FAC, appeal available only if:
Failed to provide due process
Arbitrator prejudice or bias
Arbitrator act outside authority
Award procured by corruption, fraud or other undue means
Downside To Arbitration (Continued)….
• Large awards and punitive damages defy concept that less
“passion” by arbitrators then jurors
Waddell & Reed, Inc., 2003 WL 288471 (1st Dep’t Feb. 11, 2003) ($25 million
punitive damages award issued against brokerage firm Waddell & Reed and in
favor of one of its former brokers in an NASD arbitration.)
Sands Brothers & Co., 749 N.Y.S.2d 17 (1st Dep’t 2002) ($28 million)
In re Arbitration Between UBS Warburg LLC, 744 N.Y.S.2d 364 (1st Dep’t 2002)
(affirming decision vacating $5.6 million award based on arbitrators’ disregard of
securities law).
In 2005, Connecticut Supreme Court affirmed the confirmation of a $5 million
punitive damages arbitration award, even though no compensatory damages were
awarded, against MemberWorks Inc., a Stamford, Conn., direct marketer.
Shahinian v. Cedars-Sinai Medical Center, 2011 WL 1566971, court upheld an
arbitration award against a physician of $508,124 in economic damages,
$1,603,650 in emotional distress damages, and $2,580,000 in punitive damages.
As to amount of punitive damages, court held that if the award were excessive,
arbitrator's error no different from other errors of law, which are generally not
Downside To Arbitration (Continued)….
• Statute of limitations may not apply
Raymond James v. Phillips, Case No. 2D10-2144.
___ So. 2d ___(Fla. 2d DCA, Nov. 16, 2011) (rev.
Florida statutes of limitations only apply to actions
Court held that arbitration not an action
Florida S/L does not apply unless expressly
incorporated into arbitration provision
Not enough to say “all state and federal statute of
limitations apply.”
Given Your Purpose For Selecting Arbitration, Is
Waiver Of Jury Trial A Better Option?
• Judge, instead of jury,
tries case
• When is bench trial a
“best bet”
If strong legal issue
likely to be decided in
early stage
Require extensive
Keep open appeal
If You Still Want An Arbitration Provision, Other
Issues To Consider When Drafting Contract
• Applicability to certain types of agreements (e.g.
employment, nursing home)
Green Tree Financial Corp.-Ala. v. Randolph, 531 US 79 - Supreme Court 2000 (arbitration
provision agreement enforceable in employment action even though cost might be prohibitive)
• Effect on class actions: can exclude class action arbitrations if expressly say
so in arbitration provision Stolt-Nielsen, S.A. v. Animal Feeds Int'l Corp., 130 S.Ct. 1758, 1775
(2010) (emphasis in original).
• Should court rules of procedure apply
• Will FAA or FAC apply (want FAA because no appeal of order compelling
• Use broad language “arising out of or relating to”
• Give arbitrators power to award attorney’s fees
Recommendation: Weigh Options Before
Including In Your Contract
• Certain industries may have no choice
given customer base (securities,
• Consider where you want to be if the
deal goes bad
• Eliminate possible downsides from
your arbitration provision and
consider including:
 Discovery
 Rules of procedure
 Appeals
 Right to seek certain judicial relief
 Attorney’s fees determination
Your Take-Away
“In many cases, experts say arbitration is still
expensive and time-consuming--just like trial-only without appeals. Deciding whether to
arbitrate is not necessarily a simple choice. It's
best to figure out what you want from arbitration
before deciding to do it…”
Christopher Danzig, Barring Flagrant Misconduct,
Courts Should Let Arbitration Decisions Stand,
InsideCounsel Magazine (September 2010 ).

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