November 10, 2022
By David L. Walker, Jr.
The concept of using arbitration to settle civil disputes is not new; however, many small business owners have traditionally avoided mandating arbitration in their contracts and business dealings due to their concern over the fees charged by arbitrators and arbitration firms to resolve disputes.
Arbitrators generally charge hourly fees commensurate with prevailing attorneys’ hourly rates for the time they spend reviewing motions and pleadings, researching legal issue relevant to a dispute, and presiding over arbitration hearings. Conversely, filing a lawsuit in a Georgia court is free (except for relatively minor filing fees of approximately $150.00, which are payable when a suit is filed. Unfortunately, many civil litigants the last few years have learned the old adages to be true: “You get what you pay for.” While there may be reasons in some scenarios to choose to file suit in a government court, below are several considerations a small business owner should keep in mind when deciding whether to incorporate a mandatory arbitration into its contracts:
Time is money. More specifically, when you are owed for damages or money lost, every day that passes decreases the value of any money you eventually recover in a lawsuit. In today’s hyperinflationary environment, the time value of money is further amplified.
Against this backdrop, another demonstrable truth remains: Courts are slow and inefficient forums to use when seeking damages for a breach of contract or business loss. In the post-Covid era, in which most courts are backlogged with criminal cases and treating civil suits with much lower priority, it is more challenging than ever to expedite a civil recovery in the judicial system.
The standard discovery period alone, which under the Georgia Civil Practice Act is a minimum of six (6) months, operates to ensure that a civil litigant can expect to take at least 18 months – and often more than 2 years – to see the end of a case that is tried by a jury. Conversely, depending on the amount in controversy, the average arbitration will be completed anywhere from ninety (90) days to (12) months from the time it is initiated.
Most elected judges are “generalists”, meaning that they, at best, have a general understanding of the panoply of issues and disputes arising under the law. On one day a Superior Court judge may be expected to preside over a capital murder case, and the next day he or she may be asked to rule on an intellectual property dispute. Even the most conscientious judges cannot be expected to know the details of every legal issue that may come before them.
On the other hand, arbitrators are typically selected based upon their given field of expertise. For instance, reputable arbitrators will usually specify the areas of law in which they are qualified to preside and avoid taking on cases that are outside of their areas of expertise. This not only increases the likelihood that an arbitrator will have a mastery of the legal issues in dispute, but it also decreases the attorneys’ fees and expense incurred by the parties, because their attorneys do not have to spend as much time educating the arbitrator on the elementary aspects of the legal issues in a given case.
While related in part to the “time” aspects referenced above, the concept of efficiency also contemplates the fact that arbitrators, and the rules normally incorporated by reputable arbitration companies, forego many of the formalities associated with the rules of civil procedure and instead “cut to the chase” to resolve discovery disputes, dispositive motions, and other matters that may be raised for resolution during the course of an arbitration.
Whereas a Court will often require the exchange of motions over a 30-day period and a subsequent hearing – sometimes scheduled another 30 to 90 days or more after the exchange of motions – to resolve a discovery dispute, most arbitration rules allow either side of a discovery dispute to bring the matter before an arbitrator via written correspondence (e.g., email), schedule a telephone conference to allow the parties to present their sides of the argument to the arbitrator, and obtain a ruling on the issue from the arbitrator in a matter of days – not months. This commonsense approach can save thousands of dollars in fees and expenses that would otherwise be spent by parties if they are forced through the archaic procedures utilized by government courts.
Moreover, unlike government courts, arbitrators and arbitration companies cannot generate revenue if they are not processing cases. As a result, even during the pandemic when courthouses were locked for months on end, arbitration companies used technology, ingenuity, and old-fashioned initiative to keep processing cases and moving them along. The arbitrators were not going to be paid if they were not working, and so most remained motivated to do whatever they could to continue providing services to the parties in their forums.
By no means should this blog be considered an exhaustive analysis of the pros and cons of the arbitration process, and to be sure, arbitration is not a flawless system. Nonetheless, a small business owner would be wise to give careful consideration to whether it would be benefitted by adding a mandatory arbitration clause to its future business contracts.
David L. Walker, Jr. is a partner with Flint, Connolly & Walker, LLP. He focuses his legal practice to collaborate with business owners, mid-sized and closely held corporations, as well as real estate owners, developers, and contractors.