Litigation vs. Arbitration: What’s the Difference?

Hi, I'm Brett Senis. I'm a business attorney and today we're talking about arbitration and litigation. These are two different dispute resolution approaches, mechanisms to resolve disputes. In our case, we'll talk about business disputes. Uh before I get started, if you have a question for me, a general question or comment, you can put it in the comments below. If you want to talk about your specific situation, could be about this issue or anything else you think I'm uh a good person to talk about on business law and merger and acquisition advisory issues, you can book a call at clarity.fm and there's a link in the description below. So, arbitration versus litigation, two different ways to resolve disputes. The one you are no doubt familiar with is litigation. It is the default position. If your contract uh if you have a contract and the other party breaches that contract and it says nothing about arbitration, then by default you have litigation as your option, you can hire a lawyer. You can file something publicly file a lawsuit serve it on the defendant and that proceeds in the court where you file it. You've got a judge. You may have a jury. You probably have a jury unless that's been waved by contract. Sometimes it is. And again, publicly filed documents. It's a process available to anyone who's been wronged. Uh the courts are available to hear disputes. It's uh very lengthy process. It could be very expensive because it's kind of a one-sizefits-all. That's not exactly right, but there's not a lot of ways to customize the process involved. So discovery, which is a part of either litigation, arbitration, it's the process of giving the other side uh information that they request that they are entitled to about the dispute. you've got uh you've got to give them information you have even if it hurts you and that's that's called discovery in litigation. It it is not very customizable and it can be very very expensive. So hundreds of thousands of dollars of expense but that is again the default position. That's what's available. You can sue someone in court. You can get a judge. Maybe get a jury to ultimately hear your case if it goes that far. Most things get settled. If you don't like the outcome, you have some rights, not unlimited, but some rights of appeal. So, these are things that define litigation. It's not very customizable. It's uh essentially, you know, the system itself is essentially free. You know, you don't pay the judge or the jury. Um you got to pay your lawyers and that's expensive. It's public and you have a right of appeal. Arbitration on the other hand is not the default position. It needs to be agreed to among the parties which really practically speaking needs to happen upfront in a contract. Parties agree if we have a dispute we'll go to arbitration. It's hard. You could agree on the backside to resolve a dispute through arbitration, but generally you're in a situation where two disputing parties are having trouble agreeing on anything. And so that's probably not going to happen. So you agree up front on contract. Unlike arbitration, litigation is private. You don't have publicly filed documents. There is a very almost no right of appeal, at least in Texas. In most states, it's very very limited, right? And in some clients don't like it. It's the reason they don't like arbitration. You have to pay the arbitrator or arbitrators, right? If you sometimes you have one, sometimes people choose three. We generally choose one. If we're choosing arbitration, we're trying to keep as upfront. We're trying to ensure that the costs involved will be low. So, we're choosing some streamlined rules, which brings me to the next difference is it's much more customizable. You can have very streamlined uh rules, which are uh there's a few different big arbitration systems out there. There is uh AAA, not the American Auto Association, the American Arbitration Association. There's JAMS. Um those are kind of two of the real large ones out there that you they have arbitr rosters of arbitrators that you can hire. You pay them hourly, so there's more cost for that, but you can customize your discovery rules and streamline things and potentially get through, you know, even a relatively complex arbitration, relatively complex. It's still not it still falls under streamlined rules uh ultimately in in 6 months or 9 months or something like that. And that's going to keep cost down. You could keep the discovery to a minimum to keep costs down and to reign in cost. Now, arbitrations can be super super expensive as well. You know, it's it's not always like that, but you can upfront agree on rules and structures that are very quick. One of the main so those are the main differences between the the them there's an important difference which I've come in more recent years to really appreciate and that is that the you are paying the arbitrator arbitrators hourly the parties are splitting the costs there each party and that's expensive compared to a judge you don't have to pay however you get to choose it's a process of mutually agreeing with the other side on the arbitrator or arbitrators But they will typically spend much more time on your case. I mean, that's been my experience. We do a very little bit of litigation. We do quite a decent amount of pre-litigation dispute work, but once in a while we'll take something on an arbitration litigation and and consistently what I've seen is that the judges have big dockets and the good judges, they come prepared, but they're only so prepared. and the arbitrators I've I've seen close up. Again, this it's impossible to make sweeping conclusions that are always the case. However, generally speaking, this arbitrator the arbitrators don't have sometimes it's their only arbitration going on. They do other things in the world, but this is a big deal and they're getting paid hourly to do it. So on very complex cases uh which we've also been able to run quickly at times but the where the where the the subject matter is is kind of technical if you're able to choose an arbitrator who understands that issue and my experience is that they will dig in and spend time to really understand. So, if you had to ask me when you get the most the most accurate, you know, the the the right outcome, if we're really honest, who should win, I trust arbitration. I do. Um, you're at the whim of the particular arbitrator you get, and I've seen some pretty crazy stuff. I've seen some pretty crazy stuff out of judges as well. Now, there you may have a little more right of appeal, but that's not an easy path. for my money, if I'm going to be the good actor and want the just outcome, and I hope I will be and will want that always. Um, obviously there's two sides to every story. People see the reason they end up in arbitration litigation. They just see the world differently. But I trust that an arbitrator is going to find what I think is the right outcome for our clients most commonly. Arbitration, I I mentioned earlier, it's private. That's a reason a lot of big companies use it. They don't want employment lawsuits and things like that in public record. That's a big driver. But those are the main things you're thinking about if you're choosing between arbitration and litigation. If you have a general question, feel free to ask it below. If you've got specific questions, you can book a paid call with me at clarity.fm. The link is in the description below. I hope you enjoyed the video. Thank you for watching.