Turner Padget Insights

Arbitration: Should I Stay (in Court) or Should I Go (to Arbitration)?

Posted On Oct 24, 2014

In South Carolina, 33 out of 46 counties are “mandatory mediation” counties, and circuit court litigants in these counties are required to participate in mediation of their lawsuits prior to trial (with certain limited exceptions). While mediation is one form of alternative dispute resolution, it is certainly not the only form or the least controversial. Arbitration has been a regular source of appellate case law in South Carolina and across the country, whether in the context of the Federal Arbitration Act or similar state law versions of the Act.  

So, when should you consider arbitration? There are a number of things you may not often hear but that you should consider when making this critical decision. First and foremost, to even contemplate arbitration as an alternative to the traditional court system, you must have a valid arbitration agreement with the opposing party. Whether a given claim is subject to arbitration and whether the arbitration agreement is enforceable are complex areas of law beyond the scope of this post. So for the purpose of this writing, I will assume that there exists a valid arbitration agreement and that the claim is subject to arbitration. 

Advocates of arbitration often describe the process as faster and less costly than the traditional court system. Depending on the county, South Carolina litigants should expect it will take roughly two years for their case to reach the trial docket. To most litigants, especially on the plaintiff’s side, this seems like a significant amount of time.  However, arbitration proceedings can last much longer. I was recently involved in an arbitration that took nearly six years from the date of the initial filing to complete. While a six-year arbitration is probably not typical, arbitrations are generally not as closely monitored as cases pending in the circuit court.  Chief Administrative Judges in each county are constantly urged to “move their dockets,” but arbitrators are not under the same pressure to get cases completed.  Additionally, because most arbitrators are also practicing lawyers or mediators, they have their own cases and clients to service. As a result, it may take longer to have a motion heard or a ruling provided by an arbitrator (or an arbitration panel) than by a judge.               

With regard to arbitration being less costly, again, I am not convinced the cost-savings are as significant as we are lead to believe, if they exist at all. The theory is that arbitration will be shorter, and therefore, costs should be lower. But when considered solely from the procedural standpoint, arbitration, by its very nature, must be more expensive than litigating in state or federal court. As a litigant, you do not pay the court directly. Judges, court reporters, and clerks are government employees, paid by the taxpayers. In arbitration, the litigants must pay the arbitrator (one or more) for the arbitrator’s time, and as noted above, most arbitrators are lawyers. So follow me here – in arbitration, litigants are not just paying for their lawyers, they are also paying the fees of one or more other lawyers (the arbitrators). Additionally, if litigants want a proceeding transcribed, whether a pre-trial motion or final hearing, the litigants must pay that cost as well. In contrast, a state or federal court reporter only charges fees to litigants when a transcript is ordered, which is generally not done unless an appeal is contemplated.  

On the other hand, if a dispute is relatively uncomplicated (and by this I don’t mean the issues are not complex, only that there are not dozens of counterclaims, cross-claims and third-party claims) and there are a limited number of parties, arbitration may actually be less costly and take less time to complete. Certainly in those circumstances, a litigant or lawyer may want to consider arbitration to avoid the costs of mandatory mediation, the backlog of the courts, and the uncertainty of motion and trial scheduling. 

In summary, there is no bright line to determine whether to choose arbitration, and the reality is that in many cases, you may not have a choice at all (i.e., if you have a valid arbitration agreement and the opposing party chooses to enforce it). However, knowing the possible benefits and pitfalls may, at a minimum, help you decide how hard to fight for (or against) being sent to arbitration.