Because litigation is time-consuming and expensive, many hoped that binding arbitration would provide a quick and inexpensive way to resolve disputes. However, the promise has not matched reality. Public Citizen, a public interest non-profit organization, concluded that arbitration may be just as expensive and time-consuming as litigation. In their report, "The Costs of Arbitration," the writers found that:
- The cost to a plaintiff of initiating an arbitration is almost always higher than the cost of instituting a lawsuit.
- Arbitration costs are high under a pre-dispute arbitration clause because there is no price competition among providers.
- Arbitration costs will probably always be higher than court costs in any event, because the expenses of a private legal system are so substantial.
- Arbitration saddles claimants with extra fees they would not be charged if they went to court.
- Taking a case to arbitration does not guarantee that a consumer or employee will stay out of court, making arbitration still more costly. If crucial documents or testimony must come from a third party, court litigation is necessary to enforce subpoenas.
Other problems include (i) the inability to exclude irrelevant evidence since the "Rules of Evidence" are discretionary with the arbitrator and (ii) the loss of the right to appeal erroneous decisions.
Potential Down-Side for Associations. For associations, even when the board is on solid ground and the directors expect to win, there are no guarantees. For example, the hardest things to uncover are hidden biases of the arbitrator. The arbitrator may be hostile to associations. Also, witnesses and testimony do not always perform as expected. Finally, without pre-hearing discovery, the other side may spring surprise witnesses or documents into the arbitration. There is an old military saying that battle plans often do not survive the first contact with the enemy.
If an arbitrator makes a decision that is contrary to the facts and the law, the association cannot appeal the decision. Hence, the only time an association should take a matter into binding arbitration is if the board can afford to lose the case.
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