• Talia Semaan

Arbitration vs. Litigation

If your business is facing a dispute, then you will eventually need to decide which course of action to take to settle the issue at hand. Two of the most common options to reach an agreement between parties is through arbitration or litigation. This article will walk through what each of these decisions entail and the advantages and disadvantages of each.


ARBITRATION

At its core, arbitration is a private process in which both parties agree to appoint an arbitrator who will produce a binding decision. An arbitrator is a neutral third party who will carefully consider both sides’ arguments and evidence, as well as the law, to determine the liability of the case. With arbitration, both parties will need to come together to agree to follow and respect the final decision of the arbitrator.

Arbitration vs. Litigation
Arbitration vs. Litigation

In some cases, the parties’ original contract will have contained a mandatory arbitration agreement, in which case the parties have no option but to arbitrate. In fact, if arbitration is required but one of the parties files a lawsuit in court anyway, the court will typically dismiss or suspend the lawsuit and order them to arbitrate.


Advantages of arbitration are plentiful. Choosing arbitration typically means the dispute will be settled quicker and with less expense than going through courtroom proceedings. Choosing this private method means the resolving issues will be kept confidential, as court proceedings are virtually always public. This is a huge plus for businesses wanting to keep their affairs away from the public eye and press.


On the other hand, one of the disadvantages of arbitration is the lack of evidence allowed. There is typically a limited evidentiary process, and the Federal Rules of Evidence may not apply, or may apply in only limited fashion. The arbitrator decides which evidence is allowed, so it is crucial that both parties seek and agree on an arbitrator that is not only neutral, but knowledgeable in the particular field being discussed.


Nonetheless, it is still a good idea to exercise all of your options before choosing which course of action to take. Having an attorney present to help with the arbitration process is the best idea even though their role may be slightly different than in civil litigation. The American Arbitration Association says: “While parties are not required to have an attorney to participate in arbitration, arbitration is a final, legally binding process that may impact a party’s rights. As such, parties may want to consider consulting an attorney.” Consulting an attorney who knows and understands the process is particularly useful since arbitration is still recorded as a written agreement that is either legally binding or non-binding. In a binding arbitration, the parties do not have an appeal option, whereas a non-binding decision may be appealed.


LITIGATION

Litigation, in contrast to arbitration, handles disputes by bringing lawsuits to court to enforce or defend a particular legal right. Instead of an arbitrator, a judge makes the final decisions for the opposing parties. The type of court in which litigation takes place is dependent upon the type of dispute, based on jurisdiction.


In a court proceeding, all evidence and facts are presented by the lawyers of the parties. An advantage of this method is that if the parties do not agree with the decisions of the court, then they can appeal to a higher court. In North Carolina state court, this is the North Carolina Court of Appeals, and in North Carolina federal court, appeals are decided by the U.S. Court of Appeals for the Fourth Circuit. This is a much more formal process for parties to pursue, with Rules of Procedure and Rules of Evidence governing how a trial is conducted and resolved.


A few disadvantages of litigation are the costs of the entire process. There are attorney’s fees, pre-trial costs for discovery, depositions, document requests and production, interrogatories, records searches, court costs, and the list goes on. Parties also must wait for the case to be scheduled in court. According to one study, this could take upwards of two years to get to a trial date from the initial filing. With the extensive use of attorneys and elongated wait time, make sure the public proceeding is the way you want to go before committing to the court process.


With all of this being said, each dispute should be evaluated on the merit of the case to determine which resolution method is best to pursue. If you wish to receive the best outcome possible, it is always a good idea to consult with an attorney to talk through your options.


DYE CULIK PC is a Charlotte, North Carolina law firm concentrating its practice in the areas of business law and litigation, and representing entrepreneurs, businesses, and franchisees throughout North Carolina. If you have a question or issue involving your business, contact us at 980-999-3557 to see how we can help.