LEGAL
DISPUTE RESOLUTION Should You Litigate or Arbitrate?
Although it is almost always best for contractors to try to
avoid allowing project disputes to get to the point where
legal action is necessary, the fact is that there are times
when it is simply unavoidable. When that time comes, a decision
made by the contractor all the way back at the time of contract
negotiation – whether to check the box for arbitration or litigation
in the standard AIA or other form contract – can have enormous
consequences. These can include how and where the legal dispute
will proceed, the costs involved, by whom and how decisions will be
made and even the actual rights and remedies that might be available
in the proceeding.
The more traditional method for dispute resolution is litigation
via a lawsuit in court that is ultimately decided by a judge or
jury in federal or state court. Unless the litigation is settled, the
ultimate decision on the case is generally made by the judge or jury
after a trial. In contrast, arbitration is generally administered by a
private organization, such as the American Arbitration Association
(AAA) or JAMS, and is ultimately decided by one or more arbitrators
after an arbitration hearing.
While many construction industry participants may assume
that arbitration is the preferable forum for construction disputes,
and undoubtedly there are some key reasons why arbitration may
be preferable, there are also significant disadvantages to arbitration,
and reasons why litigation may be more the preferable option. This
article is intended to provide an overview of some of the potential
pros and cons of arbitration and litigation in order to allow contractors
to be better regarding their choice for the methods of resolution
of legal disputes that, while best avoided in the first place, are
sometimes unavoidable.
Potential advantages of arbitration compared to
litigation
One of the advantages to arbitration is that the disputes are decided
by arbitrators that are chosen by the parties. While the process of
choosing arbitrators can at times turn into a battle that is time consuming
and expensive in and of itself, the parties do have a much
greater level of choice about who will ultimately decide their dispute
than in litigation, where the parties are generally stuck with the
judge that is assigned to their case at random, and with a jury pool
pulled at random from the voter rolls.
Generally, arbitrators can be expected to have significantly
more construction industry expertise and understanding than the
By C. Ryan Maloney, Foley & Lardner LLP
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