Magazine article Dispute Resolution Journal

Arbitration vs. Litigation: An Unintentional Experiment

Magazine article Dispute Resolution Journal

Arbitration vs. Litigation: An Unintentional Experiment

Article excerpt

How often do you have the opportunity to arbitrate and litigate a similar case so that you can compare the processes? That opportunity presented itself to Jeffrey Cruz who shares his views on how the two processes stacked up.

Arbitration or litigation? Coke or Pepsi? Regular or decaf? Our choices and preferences are based in part on what we hear from others, but the more substantial factor in those choices and preferences is personal experience. Many of our clients already know that they prefer Pepsi and can't stomach decaf-but they have no preferences when it comes to dispute resolution because they have had little or no experience with it.

Recently, along with another practitioner, I spoke at a lunchtime seminar at our local American Arbitration Association (AAA) office1 to about a dozen commercial and construction arbitrators. We talked about our expectations as "users" of the arbitration process and recommendations for increasing the level of satisfaction that our clients have with arbitration. As a prelude to that discussion, we also talked about whether our clients were electing to include arbitration clauses in their contracts. Even with the recent boom in alternative dispute resolution (ADR), many clients are still unfamiliar with the arbitration process. Some of these clients are first-time owners of construction projects. At the contract drafting stage, they usually are preoccupied with breathing life into their project and feel trepidation about its launch. At this point in time, they are not inclined to focus on how to resolve future disputes with their designers and contractors.

Construction lawyers and professionals have all kinds of old chestnuts they like to dust off when asked to recommend a dispute resolution process for a contract. For example, some say that arbitration is better for subcontractors, litigation is better for contractors, or that you should arbitrate when your case is strong on the facts, but weak on the law. Others have it that you would be better off litigating when the contract is drafted in your favor.

Today it is vital to be able to advise clients on dispute resolution based on more than old chestnuts. The attorney's experience is perhaps the most important source of advice on this subject, although that is not the only source. Attorneys rarely have the opportunity to compare arbitration and litigation in the same case. That opportunity probably only arises in jurisdictions where a statute permits a trial de novo following a non-binding statutory arbitration.

A few years ago I found myself in the unusual situation of being involved in an arbitration and in a litigation of two roughly similar cases, the former in New Jersey and latter in New York. Although the amount in controversy in the New York litigation was much greater, the cases were close enough to be instructive on the advantages and disadvantages of using arbitration and litigation. This article compares key aspects of these two cases. This comparison is based, not on empirical research conducted under controlled conditions, but on my fortuitous involvement in two similar cases very close in time. In was simply one of those random opportunities that occasionally arise during the course of a legal career that allows the practitioner to make useful observations.

A Tale of Two Cases

1. Background of the New Jersey Case

The New Jersey case involved the design, construction and startup of a cogeneration facility owned by an independent power producer. My firm represented the owner against the designbuilder (called the EPC contractor-for engineer, procure and construct), which was contractually responsible for designing the plant, procuring all materials and equipment, constructing and then commissioning and turning over a fully operating plant to the owner. The owner's contract with the EPC contractor contained a warranty clause providing a one-year period from commercial operation in which to raise any deficiencies in the EPC contractor's performance. …

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