Cost-Effective, Fast And Fair: What The Empirical Data Indicate About ADR

Monday, November 1, 2004 - 01:00

Curtis Brown
National Arbitration Forum

While commercial ADR flourished in the 1980s and 1990s, in recent years dispute resolution has expanded beyond B2B disputes. Many litigants and would-be litigants utilize alternative dispute resolution as a means for resolving their legal disputes. Most often, the decision to use ADR comes about by order of the court, because a state or federal law requires it, or by a private agreement between the parties.

Does ADR really work? Does it deliver on the promise of providing a faster and more cost-effective resolution of legal disputes than traditional methods?

If you believe ADR works, you are not alone. This article provides a comparative review of a few of the independent studies and surveys that confirm the benefits of arbitration and other forms of ADR versus lawsuits for both businesses and consumers.

The Truth About ADR: Do Arbitration And Mediation Really Work?

Michael T. Burr

Corporate Legal Times - February 2004

This article reports on the results of a survey of general counsel and other high-ranking in-house counsel from both public and private companies in October and November of 2003. When comparing arbitration to the traditional adjudication process, 59.3% surveyed indicated arbitration was less expensive, 78% indicated arbitration led to a faster recovery, and 83% indicated arbitration was either equally fair or more fair than the traditional adjudication process.

Consumer and Employment Arbitration in California: A Review of Website Data Posted Pursuant to Section 1281.96 of the Code of Civil Procedure

California Dispute Resolution Institute

August 2004

(report contained at http://www.mediate.com/cdri/cdri_print_Aug_6.pdf)

Reviewing the results of 1,559 consumer and employment arbitrations, the California Dispute Resolution Institute found that the median time to resolve a dispute by arbitration was 104 days. The median cost of resolving these disputes by arbitration was $870.

By way of comparison, cases involving consumer goods and employment claims take 650 to 720 days to be resolved in court, according to the National Center for State Courts, indicating that arbitrating disputes is approximately 85% faster than litigating similar claims.

Survey On Arbitration

ABA Section of Litigation Task Force on ADR Effectiveness

American Bar Association - August 2003

Formed in August of 2002, the ABA Section of Litigation Task Force surveyed trial lawyers regarding various ADR processes. When comparing arbitration to litigation, 78% of those surveyed said that arbitration was more timely than litigation, and 56% said that arbitration was more cost effective than litigation.

Comparing Litigation And Arbitration Of Employment Disputes: Do Plaintiffs Better Vindicate Their Rights In Litigation?

Michael Delikat & Morris M. Kleiner

American Bar Association Litigation Section Conflict Management Vol. 6, Issue 3 - Winter, 2003

This study compared various outcomes and timing factors involved in 125 employment discrimination cases filed in the Southern District of New York with 186 arbitrations involving employment disputes in the securities industry. Claimants prevailed 46% of the time in an arbitral forum versus 34% in court. The outcomes involving arbitration generated higher median monetary awards for successful claimants - $100,000 for arbitration compared with $95,554 in court. Furthermore, arbitrations were significantly more efficient than litigation, as the median time from filing to judgment was 16.5 months for arbitrations and 25 months for claims subject to litigation.

Report To The Securities And Exchange Commission Regarding Arbitrator Conflict Disclosure Requirements In NASD And NYSE Securities Arbitrations

Michael Perino, Visiting Professor Columbia Law School, Associate Professor St. John's University School of Law

(Report contained at http://www.nyse.com)

The data were derived from securities arbitrations involving consumers over a 21-year period (1980-2001). During those years securities industry arbitrators decided 31,001 public customer cases, and 16,294 of those cases (52.56%) resulted in awards for consumers. (Note: Federal court data from the Administrative Office of the United States Courts show that in 2000, plaintiffs in "Stockholders Suits" prevailed only 32% of the time).

Furthermore, in a study surveying the responses of NASD investor-participants regarding their perceptions of fairness of SRO arbitrations, the results showed that an overwhelming 93% of the respondents believed their cases were handled fairly and without bias. Also, over 91% of respondents said their arbitrators demonstrated a level of fairness that was classified as excellent or good.

Securities Arbitration: How Investors Fare

United States General Accounting Office, May 11, 1992

(Available at http://www.gao.gov)

Comparing the results of over 6,600 awards issued during a six-month period from both industry-sponsored self-regulatory organizations (SROs) and independent dispute resolution providers, the Government Accounting Office (GAO) concluded that for most securities arbitrations, an average of 60% of investors received an award, and the amount awarded averaged about 60% of the amount claimed. Federal Court data from the Administrative Office of the United States Courts shows that in 1991 plaintiffs in "Stockholders Suits" prevailed only 44% of the time.

Legal Dispute Study

RoperASW: Survey for the Institute for Advanced Dispute Resolution

April, 2003

Updating a study conducted in 1999, this study revisits Americans' awareness, knowledge, attitudes and experiences regarding arbitration as an option for resolving disputes. Most notably, the study found that 64% of respondents would choose arbitration over a lawsuit in disputes involving monetary relief. Furthermore, two-thirds or some 67% of respondents feel that lawsuits take too long, while one-third or some 32% said that lawsuits cost too much.

Costs And Value Of Arbitration

Lisa Brener

World Arbitration & Mediation Report - April 2003

(14 No. 4 World Arbitration & Mediation Report 111)

In a 1990 survey, 100% of respondents found arbitration to be quicker than litigation. Furthermore, 89% found that arbitration was less expensive than litigation. Also noteworthy in the survey was that only 17% of attorneys' time was spent on discovery in an arbitral setting, compared to 45% in court, and over half of the respondents believed arbitral awards were more equitable than the outcomes in litigation.

Due Process At Low Cost: An Empirical Study Of Employment Arbitration Under The Auspices Of The American Arbitration Association

Elizabeth Hill and Theodore Eisenberg

Ohio State Journal On Dispute Resolution - 2003

(18 Ohio St. J. Disp. Resol. 777)

This empirical study of 200 employment arbitration awards, randomly selected from a pool of 356 awards made by arbitrators, evaluated numerous factors and refuted common criticisms of employment arbitrations. The study concluded that employment arbitration is not biased in favor of employers or highly compensated employees and that arbitration can competently resolve statutory employment discrimination claims, contrary to former criticism in this regard. Also, the study presented evidence that conclusively refutes any empirical support for the "repeat player effect," the theory that an employer who arbitrates more than once will win more frequently than other employers.

Arbitration: Pre-Dispute Or After The Dispute Arises?

Proponents of so-called "post-dispute arbitration" advocate restricting the rights of Americans to freely contract for their future legal disputes to be handled in an arbitral forum, because, they say, arbitration will still be available as an "option" later on. Put another way, to post-dispute theorists, the decision to use arbitration should only be available once parties to a legal dispute have already reached their boiling point and are actively involved in a lawsuit.

Most experts have rejected this radical notion.

Statistics show that, in reality, parties rarely agree to post-dispute arbitration. According to researchers at the University of California at Berkley:

[T]he one overriding problem with post-dispute voluntary arbitration is that, according to the evidence carefully examined herein and a logical analysis of the economic, political, and legal incentives of the parties and their lawyers, it is extremely rare for both the plaintiff's and defense's attorneys in a case to select arbitration after the dispute has arisen. Accordingly, because parties do not choose to arbitrate when a case is ripe, voluntary arbitration fails to address any of the problems inherent in the current system.1

The Berkeley researchers concluded that the benefits of pre-dispute arbitration are not present in post-dispute arbitration and that both businesses and individuals are hurt by post-dispute arbitration.2

As the former President of the American Bar Association, William Paul, has noted,

If you don't take anything else away from this presentation, at least take this: You will most probably not have the arbitration opportunity unless the contract giving rise to the dispute includes a binding arbitration clause. The odds of an agreement for binding arbitration being entered into after a dispute has arisen are not great. At that stage one party or the other will have a view that traditional litigation offers some advantage which the party does not choose to relinquish É So if you prefer binding arbitration, put a provision for it in the contract, up front, when the deal is made, and before the dispute arises and then, and only then, will you have assured arbitration as the preferred dispute resolution mechanism.3

At the point of signing a contract there is enough ambiguity for both parties to feel comfortable in agreeing to a pre-dispute arbitration agreement. Once a dispute occurs, however, one of the parties will perceive that litigation offers strategic advantages. The hostility and suspicion regarding the opposing party's motives once a dispute occurs will also work to prevent parties from agreeing to arbitration post-dispute. Once the parties are cast in adversarial roles, it is unrealistic to think that they will agree to arbitrate.

Conclusion

Many studies, surveys and commentators advocate the use of arbitration as the avenue to justice for both individuals and businesses, both in terms of cost and speedy resolution. Those who have thoughtfully considered the use of arbitration through "pre-dispute" agreements are in favor of such agreements. Favoring such agreements stems from the fact that pre-dispute arbitration agreements are consistent with the notion that people should have freedom in making their contracts and from the fact that "post-dispute" agreements to arbitrate rarely work in real life.

1 David Sherwyn, Because It Takes Two: Why Post-Dispute Voluntary Arbitration Programs Will Fail To Fix The Problems Associated With Employment Discrimination Law Adjudication, 24 Berkeley J. Emp. & Lab. L. 1, 8 (2003) (emphasis supplied).
2 See Sherwyn at 67-68.
3 William G. Paul, Arbitration vs. Litigation in Energy Cases , First Annual Energy Litigation Program (Co-Sponsored by the Center for American and International Law and by the ABA Section of Environment, Energy and Resources) (Nov. 2002) (available at http://www.arbitration-forum.com/articles/pdfs/Paul-pdf.pdf; last visited Feb. 16, 2004).

Curtis Brown is Vice President and General Counsel of the National Arbitration Forum. Questions about this article can be addressed to him at cbrown@arb-forum.com.