Arbitrate, don't litigate! Avoiding the high costs of litigation.

ABSTRACT

Alternative Dispute Resolution (ADR), especially arbitration, has become an integral part of doing business as businesses consider the high costs of resolving legal disputes in court. While large corporations have embraced arbitration as a means to resolve disputes with less cost, both financial and otherwise, small business can also benefit from ADR. This paper discusses the costs of litigation and potential advantages of mediation and arbitration. The law regarding arbitration is examined to provide the business person with a working knowledge of this method of ADR. In addition, suggestions are made as to how to implement arbitration clauses into business contracts.

INTRODUCTION

Alternative Dispute Resolution (ADR) is a term most business people have heard. Most have heard of arbitration, too. For many though, these terms, and the choices they represent, may not have any practical application to their businesses, especially if the business is small. However, the advantages of ADR are available to all businesses, large and small. Arbitration, the most utilized form of ADR, has become a fixture in commercial contracts and a common method of dispute resolution for large corporations. Its application makes sense in small businesses where the costs of litigation are often not budgeted and resources can be strained by a legal dispute. For many small business owners, the concern over potential lawsuits is not acknowledged as part of doing business, but it should be.

WHY WORRY ABOUT LAWSUITS?

Picture this. You have worked hard building your business and now it looks as if that hard work is paying off. Your company has achieved some success, you have goodwill in the community, and your company's reputation is growing. You have finally reached a stage of some financial security and the reality of increased revenues. Then, you answer a knock at the door only to be handed legal service by a process server. You have been sued! Perhaps a laid off employee is claiming discrimination, or a party with whom you have contracted for services claims you did not perform as agreed. Whether a civil lawsuit is one you feel is unfounded or not, one thing is sure. Being drawn into civil litigation is costly; not just in money, but in time, unwanted publicity, aggravation and damaged business relationships. If your case can not be resolved prior to trial through some form of settlement, the next two years are going to hang over your head like a dark cloud. Win or lose, there is a high cost to civil litigation.

The fear of litigation is not ungrounded. It is a part of doing business and, for many, this fear impacts the way business is done. "In a recent Gallup survey, one out of every 5 small businesses claimed they do not hire more employees, or expand their business or introduce a new product or improve an existing product out of fear of litigation" (Davis, 2000, p. H470).

This concern is well placed. The Bureau of Justice Statistics reported that 12,000 civil cases were filed in country's 75 most populous counties in 2001 and that businesses were defendants in about half those cases (Cohen & Smith, 2004). It is an essential part of business planning to anticipate disputes, and, if possible, minimize their impact on doing business.

THE HIGH COSTS OF LITIGATION

Most think of the cost of attorneys as the highest cost of litigation and that certainly can be the case. Most often in defense work, attorneys charge by the hour. The lawyer may also maintain an hourly billing statement for legal assistants working on the case. Time sheets are kept noting the time spent on each case. The hourly rate of attorneys engaged in defense work can vary tremendously depending on geographic and population factors. The lawyer's hourly rate could be anywhere from hundreds of dollars to thousands of dollars. Over time, this is going to add up. Every phone call, every meeting, every stage of discovery, every court appearance, every hour of research is added to the time sheet. The cost of representation will be high, but there are other costs as well.

Any court action includes costs and fees in addition to the lawyer's. Court costs are assessed by the court at the close of a case. One stage of civil litigation, referred to as discovery, "probably accounts for 80 percent of all commercial litigation costs" (Saunders, 1984, p. 105). Moreover, during a trial, expert witnesses are often needed to establish trade practices or professional standards and their fees are high. Other witness fees may be assessed for those you need to testify to defend your case. Photocopying, couriers, investigators and travel costs are all potential litigation expenses.

The process of bringing a dispute to trial will also involve time. Meetings with lawyers, compiling documents, locating …