Legal Knowledge for Today's Real Estate Marketplace

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IS ARBITRATION AS GOOD AS YOU HEAR ?

Sometimes, despite your best efforts, your commercial real estate dispute must be resolved by litigation, not negotiation.  At that time, one of the first steps to be taken is to read your agreement and determine whether there is an "alternative dispute resolution" or ADR provision.

Although there are other procedures such as judicial reference, if there is an ADR provision, you can generally expect it to be a binding arbitration.  If you have agreed to arbitration, what can you expect?

On this particular matter, I turned to one of my collegues, Jeff Brown, a partner at PNM and who is an expert on this subject. His advice:

Expense:  Is arbitration as inexpensive as you've read?  That depends.  If your arbitration provision allows for significant discovery, such as depositions, your arbitration may not be that much more efficient than litigation.  Discovery is usually the most expensive part of litigation, and there are arbitration provisions which allow the parties unlimited discovery or, to a more limited degree, discovery as determined to be for good cause by the arbitrator.  Drafting pointer:  you can control the expense of future arbitrations by limiting the discovery that is allowed by the parties the next time you negotiate an arbitration provision.

Selection of Arbitrator:  First, check your arbitration provision.  All but the most limited provisions provide a method for selection of the arbitrator.  The decisions regarding the arbitrator selection include whether a single arbitrator or multiple arbitrators (usually three) is to decide your dispute; what qualifications must the arbitrator have (e.g., a retired judge or someone who has significant real estate experience), and if the parties cannot agree upon the selection, how does the arbitrator get chosen.  In California, the steps for selection are (1) the parties agree; (2) if they cannot agree, then the arbitration service agreed upon by the parties (e.g., JAMS or AAA) uses its rules to select; or (3) if neither the first or second steps lead to the selection of the arbitrator, then one or both parties ask the court to make the selection.  Drafting pointer:  Make sure you include the number of arbitrators, their qualifications, and the method to be used to select them in your ADR provision to avoid unnecessary delay in moving any future dispute toward resolution.

Discovery:  As with litigation, the most expensive part of arbitration can be the "discovery" process.  Again, the arbitration provision can control the costs and the extent of discovery (e.g., depositions, document requests, interrogatories) by limiting discovery, or it can leave discovery wide open.  Drafting pointer:  If your side already has access to the relevant facts and documents, you may want to limit the number of depositions, their length, and the number of other written discovery requests as much as you can.  If the opposite is true, you should consider broadening your ability to take discovery from the other party as well as third parties.  Of course, the more discovery that is allowed, the more expensive the process becomes.

Completion:  A benefit of arbitration can be that final resolution may be had much quicker than court litigation.  Arbitration provisions typically include deadlines for the hearing and deadlines for issuance of the award.  In addition, generally, there is no right to appeal a losing result.  In California, once there is an award, the prevailing party may confirm the award to turn it into a judgment so it can be enforced, and the losing party may seek to vacate the award.  However, because a primary benefit of arbitration is to bring disputes to a close as soon as possible, there are only limited grounds upon which a losing party may ask a court to vacate an adverse award.  Just because you lose does not mean you have a right to seek review of the award.  And that limited right to vacate the award gives the parties one of the main benefits of arbitration - a quicker final end to their dispute.

Jeffrey N. Brown contributed to this column

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