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Dissonance Between SCOTUS and BUSINESS On Arbitration

By Liz Kramer | April 23, 2012 in Litigation vs. Arbitration

A new survey found that Fortune 1,000 corporations are significantly less likely to arbitrate contract disputes today than they were in 1997.  In the 1997 study, 85% of companies reported using arbitration in commercial contract disputes at least once during the prior three years.  In 2011, however, only 60 percent of companies so reported.  In contrast, the companies’ usage of mediation remained steady at around 80%.

 The most common reasons given by survey respondents (general counsel and senior corporate lawyers) for not using arbitration included: the difficulty of appeal, the perception that arbitrators tend to compromise, the concern that arbitrators may not follow the law, a lack of confidence in neutrals, and high costs of arbitration.  The study, conducted through Cornell’s Survey Research Institute, was co-sponsored by Pepperdine’s Straus Institute for Dispute Resolution, Cornell University, and the International Institute for Conflict Prevention & Resolution (CPR).  (Its results are not currently available on-line.) 

I find it interesting that during this same time period—1997 – 2011—the Supreme Court has been making it more and more difficult for businesses to argue that their arbitration agreements are invalid (consider Buckeye Check Cashing, Rent-a-Center, Concepcion, etc.).  While those two trends may not be causally related, the end result is that the Supreme Court is strictly enforcing arbitration agreements at the same time that corporate counsel are growing less enchanted with arbitration. 

Many organizations and individuals are thinking of various solutions to the problems with arbitration identified in the survey, and legislators are brainstorming statutory solutions.  One interesting proposal to increase transparency about various arbitration programs is from Professor Thomas Stipanowich of Pepperdine University, who proposes an “Arbitration Fairness Index”: an independent system to rate and rank consumer and employment arbitration programs.

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