Critics of arbitration often assert that arbitration under JAMS, AAA and other well-known arbitration service-providers ("Providers") has the potential to become more expensive then pursuing traditional litigation. The argument goes that deep-pocketed entities use arbitration as a bludgeon to force adversaries with little or no resources to settle or abandon their claims.
SDNY Local Counsel has appeared in a number of arbitrations administered under various Providers and those Providers offer excellent services that may be the right choice in certain circumstances. However, arbitration under certain Providers--especially arbitration in which extensive discovery is allowed--may become extremely expensive.
Stepping over this debate, SDNY Local Counsel wishes to remind our readers of a potential low-cost alternative: "Independent Arbitration." The fact is, many lawyers, retired judges and other trustworthy, fair-minded individuals are willing to act as arbitrators for a flat or low-hourly fee and conduct an arbitration at a convenient, low or no-cost location (such as a law office conference room). In short, D-I-Y arbitration may offer all concerned significant savings. However, if Independent Arbitration is of interest to you, there are a few things to be aware of:
1) in order to pursue independent arbitration the arbitration clause in your agreement should not specify administration under any Provider;
2) if an arbitration clause does not specify a procedure, the parties will have to decide on the proper procedure to select an Arbitrator and, also, a proper procedure under which to conduct the Arbitration. Leaving these details to be decided after the parties to an agreement are in dispute is a recipe for disaster. Accordingly, an Independent Arbitration clause should refer to a general set of rules to follow or state certain basic rules expressly.
3) even if you expressly state a low-cost procedure in your arbitration clause as a substitute for a Provider's rules, you may not be fully protected -- your adversary may be able to make an end-run around your procedures by insisting on following the Provider's rules instead. For example, one Provider states in its rules that previously agreed upon procedures different from the Provider's rules may be used, but only if all parties agree to such procedures in writing after the Arbitration commences. Thus, an adversary could easily balk at the previously agreed upon procedures and force you to follow a Provider's procedures after an arbitration is commenced.
By means of example and for purposes of discussion, SDNY Local Counsel provides this Sample Rules for Independent Arbitration as a guide for would-be arbitration do-it-yourself-ers.
