Arbitration is a popular alternative dispute resolution method that many parties use instead of going to court. It is often faster, less expensive, and more private than litigation. However, what happens when you lose in arbitration? In this article, we will discuss the consequences of losing in arbitration and what steps you can take if you find yourself on the losing side.
Finality of Award
One of the key features of arbitration is that the arbitrator’s decision, known as an award, is final and binding. This means that once the arbitrator issues a decision, there is no right to appeal. Unlike a court judgment, there is no higher court to review the decision or correct any errors.
1. Limited Grounds for Vacating an Award
If a party wants to challenge an award, they can only do so on limited grounds. The Federal Arbitration Act (FAA) provides four grounds for vacating an award:
- Corruption, fraud, or undue means
- Evident partiality or corruption of the arbitrators
- Misconduct by the arbitrators
- Exceeding their powers or failing to deliver a final and definite award
These grounds are very narrow and difficult to prove, which further underscores the finality of arbitration awards.
2. Enforceability of Award
Once an arbitrator issues an award, the prevailing party can enforce it in court. The FAA provides a streamlined process for enforcing arbitration awards. Unlike litigating a judgment, there is no need to initiate a new lawsuit to enforce the award. Instead, the prevailing party can file a petition to confirm the award in court.
If the losing party does not voluntarily comply with the award, the prevailing party can seek judicial enforcement through a court order. Courts have broad powers to enforce arbitration awards, including the ability to enter judgments, issue writs of execution, and impose contempt sanctions.
Limited Grounds for Judicial Review
Arbitration awards are subject to limited judicial review. This means that courts will not second-guess an arbitrator’s decision simply because they disagree with it. Instead, courts will only vacate the award if it meets one of the narrow grounds set forth in the FAA.
1. No De Novo Review
Courts will not conduct a de novo review of the merits of the dispute. This means that the court will not re-examine the evidence or arguments presented to the arbitrator. Instead, the court will only review the arbitration record to ensure that the arbitrator did not exceed their powers or engage in misconduct.
2. Standard of Review
Courts apply a deferential standard of review when evaluating arbitration awards. The standard is whether the arbitrator acted within the scope of their authority and provide a reasoned decision based on the evidence presented at the hearing.
Financial Consequences of Losing
Losing in arbitration can have significant financial consequences. In addition to paying the other party’s damages, the losing party may also be responsible for the prevailing party’s attorneys’ fees and arbitration costs.
1. Attorneys’ Fees
Many arbitration agreements include provisions that require the losing party to pay the prevailing party’s attorneys’ fees. These provisions are intended to discourage frivolous claims and incentivize parties to settle disputes early. Depending on the complexity of the case and the hourly rates charged by counsel, attorneys’ fees can add up quickly.
2. Arbitration Costs
Arbitration can be expensive. Parties are typically responsible for paying the arbitrator’s fees and administrative expenses, which can range from several thousand to tens of thousands of dollars. Unlike litigation, where the court bears the cost of adjudicating the dispute, arbitration shifts these costs to the parties.
Strategies for Reducing Risk of Losing
While there is no guaranteed way to win an arbitration, there are several strategies that parties can use to reduce the risk of losing.
1. Choose the Right Arbitrator
Parties can select an arbitrator with experience in the relevant area of law and industry. The arbitrator’s background can impact their decision-making process and familiarity with industry standards.
2. Prepare a Strong Case
Parties should invest time and resources in preparing a strong case. This includes gathering evidence, retaining expert witnesses, and crafting persuasive legal arguments.
3. Consider Settlement
Arbitration is often a faster and less expensive way to resolve disputes, but it is not always the best option. Parties may want to consider engaging in settlement negotiations before the arbitration hearing to avoid the risks of losing.
Conclusion
Losing in arbitration can have significant consequences, including financial penalties and limited judicial review options. However, parties can take steps to reduce the risks of losing by selecting the right arbitrator, preparing a strong case, and considering settlement. While arbitration can be a viable alternative to litigation, parties should carefully weigh the potential benefits and risks before agreeing to arbitrate.