But The Post Does Not Tell The Whole Story
Public Citizen, a nonprofit public interest organization, in a somewhat dated (2010?) post contends:
“Not only is there no evidence that arbitration reduces the overall transaction costs of litigation (e.g. witness fees, attorney fees, discovery costs), but nobody has expounded a coherent theory to explain how arbitration could reduce such costs except in a few categories.”
Public Citizen makes some good points:
- there is a dearth of studies showing the full costs of arbitration, and comparing those costs to litigation costs;
- the forum costs of arbitration charged by the tribunal that will decide the dispute are higher than the cost of getting into court, and thus serve as an entrance barrier in smaller disputes;
- pre-dispute arbitration agreements tend to result in higher costs than post-dispute arbitration agreements;
- arbitration clauses can be one-sided, requiring one side to arbitrate, but leaving the option of litigating or arbitrating open to the other side;
- parties that arbitrate may still need to resort to the courts to enforce arbitration clauses, to obtain subpoenas, to confirm an award, and to enforce an award.
These points apply with greatest force in consumer arbitrations. Here, however, California has somewhat leveled the playing field:
- arbitrators cannot administer consumer arbitrations under agreements requiring the consumer to pay the prevailing party’s fees or expenses (Cal. Code Civ. Proc. section 1284.3(a)).
- fees and costs in a consumer arbitration (exclusive of the arbitrator’s fees) shall be waived for an indigent consumer – meaning a person having a gross monthly income less than 300 per cent of the federal poverty guidelines (Cal. Code Civ. Proc. section 1284.3(b)).
- if the arbitration provisions are truly one-sided – i.e., they require one party to arbitrate, but leave open the option to arbitrate or litigate to the party with greater bargaining power – that will be evidence of substantive unconscionability of the arbitration agreement in California.
Finally, there are plenty of reasons, other than measuring hard costs, for choosing arbitration, including: more control over scheduling, convenience of location, input into choosing the decision maker, privacy, speed (especially where court dockets are congested), and finality.