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Include an Arbitration Clause in Your Contracts to Save You Money

Arbitration has increasingly been used to resolve disputes over the past twenty years. In fact, some commentators and lawyers believe that alternative dispute resolution (“ADR”) (meaning, among other used methods, mediation, arbitration, and the use of “private judges”) is the “wave of the future.” In support of their laments, these commentators point to the ever-increasing congestion of the courts, resulting in the time it takes to actually obtain a resolution of a dispute, as well as the almost prohibitive costs associated with obtaining that resolution. In addition, most point to the fact that disputes resolved through arbitration and mediation are generally not the subject of public scrutiny because they are not a part of “the public record.” It should come as no surprise to anyone that lawsuits filed in the courts are open to public view: the media regularly reports on the filing of lawsuits, the progress of public trials, and the verdicts reached in those trials.

One of the most pro-arguments for arbitration is generally thought to be its cost. Arbitration should be, and usually is, less expensive than traditional litigation. Although the parties in arbitration must pay for the services of their arbitrator or arbitrators (while they do not have to pay for a judge), the money that is saved in terms of attorney’s fees and other out-of-pocket costs can be significant. To understand how arbitration can be less costly than litigation, one must understand the various stages of a lawsuit.

  • The Pleading Stage – lawyers generally refer to the initial processes of a lawsuit as the “pleading stage.” In California, this is the stage where a complaint (the document filed with a court to institute a lawsuit) is filed. After the complaint is filed and served on the defendant, the defendant then files some form of response to the complaint. In this early stage, both attorney’s fees and out-of-pocket costs are, in the greater scheme of a lawsuit, relatively small.
  • The Discovery Stage – after the plaintiff has filed its complaint and the defendant has responded (which generally lasts less than three months), the parties enter into the “discovery stage.” This stage of the lawsuit permits the parties to ask written questions of each other, take depositions, and ask each other to either admit or deny certain allegations of the pleadings, among other things. Assuming both parties play the way the rules intend them to play, this process should be straight forward and, although more costly than the pleading stage, not prohibitively costly. However, if one or both parties decide to circumvent the discovery statutes and rules, it can become chaotic. This is also the time for lawyers to bring a variety of pre-trial motions and is generally the most expensive of the three stages of a lawsuit.
  • The Trial Stage – finally, the case is ready for trial. Depending upon where in California your case is filed, this could be anywhere from one year to several years, depending upon how complex the lawsuit is.

Throughout the progress of the litigation, lawyers are constantly working and, consequently, charging their clients for the time they spend working on the case. These fees can range (depending upon who the lawyer is, as well as how complex the case is) from $125.00 per hour to upwards of $600.00 per hour. It is simple to see that even a slight hiccup in the process has the potential of causing the costs of the lawsuit to go up by tens of thousands of dollars.

By contrast, arbitration is generally less expensive than a lawsuit, if for no other reason, it greatly restricts the discovery process and can eliminate all of the traditional pre-trial motions brought in lawsuits. Arbitration also proceeds much more rapidly than the traditional lawsuit and allows for a simpler and less technical means to present evidence. Finally, in most cases, it can eliminate the possibility that the losing party will appeal the decision of a trial court. So how does one take advantage of the arbitration process? The answer is to include a properly drafted arbitration provision for all of your contracts. In California, the parties are free to provide for arbitration in almost every situation.

To ensure that you can avail yourself and your business of the arbitration process, and thus save you a substantial amount of your hard-earned income, you need to employ the services of a rising star in the legal community. Michael Leonard, Esq. of San Diego Corporate Law is just such an attorney. To schedule a consultation with Mr. Leonard to discuss any business-related matter, you can contact him by visiting San Diego Corporate Law or by telephone at (858) 483-9200.

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Schedule a Consultation: 858.483.9200