The Downsides of Arbitration

• Author: Katie Burghardt Kramer and Amiad Kushner
• Position: Katie Burghardt Kramer is the founder of KBK Law and of counsel to Dai & Associates. Amiad Kushner is a partner with Dai & Associates, New York City.
• Pages: 44-48

Published in Litigation, Volume 46, Number 1, Fall 2019. © 2019 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be

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An Unhappy Bargain

The Downsides

of Arbitration

KATIE BURGHARDT KRAMER AND AMIAD KUSHNER

Katie Burghardt Kramer is the founder of KBK Law and of counsel to Dai & Associates.

Amiad Kushner is a partner with Dai & Associates, New York City.

Be careful what you wish for, lest it come true. And be fore-

warned: Arbitration is not the shimmering nirvana for parties in

dispute. Yet, clients and their lawyers contract for it all the time

and sometimes choose to submit to it even absent an agreement

requiring that they do so.

While many have championed the cause of arbitration, ar-

guing that it offers a streamlined, compelling, and economical

alternative to litigation, that is true only to some extent. There

are also some sneaky downsides and underappreciated risks,

often ignored in the rush to embrace something other than the

prospect of slogging through years of discovery and seemingly

infinite pages of documents, with all of the resultant tedium

and protracted motion practice.

We’ve all heard that one benefit of arbitration is that it is

subject to only extremely narrow judicial review. In a word,

it’s final.

That benefit carries a big price. There is no mechanism to

reverse even the most egregious errors of fact or law by arbi-

trators. When you commit to arbitration, you’re agreeing to

be bound by what may turn out to be—in the words of various

courts—an “ugly,” “whacky,” or flat-out wrong decision.

As compared with a trial court decision that may be reversed

by one or more levels of appellate courts, an arbitration award

typically can’t be challenged on the merits. In fact, numerous

courts have concluded that they were obligated to confirm arbi-

tration awards that are simply wrong.

When your client agrees to arbitration, it is agreeing to ac-

cept that any decision, even an incorrect one, is final. As the U.S.

Supreme Court has stated, “[t]he potential for... mistakes is

the price of agreeing toarbitration” and thus, “[t]he arbitrator’s

construction holds, however good, bad, or ugly.” Oxford Health

Plans LLC v. Sutter, 569 U.S. 564, 572–73 (2013).

The Court of Appeals for the Seventh Circuit noted that “[f]ac-

tual or legal errors by arbitrators—even clear or grosserrors—do

notauthorize courts to annulawards.” Gingiss Int’l, Inc. v. Bormet,

58 F.3d 328, 333 (7th Cir. 1995)(internal citations omitted). In

a later decision, the Seventh Circuit boldly declared: “We will

not overturn an award because an arbitrator committed seri-

ous error, or the decision is incorrect or even whacky.” Johnson

Controls, Inc. v. Edman Controls, Inc., 712 F.3d 1021, 1025 (7th Cir.

2013)(internal citations and quotations omitted).

Be sure that you and your client understand that risk when

you start down the road toward arbitration. As the courts have

held for nearly a century, part of the bargained-for “value” of ar-

bitration is that everyone is bound by the decision, right or wrong.

See Matter of Pine St. Realty Co., Inc. v. Coutroulos, 233 A.D. 404,

407, 253 N.Y.S. 174 (1st Dep’t 1931) (“Errors, mistakes, departures

from strict legal rules, are all included in the arbitration risk”).