Alternative Dispute Resolution
Q: Lately, I have heard much discussion about consolidated or class-action arbitration, should I be concerned and is there anything I can do to avoid this type of arbitration?
A: Yes and Yes. Arbitration between two parties has benefits (decreased cost; less discovery; quick resolution; confidentiality) that outweigh the disadvantages (limited appellate rights; no jury trial). Consolidated or class-action arbitration alters this calculus, by permitting multiple plaintiffs to bring their claims in one arbitration, or by permitting one plaintiff to bring all the claims of similarly situated parties in one arbitration, which in turn compromises the benefits. e.g., a manufacturer might opt for arbitration in a dispute with one distributor; however, the manufacturer would not opt for an arbitration brought by numerous distributors with millions at stake. Parties who fail to consider this issue in drafting an arbitration clause could suffer monetary exposure. Therefore, steps should be taken to review and possibly, redraft arbitration provisions.
James B. Shrimp, July 2010