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Arbitration Pros and Cons

Randy Barnett, writing on Volokh, describes an interesting debate on the merits (and enforceability) of arbitration clauses.

There was a time when pro-business reformers thought that arbitration would play a significant role in reducing legal expenses for businesses. That view has reduced over time and the arbitration debate is vastly reduced in relevance these days.

In federal court, if a party sues instead of seeking arbitration, the defendant must prove the enforceability of the arbitration clause in order to get the case dismissed. This mini trial can sometimes cost almost as much as a trial on the merits. The defendant's reward for winning the mini trial and enforcing its arbitration clause: an arbitration proceeding with the plaintiff.

Once arbitration begins, business lawyers sometimes find that their legal fees are not much less than they would be at trial. Lawyers' still charge by the hour when they take depositions for an arbitration as opposed to a trial.

Even worse for the defendant, an arbitrator who makes an error of law (say, refusing to enforce a waiver of damages clause in the contract) is immune from appeal.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.