Arbitration Agreements

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PG updated a post he put up a few days ago with a short discussion of arbitration in contracts, including literary contracts.

He decided to expand it a bit and make it it’s own post because he thinks it may benefit authors in a variety of ways.

Arbitration is one form of Alternative Dispute Resolution (ADR) that is frequently used by businesses. It’s Alternative because it’s an alternative to locating an attorney to file a lawsuit in one of the many the civil courts which, at least in parts of the US, are massively backlogged. It’s not quite Jarndyce and Jarndyce, but in many places, we’re talking about a years-long process.

ADR has flourished in the last 30-40 years because commercial businesses have wanted to get disputes resolved promptly so they can move forward with the real business of the company.

To avoid this backlog in the United States (and a number of other Western nations), a competently-drafted arbitration clause will govern the resolution of any disputes between the parties. Arbitration sidesteps the courts entirely and uses a far more efficient alternative. Arbitration is generally a better way and virtually always a much faster way of resolving business disputes than the civil court system.

For one thing, most judges have never had dealings with publishing disputes (or disputes in other specialized commercial businesses). Depending upon the jurisdiction, a trial judge may try a criminal case involving a theft from a convenience store one day, a contested divorce the next day and a dispute between two adjacent landowners about where the property line should be on the third day.

Many trial judges, particularly those who decide commercial disputes, are generalists. Most have never tried a case involving an author and a publisher or a group of authors.

Arbitration allows the parties in a publishing dispute to have an experienced literary attorney to act as an arbiter (for a fee) and they won’t have to educate the arbiter about publishing law.

You can find knowledgeable arbitrators in a variety of different ways. The American Arbitration Association is designated to choose an arbitrator and set the arbitration rules in the large majority of business contracts PG has viewed that include arbitration provisions.

The AAA website even provides a variety of arbitration clauses you can cut and paste into your contract. Here’s an example:

Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial [or other] Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

While US civil and criminal courts are typically open to the public (you can go watch a divorce trial or a criminal trial on virtually any weekday in any large or medium-sized American city), arbitration is typically private. You can specify confidential arbitration in your arbitration clause if you like, but the arbiter isn’t required to announce the time and place of arbitration to anyone but the parties and their attorneys.

While he was practicing, PG never attended an arbitration that wasn’t set in a law firm’s conference room. Typically, a supply of water bottles was provided for any who desired one. An arbitrator will have read all the written materials provided by the parties beforehand (judges sometimes don’t have the time to do so) and often has asked the parties in advance to agree upon facts that are not in dispute.

While the arbitrator is there to resolve disputes, an arbitrator has an ability to get to the bottom of the core disputes by using any reasonable shortcut. “Ms. Jones, does your client agree that the other driver entered the intersection before she did?” is an example.

Another might be, “Is there any dispute or question that the royalty reports are accurate information about how many books the publisher shipped during the period of time we’re talking about? That we’re only looking at a dispute about how many books were returned during that period and whether the publisher accurately reported and charged back those returns on the royalty statements or whether the publisher charged back a number of books in excess of the number returned or failed to report the later sales of some or all of those returned books?”

A typical trial judge would likely not know how some publishers mishandle accounting of books returned.

If two or more attorneys are charging by the hour for the parties involved, in addition to getting a dispute resolved quickly, the parties might be paying less for legal counsel via arbitration rather than educating a trial judge about the details of the traditional publishing business.

4 thoughts on “Arbitration Agreements”

  1. Good points, all.

    There’s no perfect way of handling business disputes. The dynamics of each disagreement are different. I’ve seen judges make incorrect decisions that were upheld on appeal and curious arbitration awards.

    I will stand by my contention that trial judges are, by and large, generalists, ditto for appellate judges.

    It is in the nature of anyone hearing a dispute to rely on personal experiences in making decisions about justice and injustice.

    I do think that experienced and business-savvy arbitrators have a better chance of coming to an equitable decision than a great many judges whose only exposure to business is the large law firm business.

    Too many lawyers (and judges are just ex-lawyers) have the unspoken belief that they’re always the smartest people in the room and that their knowledge base can be extended to areas about which they are clueless. I’ve seen appellate judges make absolutely incorrect decisions under the facts and the law because they took a personal dislike to a litigant.

    I once discussed term limits for judges with a group of lawyers and they generally thought it was a great idea. I didn’t dare hold the same discussion with a group of judges.

  2. This shark — allowing that there is, indeed, room for reasonable minds to differ — disagrees that mandatory arbitration, imposed in the publishing agreement ordinarily years (and sometimes decades, and all too often by a predecessor-in-interest of one or both parties) before the dispute arises, is either a just or an efficient way to actually resolve disputes in the entertainment industry in general and in publishing in particular. In this shark’s experience (which differs from that described by PG, but this is not a superior/inferior thing — only a difference):

    • If you think it’s troublesome having “generalist judges” deciding complex commercial disputes that are not in “reg’lar bidness”, try drawing the resolver from backgrounds of 85% and above (based on both personal experience and wider studies of AAA arbitration panels) in one side of the dispute only.

    • The lack of discovery rights means that the ability to probe a party that is actively hiding something — especially “the left/royalty hand didn’t know what the right/sales-and-marketing hand was doing” types of things — is essentially eviscerated unless a complaining opponent already has that information in hand.

    • Arbitrators — and especially AAA arbitrators — simply do not pay attention to choice of law. Why does that matter? Consider a dispute over whether an author has violated the no-defamation warranty, therefore justifying indemnification, when in the author’s own jurisdiction what the author said was as a matter of law not defamatory, but the publisher/defamation-plaintiff asserted a different jurisdiction’s law. Specific example: A “true crime” book by a California-based author, relying heavily on the record in California courts, is attacked by the losing party in that case who since moved to Boston or Toronto (see Cal. Civ. Code § 47(d)), and the arbitrator entirely ignores the issue. Would that this were a hypothetical, because…

    • Sometimes the finality of arbitration is a bug and not a feature. There is essentially no ability to get review of any but the most-egregiously-procedurally-screwed-up arbitral awards (“reasoned” or otherwise, and yes one must pay a hefty additional fee to get the “reasoning”). This is particularly problematic for the out-of-town party, whose counsel (unless in-town counsel was hired) is not part of the same “Old Boy” network as the arbitrator/opposing counsel. This can be annoying enough in a courtroom, although there are ways to make a virtue of it;† it’s much, much more difficult to overcome in the less-formal environment of a law-office conference room with everyone around a conference table.

    • Last, and far from least, is the cost. It ordinarily costs quite a bit more to get to an arbitral award than to a judgment in small-claims court, even leaving aside “self-representation.” (That old line about “those who represent themselves have a fool for a client” is not just hyperbole — this shark can identify many example in his personal experience in which he has had to come in later trying to fix things, and is sure PG can too.) For example, the ordinary filing fee at present for a AAA commercial arbitration with under $75k in dispute is $1725 ($925 up front, another $800 due in only a few weeks); in most “small claims” courts, many of which extend to $25k, it’s a lot less ($75 in California from $5k to the jurisdictional limit). Before the additional per-hour charges for the arbitrator, etc. A typical otherwise-small claim in the entertainment industry — exclusive of one’s own attorney’s fees, and by the way an arbitral award including compensation for attorney’s fees must be provided for in the arbitration agreement, and that’s not typical — runs upward of $4,000 in costs ($400 per hour for the arbitrator’s “study time” and “hearing time” is cheap). Now that can be serious money to an author…

    So on this, my perspective is that arbitration can be a fine way to handle a matter that does not turn on contested facts that is agreed to by the parties once they know what’s in dispute. But mandating it in advance, for all disputes, on a contract that may last for a century, not knowing what the fees and costs will look like? Not so much.

    † This shark, once upon a time, turned the tables as a Yankee carpetbagger on a deep-South Big Firm opponent that was local to the court and judge by using a tie clip. This shark’s tie clip was very low-key, a silver bar with a small gold oak leaf in the middle of it; the judge’s tie clip, at an in-chambers conference, was very similar but had two small silver stars instead of an oak leaf. Inquiring minds would want to know whether this shark had been aware of the shared professional background between this shark and the judge-with-public-biography, but if you can ask the question you can probably guess the answer. (At least this shark wasn’t wearing any specialty badges… or marksmanship or campaign ribbons. That would have been, umm, excessive.)

    • I agree. There are circumstances where binding arbitration is good for both parties, but contractually mandated binding arbitration usually is not it. The closer to equally resourced the two parties, and with fully informed consent about the identity of the arbitrator, the better it is likely to be for both parties.

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