Insider: Arbitrating Hotel Management Agreement Disputes: Beware Of 'Arbigation'
By Daniel L. Brown, Esq. and Sean J. Kirby, Esq., Sheppard, Mullin, Richter & Hampton LLP
Mr. Daniel L. Brown, Esq.
My article in the Hotel Business Review is entitled “Arbitrating Hotel Management Agreement Disputes: Beware Of “Arbigation”. As you will read, despite the conventional wisdom about arbitration, many arbitrations today include complex and burdensome discovery, motion practice, and expensive hearings. As a result, the line between arbitration and litigation has disappeared and a new breed of dispute resolution has arisen, referred to by some as “arbigation”. Since an “arbigation” essentially takes away the traditional benefits of arbitration (both time and cost efficiency) it is something that a party to an arbitration will likely want to avoid.
I have recognized this increasing “arbigation” trend while representing both owners and managers in hotel management disputes and in entering into hotel management contracts. I have had both good and bad arbitration experiences, including arbitrations that have developed into dreaded, and costly, “arbigations”. Because of this, I have realized that one of the best ways to avoid an “arbigation” is to lay the foundation for an effective arbitration before a dispute ever arises. This can be accomplished with a carefully drafted arbitration provision that details exactly how an arbitration will proceed.
As discussed in my article, most management agreements have boilerplate arbitration provisions which provide very little detail as to how the actual arbitration process will unfold. Ultimately, an “arbigation” is born out of this lack of detail because arbitrators may permit the parties to take discovery as if the matter was in court. Allowing for broad discovery increases both the time and cost of the arbitration process. This problem can be potentially avoided by setting forth in your management agreement, in detail, the manner in which your potential arbitration will proceed, including provisions detailing the scope and types of discovery that will occur if a dispute arises. With a carefully drafted arbitration provision, your client is more likely to experience the traditional advantages of arbitration.
Click here to subscribe to the Hotel Business Review
Sincerely,
Daniel L. Brown, Esq.
Sheppard, Mullin, Richter & Hampton LLP
30 Rockefeller Plaza, 24th Floor
New York, New York 10112
dlbrown@sheppardmullin.com
