Arbitrating Hotel Management Agreement Disputes: Beware of 'Arbigation'
By Dan Brown Partner, Sheppard Mullin Richter & Hampton LLP | January 14, 2010
Any discussion of the benefits of arbitration over litigation generally parrots the "well known" benefits. That is, arbitration is generally viewed, by both lay persons and even by most attorneys, as a more economical and efficient method of resolving disputes than traditional litigation. Attorneys and parties are often surprised when arbitration includes complex and burdensome discovery, motion practice, and expensive hearings. As explained below, the line between arbitration and litigation has, at least in some instances, disappeared.
A. The Traditional Benefits Of Arbitration
The general perception of arbitration as a cheaper and faster method of resolving disputes is the result of certain generally-held understandings about arbitration. One common perception and, indeed, mantra of arbitration associations, is that arbitration involves little, if any, of the formal and burdensome discovery processes that are part and parcel of litigation. Thus, most people assume that, in an arbitration, there will be no requirement to produce documents in response to voluminous document requests, to participate in depositions, or to involve third-parties in discovery. It is also generally believed that arbitration is faster than litigation because arbitration avoids the delays associated with overcrowded court dockets. Finally, because of the strict limitations on judicial review of arbitrations, arbitration is considered to be a way to achieve a more final result than litigation, which often involves the potential for multiple appeals. As a result of the perceived expedited nature of the arbitration process, its informality, its finality, and the lack of full blown litigation-style discovery, it also is generally believed that attorneys' fees associated with arbitration will be drastically lower than those in litigation. Private arbitration associations, such as the American Arbitration Association ("AAA") reinforce the general perception of the benefits of arbitration over litigation, touting arbitration, and other methods of dispute resolution, as more expeditious and less costly than traditional litigation.
Based on the general perception of the foregoing purported benefits of arbitration, many attorneys and business people blindly trumpet arbitration as the preferred method of dispute resolution. And, not surprisingly, many hotel management agreements contain boilerplate arbitration clauses. However, while the benefits of arbitration are surely recognized in many matters that are submitted to arbitration, in some instances, the well-known benefits of arbitration simply do not exist.
B. "Arbigation: The Blurring Of The Lines Between Arbitration And Litigation
People with recent arbitration experience will likely tell you that, despite the conventional wisdom, arbitration is not what it is touted to be and often resembles a full fledged litigation. In fact, as a result of the gradual blurring of the lines between arbitration and litigation, some have started to refer to the process as "arbigation".