January 16th, 2017

Tom Brady Reveals Advantages and Pitfalls of Arbitration Provisions

When contractual relationships are conceived, the parties never anticipate messy disputes or protracted litigation. But when a dispute arises under contract, people generally expect the dispute to end up in court. However, that is not always the case. If a written contract contains an arbitration provision, which requires all disputes to go through private arbitration in lieu of court proceedings, a party may find themselves stranded on a deserted island of financial ruin. By agreeing to arbitration, parties give up substantial rights and put their trust in as few as one individual rather than a judge and jury of peers. For some, the court system, which is much maligned by segments of our society, looks less onerous when you consider the pitfalls of arbitration; just ask Tom Brady.

In typical litigation before a court, a party will incur a filing fee associated with the filing of a complaint, service fees, and counsel fees. Depending on the complexity of the case, counsel fees can amount quickly during discovery. However, in court, a party pays no monetary compensation to the fact-finder, whether it is a judge or jury. Contrarily, in complex litigation before a private arbitrator, a party will incur a filing fee associated with the filing of a complaint, counsel fees, and hourly fees paid to the arbitrator, who will act as the judge on all legal questions and the jury on all factual questions.

The benefit of private arbitration is a quick resolution of claims and sophisticated, specialized knowledge beyond that of a typical juror. That benefit, however, must be weighed against the fact that courts are reluctant to consider an appeal of a private arbitration decision, much less reverse one. Case law has historically limited the scope of a court’s authority to review an arbitration decision. As a result, parties are often stuck with a decision without the prospects of overturning it on appeal. It is for that reason that it was so surprising that a federal New York court initially overturned an NFL arbitration decision affirming Roger Godell’s contractual authority to suspend Tom Brady for his alleged participation in Deflategate. However, upon further appeal to the federal appellate level, Tom Brady’s suspension was reinstated, and the broad autonomy and power of a private arbitrator was restored.

So, the next time you are about to enter into a written contract, it is important to consult a lawyer and discuss and weigh the risks and benefits of an arbitration provision.

Attorney Zachary R. Fowler is a commercial litigator representing businesses in litigation and court actions as well as counseling them on litigation prevention.

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