March 2017

March 2017:

Economic research firm quantifies time and cost benefits of arbitration versus litigation in federal court.  

The Los Angeles based economic research firm Micronomics Economic Research and Consulting ("MERC") published a study that quantified the time and cost benefits of arbitration versus litigation in federal court.  Focusing on the period 2011 through 2015, MERC compared time to trial and time to appeal in federal courts around the country to time to Award in arbitrations administered by the American Arbitration Association.    

MERC found that, on average, cases in federal courts took a full twelve months longer to get to trial than disputes in arbitration took to get to final Award.  Looking at federal court cases that were appealed, such cases took an additional nine months after trial for resolution by the federal appellate court.  In other words, resolution of a federal court case from filing in district court through disposition by a court of appeals took a full twenty-one months, or nearly two years, longer than a corresponding dispute in arbitration took to get to final Award.     

Using conservative estimates relating to amounts at issue in these cases, MERC determined that, as compared to arbitration, the additional time required to get the federal court cases to resolution by trial resulted in direct economic losses of $180 million per month.  Looking at the federal court cases that were not resolved until appeal, the delay in resolution as compared to arbitration resulted in direct economic losses of $330 million per month.    

MERC identified several benefits of arbitration apart from time and cost, including more control over the process, party control over selection of the decision-maker, the ability to control disclosure of confidential information, and reduction in legal and other litigation expense.  It did not quantify these benefits.     

"On average, federal courts take much longer to resolve by trial and appeal than arbitration by the AAA.  These differences are systematic across almost all states and sections of the country and are especially significant in the states with the highest arbitration and federal court caseloads.  In light of these diffferences and the economic costs associated with delay, other things equal, parties would be well-advised to consider arbitration for dispute resolution."  Report at 26.       

The MERC report can be found here.         

 

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