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Traditional wisdom says that avoiding trial will help keep costs down, but could it be that litigation is actually cheaper than arbitration?
At least one study indicates that it might be.
The study looked at a small sample of cases from a single company that was assessing whether its arbitration program lowered costs compared to litigation. It looked at a similar number of litigation and arbitration cases, and the results were a little surprising on the surface.
According to these observations, discussed by Inside Counsel, arbitration was actually more time-consuming and more expensive than litigation. That seems to buck the general consensus that settling out of court is a better option.
Looking at the results, it seems this finding may not be a fluke. But it may not take into account all the factors either.
First, consider the costs. The published results only looked at outside counsel expenses for arbitration and litigation. On average, each arbitration cost about $15,000 more than litigation.
But that doesn't consider other factors like court fees and costs, discovery expenses that are often more expensive when a case heads to trial, and the cost of retaining experts if applicable.
It makes sense that the costs for outside counsel are more expensive in arbitration since inside counsel are more likely to be trained in litigation. But that doesn't necessarily mean that the overall cost for arbitration is more, something the article fails to specify.
The other factor they focused on was time. On average the litigation cases took 19 months, while the arbitration cases took 21 months. That provides a more interesting metric to measure the cases.
One of the reasons for settling out of court is the prospect of a quicker resolution. But that doesn't appear to be the case in these situations. And of course, time is money.
The study's results may just reflect one company's experience when it comes to arbitration versus litigation. Before you make pronouncements about which method is best, consider collecting your own data to figure out what works best for your client.