Although the courts tout arbitration as a more efficient and cost-effective alternative to litigation, many experienced lawyers would beg to differ. What are some of the disadvantages to arbitration?
- It's frequently as expensive as litigation, and sometimes more so. If nothing else, you get a judge's time for free, but you have to pay an arbitrator an hourly rate.
- While arbitration ostensibly provides a level playing field, in reality it isn't always so.
- Arbitrators vary widely in background and predisposition. Most are attorneys who have private practices as their primary sources of income, and in the employment field typically represent either employees or management. Some are more competent than others. Few have a published record from which to understand their views of legal issues until it's too late.
- An unjust arbitration award is, for all practical purposes, virtually impossible to appeal successfully.
It's the fourth item — the near impossibility of a successful appeal of an arbitration award — that brings us to today's topic. Because, in a recent employment case, a plaintiff who won an age discrimination arbitration based upon violation of the Age Discrimination in Employment Act [ADEA]but was denied the statutory remedy of having his attorney's fees paid by the losing defendant, achieved the nearly impossible and got a court to order that the defendant pay his fees.
And this tells us just how seriously the court viewed the arbitrator's attempt to deny the plaintiff a statutory remedy.
Here's the opinion in Porzig v. Dresdner Kleinwort, decided August 7, 2007.
Arbitral awards can be appealed under just a few legal theories, generally involving arbitrator misconduct, ir if the arbitrator exhibits a "manifest disregard of the law."
Here the NASD arbitrators made a concerted effort to significantly reduce the fee for Porzig's attorney. In doing so, the arbitrators ignored the "lodestar" analysis (basically hours expended times hourly rate) that has been the accepted standard in the federal courts for years. The court noted that an award of fees calculated under the lodestar analysis is mandatory — it must be awarded to a successful plaintiff. So eventually Porzig's attorney got paid what the law said that his efforts were worth, not what the arbitrators subjectively thought they were worth. Their failure to decide in accordance with the settled law constituted a "manifest disregard of the law."
Two practice pointers emerge. First, the court noted that Porzig's attorneys adequately informed the arbitrators of the correct standard for the award and calculation of fees. Had they not, they may not have won. Lawyers who represent plaintiffs in fee shifting cases should make a record that they have informed the arbitrator of the correct standard for the award of fees.
Second, defense counsel made several erroneous arguments to the arbitrators, including a manifestly incorrect position on the very issue on which the arbitrators acted in manifest disregard of the law. Thus, the arbitrators may have been led down the primrose path by defense counsel. Whether this was intentional or the result of a good faith mistake does not appear from the opinion. Defense lawyers in future arbitrations should be certain to make their arguments based upon a correct statement of the law. Failure to do so may render appealable an otherwise bulletproof defense award. And there is always the possibility of an ethics charge arising from an intentional misstatement of the law to a tribunal.