This may be a hard truth to many of us: “Obtaining an award against a party that fails to appear in an arbitration may prove more costly and time-consuming than appearing in court.”
The backstory is that we represented a plaintiff in a breach action under a contract that called for binding arbitration. Shortly after the defendant filed its responsive pleading denying our allegations and laying out its defense, the defendant laid off all its staff, fired the lawyer representing it in the arbitration, and shut down all business operations. Soon the creditors swooped in and scooped up whatever assets remained.
While this was happening, we contemplated at least exploring the idea of securing an arbitral quasi-default judgment that could be used in any subsequent bankruptcy or other proceeding. However, we soon learned that given the arbitration rules we were operating under, the notion that we could swoop in with a quick default award turned out to be a fantasy. The arbitrator, as it happens, required an evidentiary hearing, affidavits, and briefs that would have cost nearly as much as a mini-trial. We were most decidedly worse off than had we been in state or federal court.
This has led us to ponder whether it’s worth including in standard arbitration clauses language that alters the operation of otherwise-default arbitration rules. The result of our pondering is Redline work product for binding arbitration provisions, intended for insertion after a standard mandatory binding arbitration clause. These new provisions mimic default judgment rules that apply in court.
