Litigation Cost-Benefit Analysis and Enforceability of Arbitration Agreements

Litigation Cost-Benefit Analysis and Enforceability of Arbitration Agreements

University of Phoenix, School of Business
Business Law

Part I: Recommendation for Solar Co.

I would recommend using a method of Alternative Dispute Resolution. ADR is a process for settling disputes with no litigation, such as arbitration, mediation, or negotiation. Sometimes, conciliation is included as a fifth category, but for simplicity may be regarded as a form of mediation. (Cheeseman, 2016)These procedures are usually less costly and more expeditious. Unlike adversarial litigation, ADR procedures are often collaborative and allow the parties to understand each other’s positions. ADR also allows the parties to come up with more creative solutions that a court may not be legally allowed to impose. Arbitration, a widely used form of ADR, is a kind of dispute resolution method that the disputes arising between the parties are resolved by the arbitrators appointed by them instead of state’s legal bodies. For instance, in this case, Solar Co. entered into a contract with XYZ Media to prepare a 6 month national advertising and public relations campaign to help restore its tarnished reputation at a cost of $600,000. XYZ Media Launched the campaign, and it was successful for the first two months until XYZ’s computer servers were hacked and all client information was lost because XYZ failed to have adequate backup systems in place. Here it may be seen that the campaign launched by XYZ media was successful though for some. Also they were not having any control on the outside attack of the hackers and they also might not have anticipated the software attack. It is still a major gap on XYZ’s part, and it was their sole responsibility to prevent such attacks.

Solar Co.’s image had already been tarnished and they had spent a lot of money in settling the claims of its customers. They cannot afford further expenditure on the same issue by filing a lawsuit again against XYZ Media or looking for any settlement as they may to pay a hefty amount for the same. The best method for Solar Co. with be ADR. Both CEOs of the companies may meet and look for arbitration which will be a much cheaper option for both of them. As XYZ Media is ready to go ahead with their contract while taking extra precaution this time so that any software attacks may be prevented in the future. It will be a very expensive affair for Solar Co. to look for another media agency and award them with a new contract. Instead, they should look for arbitration, appoint an impartial third party, and agree to the decision of the arbitration and it should be made binding to both parties. Both the parties may mutually decide and finalize an arbitrator or a mediator which may also be a lawyer, to act as an impartial third party to guide the resolution and who will ensure that all the solution proposals are legal and binding. As they will hire a single lawyer, the cost incurred will be much lesser compared to filing a lawsuit against each other. Both parties may decide the time period for the resolution of the dispute which will not unnecessarily lengthen the arbitration which will in return reduce the cost; as cost factor and time are of much importance at this time for Solar Co. and XYZ Media (as their image is also tarnished due to attack on their software by hackers), arbitration will be the best feasible option.

Part II: Memo to Solar Co.’s CEO.

Explanation of arbitration procedure and the enforceability of arbitration provisions under the Federal Arbitration Act.


Date 12.24.2018

To: The Chief Executive Officer, Solar Co. Inc.

Subject: Arbitration procedure and its enforceability under the Federal Arbitration Act.

As I have come to know that Solar Co. intends to us arbitration agreements with all clients, subcontractors and employees in the future, I would like to let you know about arbitration procedures. The general process for arbitration is given hereunder:

When it comes to enforcement of the arbitration agreements, the Federal Arbitration Act has been the law of the land since it was enacted nearly a century ago. Arbitration is a favored means of dispute resolution and agreements requiring arbitration of certain disputes are to be enforced in the same manner and to the same extent as any other contractual provisions. Cases construing the FAA have concluded that any doubts about whether a particular dispute is subject to arbitration much be resolved in favor of arbitration.

  1. Filing and initiation:
    1. An arbitration case begins when one party submits a demand for arbitration to the third party. The other party is notified and a deadline is set for response.
  2. Arbitrator Selection:
    1. The third party works with both the parties to identify and select an arbitrator based on the criteria determined by the parties.
  3. Preliminary Hearing:
    1. Once the arbitrator is selected; he conducts a preliminary hearing with the parties to discuss the issues in the case and procedural matters, such as witnesses, depositions, sharing information and other matters.
  4. Information exchange and preparation:
    1. The parties then prepare for presentations and exchange information.
  5. Hearings:
    1. At the hearing, both the parties may present testimony and evidence to the arbitrator. Unless the case is very complex, this is usually the only hearing before the arbitrator.
  6. Post hearing submission:
    1. After the hearing, both parties may present additional documentation, as allowed by the arbitrator.
  7. The Award:
    1. Finally, the arbitrator closes the record on the case and issues a decision, including an award, if applicable.

    Further, I would like to recommend the use of Arbitration Methods in the future. In support, I listed her some of the advantage of the Arbitration methods:

    You may convey me about your decision for further course of action after reading the above procedure and clauses.

    1. Arbitration allows the parties to choose their own tribunal.
    2. Arbitration is often faster than litigation in court.
    3. Arbitral proceedings and an arbitral award are generally non-public and can be made confidential.
    4. Arbitration awards are generally easier to enforce.
    5. Thank you.

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