Today, alternative dispute resolution is commonplace. Back in 1987, when Texas’ ADR Act was passed, ADR was “alternative” in the word’s modern connotation: a little on the edge—not radical, but by no means traditional. Arbitration is supposed to be an expeditious means to resolve contractual disputes by jury trial. No one knew then how much arbitration would embed itself into the business world’s contractual relationships. Almost reflexively, arbitration provisions are found in employment agreements, law firm-client engagement letters, and consumer contracts (to name a few).

In a 2020 national survey, civil litigators and jurists ranked arbitration last on fairness and personal preference. Conversely, in the same survey civil litigators and jurists “ranked jury trials as the least predictable, slowest and least cost-effective procedure, attorneys on average viewed jury trials and second only to mediation as the fairest form of case resolution.”

This survey, conducted by LSU Law at the request of the ABA Commission on the American Jury, confirms anecdotal evidence from litigators and clients who are by and large dissatisfied with arbitration, and “all respondent groups, both judges and attorneys, on average viewed mediation as the most preferred form of case resolution.”

At times, courts also reflect on problems with arbitration and acknowledge that the notion that arbitration is superior or even comparable to litigation, including a false belief that “contractual arbitration is relatively low cost and efficient when compared to a judicial proceeding. That assumption overlooks the thousands of individuals who … would resolve their disputes at much less cost and more quickly in small claims court, and, in many cases in municipal or superior court.” Moore v. Conliffe, 7 Cal. 4th 634, 660 (1994).
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Consider Contractual Alternatives 

In the face of dissatisfaction, here are some contractual provisions to consider in the alternative or in addition to the commonplace arbitration clauses we have become accustomed to seeing. These can be used independently or in combination.

  1. Texas Business Courts: The newly created system has jurisdiction to hear certain types of disputes, including “an action that arises out of a contract or commercial transaction in which the parties to the contract or transaction agree[]” and the amount in controversy “exceeds $10 million.” Gov’t. Code Section 25A.004(d)(2). This statutory provision allows contractual parties to proactively (or retroactively) select the Business Court as the preferred forum to hear their contractual disputes if the amount in controversy exceeds $10 million. Such forum selection clauses, permit parties to avoid both district courts and arbitrations and should be considered by contractual drafters for all transactions over $10 million. Although the Business Court system in Texas is new, and its success remains to be seen, the structure offers many benefits for litigants. The judges in the Business Court are sophisticated and equipped to handle complex matters; they have the capacity and availability to be responsive to litigants and move cases efficiently. And in contrast to arbitrations—the Business Court will provide written opinions and establish precedent to increase the predictability of outcomes and its decisions are subject to appellate review to correct errors of law or fact. 
  1. Mandatory Mediation: In the ABA survey, all civil litigator and jurist survey respondents agreed that mediation was the most predictable, fastest, most cost-effective, and ranked highest on fairness. Thus, it is no surprise that those same respondents most preferred mediation overall. Given all the positive attributes of mediation, and potential benefits to all parties, contractual drafters should consider including a mandatory mediation provision for any dispute arising from the contract, independent of court-imposed mediation. This could be drafted as a stand-alone provision or used in connection with a forum selection clause. Drafters should also consider imposing an early mediation timeline. Early mediation and resolution can help parties avoid the expense of protracted litigation.
  1. Jury Trial Waivers: Again, all civil litigator and jurist survey respondents to the ABA survey agreed that jury trials ranked lowest on predictability, speed, and cost-effectiveness. The same group also significantly preferred bench trials to arbitration both overall and specifically in terms of fairness. Thus, contractual drafters should consider including jury waivers as an arbitration alternative. In particular, this is a useful provision if concerned with the slow speed and cost ineffectiveness of jury trials. Avoiding a jury can increase the predictability of an outcome and bench trials are ranked higher in fairness over arbitration because they are more transparent, and have pathways to reverse errors, unlike arbitrations. In combination with a mandatory mediation or business court forum selection clause, parties can dramatically improve their prospects of resolving disputes fairly and cost-effectively compared to arbitration. 

You are not alone if you’re feeling dissatisfied with the experience of arbitration, but there are alternatives. Consider using one or more of these provisions when negotiating your contracts going forward, or renegotiating and drafting addendums to include in your current contracts.

Daniela Holmes is an attorney focused on commercial litigation with Lynn Pinker Hurst & Schwegmann in Dallas.