Most distributors are familiar with the legalese used in business contracts. This back-end boilerplate often contains a mandatory arbitration clause or other provisions for pre-dispute resolution, such as jury waivers, forum selection clauses and consent to jurisdiction clauses.

Jury waivers can be a meaningful alternative to mandatory arbitration.

Most business people are familiar with arbitration, but give little thought to such provisions when a contract is signed. It's not uncommon for an arbitration provision to provide that, “any claim, dispute or controversy between us and any claim arising from or relating to this agreement or the relationships which result from this agreement shall be resolved by arbitration.”

Courts, however, regularly deal with such provisions and interpret them broadly, meaning they cover not only disputes involving the terms of the contract itself, but also any dispute arising out of the business relationship—such as statutory anti-trust, trade secret or intellectual property claims. Courts also favor litigating disputes in private arbitration proceedings, rather than adding to clogged courtroom dockets.

Unfortunately, most business people don't realize until it's too late that a set of pre-dispute resolution provisions, and in particular a mandatory arbitration provision, can substantially limit their ability to effectively litigate a contract dispute. The failure even to consider the impact of pre-dispute resolution provisions when forming a contract can be legal suicide.

Like other boilerplate provisions that show up at the end of commercial contracts, these arrangements should not be written off as standard legalese. Arbitration is not always the speedy and inexpensive forum that many believe it to be.

Arbitrations are typically heard by semi-retired judges or attorneys who charge by the hour for their preparation time. Costs accrue for each day of the hearing, plus the time needed to consider the verdict and possibly write an award. Coupled with the fees usually charged by arbitration tribunals such as the American Arbitration Assn., the costs for arbitration become exponentially greater.

Because arbitration is a creature of contract, its contours are left up to the parties. They can agree, for example, whether one or more arbitrators will hear the dispute, how the arbitrators are selected, whether a written decision must be issued, the types of pre-hearing discovery available to the parties and whether the arbitrator can award punitive damages and legal fees. Importantly, arbitrators are typically powerless to compel the depositions of parties or the discovery of documents from third parties. Similarly, arbitration awards, once issued, are difficult to overturn, so parties dissatisfied with an arbitrator's decision have few rights of appeal.

Another aspect of mandatory arbitration provisions is the obvious but implicit waiver of a party's right to a jury or bench trial. An agreement to arbitrate disputes, especially one that is broad and picks up any aspect of the parties' business relationship, removes a party not only from judicial oversight but from the right to present a case to a jury. Because challenges to arbitration provisions are often unsuccessful and contract parties who do challenge are typically ordered to present their disputes to an arbitrator, securing a jury waiver in the contract can be extremely valuable.

Such a waiver preserves a party's right to resolve a dispute using the court system, without the risk of runaway costs and damage awards that come with a jury trial. We have heard horror stories of emotionally charged juries who take sides and award high damages. Trying a case before a jury is typically much more expensive than trying that same case before a judge. Moreover, many of the substantive limitations of arbitration provisions disappear when the case is in the court system.

A bench trial can be brought in state or federal courts, where judges typically have a level of familiarity with the applicable laws and where they are duty-bound to follow the law. In arbitration, a party may not know their arbitrator (or his or her temperament) or be aware that arbitrators are not bound by the rules of evidence and typically do not have to explain their decision (often times leading to awards that “split the baby”).

By contrast, judges typically decide cases based on the law and evidence, which brings a degree of predictability to the case—plus the ability to win big. Judges are paid regardless of the length of the proceeding or the manner in which the case is resolved and can often help settle cases in ways an arbitrator can't. Parties also have full discovery and appeal rights for cases tried to a court and can use pre-trial procedures, typically lacking in arbitration, to narrow the issues, obtain favorable pre-trial rulings and otherwise limit the scope of the ultimate trial.

While not as common in practice, planning for disputes to be resolved by way of a bench trial, which includes a voluntary jury waiver, is a viable alternative to mandatory arbitration provisions and should not be overlooked by distributors when planning the pre-dispute resolution terms of a contract. Coupled with a favorable choice of forum, choice of law and consent to jurisdiction provisions, a mandatory bench trial can be an effective alternative to mandatory arbitration.