ARBITRATION VS. LITIGATION

By , November 7, 2017 9:44 am

A key issue in negotiating and drafting any LLC operating agreement for multi-member LLCs is whether the dispute resolution provision in the agreement should provide for arbitration or for litigation.  For many years, I’ve leaned toward arbitration, since it is private and informal and often faster than litigation and sometimes less costly.  Thus, arbitration, not litigation, is the default dispute resolution method in the model operating agreements for multi-member LLCs in my LLC book.  However, recent experience has led me to reexamine this issue, and I am now inclined to think that for many multi-member LLCs—perhaps even for most—the best method is litigation, not arbitration, because (1) if you get a bad decision in arbitration, it is very hard to get that decision reversed in litigation under the federal arbitration act; and (2) the benefits of clarity and objectivity that court civil procedure and discovery rules provide are likely to outweigh the disadvantages of these rules.  It’s true that the parties can agree to comply with these rules in their arbitration, but it may be important to have a judge in court rather than an arbitrator in arbitration interpret and apply them.

One Response to “ARBITRATION VS. LITIGATION”

  1. One big advantage of arbitration is that the files and hearings are confidential.

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