Parties to an arbitration can actually tailor the process that produces their arbitration award in several ways. Among other things, they can limit the scope of their arbitration, curtail a binding award with a high-low agreement, engage in a baseball-style arbitration and agree to make the award non-binding. By understanding their tailoring options, parties are better prepared to embrace arbitration and the outcome of their dispute.

Limit the Scope of the Arbitration

Arbitration is a court of the parties own making, so its jurisdiction over the parties and disputes arising between them is for them to decide. Parties can do this by contracting to limit the scope of their arbitration to resolve only certain kinds of disputes or issues.

It has been argued that this approach has its downsides – for example, it can split the resolution of different disputes between multiple forums  – but it can also serve the parties’ business goals. Notably, parties to employment disputes may prefer to assign sexual harassment claims to arbitration for the sake of privacy. And, of course, niche, technical disputes are best resolved by those with niche, technical legal knowledge. Parties to a real estate transaction may want to carve out tax-related disputes that arise from their deal for arbitration to ensure these matters are adjudicated by a practitioner they know is a master of this practice area.

“A specific arbitration clause creates predictability: A certain dispute arises and the parties see that it’s clearly arbitrable, so they arbitrate it,” said Hon. Brigid M. McGrath, (Ret.), senior mediator and arbitrator at ADR Systems. “The key is writing the arbitration agreement’s scope in a common-sense, specific way. Grey language defeats the point of limiting an arbitration’s scope; a substantive dispute becomes a procedural one – it shifts from how to resolve this specific dispute to whether this dispute is even arbitrable – and that will only extend the life of the case.”

High-Low Agreements in Arbitration

Arbitration poses risks: the possibility of no recovery for the plaintiff if they lose and the possibility of an exorbitant award against the defendant should the arbitrator rule for the plaintiff when the arbitration involves monetary damages. Parties can obviate these risks by entering into a high-low agreement that will curtail their arbitrator’s monetary award.

A high-low agreement sets maximum and minimum recovery values for the plaintiff. If the arbitrator rules for the plaintiff above the maximum or below the minimum, they recover whichever is closest. If the arbitrator rules for the plaintiff within the bracketed range, they recover what the arbitrator awarded them.

Parties to lawsuits pending in court typically agree to high-low agreements so they can mitigate the risk of a sizable verdict, ensure some recovery for the plaintiff or keep recovery within an insurer’s policy limits. A high-low agreement can serve those same ends in arbitration while allowing the process to produce a merits-based ruling on the case and provide the prevailing party with a sense of vindication.

Baseball-Style Arbitration

Baseball-style arbitration, which is also known as “final-offer arbitration,” is a type of binding arbitration where, after the presentation of the facts and legal briefs, each party submits a final proposed outcome to an arbitrator. The arbitrator must then choose one of the offers as the final decision. The arbitrator cannot modify or create a different outcome; the arbitrator must choose one or the other.

“Baseball-style arbitration defeats the perception that arbitrators ‘split the baby,” said Hon. Patrick J. Sherlock, (Ret.), senior mediator and arbitrator at ADR Systems. “Baseball-style arbitration has the parties focus on the relief they genuinely believe to be appropriate. The side benefit is that the process encourages the parties to promote a just (and, perhaps, agreed) resolution.”

Non-binding Arbitration

A non-binding arbitration may seem oxymoronic, but it can offer parties useful guidance. The arbitrator’s findings of fact and conclusions of law can be persuasive indicators of how a judge or jury may rule if the dispute is tried in court — especially if the parties have selected an arbitrator who served in the venue where their case would be litigated.

Parties can use the arbitrator’s determination as guidance and leverage while negotiating a settlement. Like a mediator’s recommendation or a neutral evaluation, an independent, arbitrated opinion on the case (or part of it) can help parties break down impasses and encourage them to revise their positions.

“Cost, of course, is a concern,” said Judge McGrath. “A non-binding arbitration does not dispose of the case, so parties are paying for a non-resolution. But if they are engaged in a high-value dispute, which will entail expensive discovery and motion practice, testing the case in a riskless, private, court-like environment may be worthwhile in the long run, especially if the non-binding award persuades the parties to negotiate and settle.”

You Can Tailor Your Arbitration Process

Most arbitrations stem from the arbitration provision in a contract, creating what Judge Sherlock has described as a “a resolution system by the parties’ design” – but one more customizable than any state or federal courtroom. Parties can customize their arbitration by tailoring the process that produces their arbitration award. Limiting the scope of the arbitration, agreeing to high-low parameters, engaging in a baseball-style arbitration and making the arbitration non-binding are all ways that parties can produce an outcome in arbitration that better suits their needs.

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Hon. Brigid M. McGrath, (Ret.) has handled complex commercial and personal injury case types throughout her 34-year legal and judicial career, including construction defect, legal malpractice, medical malpractice, insurance coverage and product liability matters. As a senior mediator and arbitrator, she is skilled at diffusing conflict and identifying root causes of disputes. Counsel know Judge McGrath will prepare thoroughly for every case and work diligently toward resolution.

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Hon. Patrick J. Sherlock, (Ret.) has over 35 years of experience in litigation matters, garnering a reputation for his work ethic, thoughtfulness and inventive approach to resolving commercial and complex tort disputes. While on the bench, Judge Sherlock presided over and settled many notable cases, including the first baby powder mesothelioma case in Illinois and a multi-billion-dollar class action concerning shareholder rights. His rulings have been affirmed by more than 100 appellate court opinions.

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