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Arbitration is a device falling under the general category of “alternative dispute resolution.” There have been a lot of comments — some critical, some not — that in certain contexts, arbitration resembles traditional litigation. Every once in a while, however, a case comes along highlighting just how “alternative” arbitration can be — and how the courts will leave this “alternative” alone. The title of the case suggests its difficulties. Lefkovitz v. Wagner and Jarnis United Properties Co. and Grippo & Elden and 29-31 Associates was in arbitration from 1998 until 2003 as, during the years, the arbitrator consolidated the original arbitration with two other arbitrations. The claim began when the Lefkovitzes, who were two of the six partners in Jarnis, filed a lawsuit against the other four partners. They alleged that their partners had been looting the company’s proceeds by paying themselves excessive compensation for actual or fictitious services. Jarnis, the company, was not a party. But in the world of the “alternative” forum, the mere fact that the company was not a party is no impediment at all to (1) getting the benefit of a remedy and (2) being ordered to pay $1.8 million in attorney fees to the plaintiffs. On appeal, faced with its failure to intervene in the arbitration proceedings, the company made the facially sound argument that it had no reason to intervene until, surprisingly, it was ordered to pay the fees. In the alternative forum, however, “reality” controls on appeal. After all, the defendants who were parties (the four wrongdoing partners) controlled the company, and therefore the company’s attempt to vacate the remedy simply because it was not named was perceived as nothing more than the actual defendants, dissatisfied with the outcome, trying to “derail” the arbitration. Further, in “reality” the arbitrator’s award against the company transferred only two-thirds of the fee, i.e., $1,200,000, to the plaintiffs, because the plaintiffs themselves owned the other one-third. So, the court wisely opined, if anyone should be complaining, it should be the plaintiffs because their award is actually diluted — but the plaintiffs had not appealed. Of course, the other part of the award ($7 million to Jarnis) also resulted in the “reality” that two-thirds of it went to the wrongdoing defendants. No problem! The court simply assumes that, again because plaintiffs had not appealed, there is no good reason to start this process over again. Well, if you were the attorney for the plaintiffs, and had spent five years to reach this point, would you appeal, and start this process over again? What I wonder is why none of the judges hearing this appeal decided to remand to the arbitrator for clarification, to see if he really did intend that two-thirds of his award in chief would revert to the wrongdoers, as well as one-third of his fee award. I think that the answer lies within the opinion itself, which instructs just how “alternative” arbitration should be perceived. As the court says, the parties showed “a lack of understanding of how arbitration differs from adjudication. Arbitrators are not professional judges; often they are not lawyers at all, although this one was. Parties that opt for arbitration trade the formalities of the judicial process for the expertise and expedition associated with arbitration, a less formal process of dispute resolution by an umpire who is neither a generalist judge nor a juror but instead brings to the assignment knowledge of the commercial setting in which the dispute arose. … When disputants repose their trust in a specific individual rather than having to take the luck of the draw, it is right that they should have to take the bad with the good unless the individual runs completely off the rails.” What does it take to run completely off the rails? Obviously, an arbitrator can order a nonparty to pay damages, and also receive the proceeds of his award, and not run off the rails. If an arbitrator can do that to an entity that never even showed up, it would take quite a bit to run off the rails with almost any order or award against a party which was actually at the table. These sorts of opinions crystallize the view that I believe appellate courts increasingly hold — arbitration really is an “alternative” to the court system. If parties choose arbitration, they must be fully prepared to live with the result. That is the “reality.” Joseph D. Garrison is a partner at Garrison, Levin-Epstein, Chimes and Richardson in New Haven. If you are interested in submitting an article to Law.com, please click here for our submission guidelines.

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