Pre-Filing Prejudgment Remedies In Arbitration

Putting Some Bite Into Arbitration

Mandatory arbitration clauses are de riguer in commercial agreements:  they let you resolve your disputes privately, more quickly, and at a lower overall cost.  Where they fall short is the in terrorum effect. 

Threatening arbitration if a adversary won't fall in line just doesn't have the same bite as threatening litigation.  In fact, the larger your claim, the less bite the arbitration threat has because the fee for filing a claim in arbitration goes up with the value of your claim.

Perfect example:  you are trying to settle an LLC divorce where Member X has breached his fiduciary duty causing $500,000 in losses.  The filing fee to bring the claim with the American Arbitration Association is $6,200.  The fee to bring the same claim in New York Supreme Court is $210.  Your adversary knows that your client will part with $210 in the blink of an eye, so the threat of a lawsuit is meaningful.  But your adversary also knows that convincing your client to pay the $6,200 fee to press for a reasonable settlement is going to take some work on your part. 

Luckily, there is another way.

In New York, you can petition the Supreme Court for the entry of provisional orders in aid of arbitration before you file your claim for arbitration.  CPLR § 7502(c) lets you seek a temporary restraining order and preliminary injunction in aid of an arbitration claim, and then wait up to 30 days after the court rules on your petition before filing the claim. 

The cost for the petition is $210.  If you don't settle the case within the 30 days, then you spend the $6,200 and file the arbitration.  By then, your adversary knows you are serious and your client is ready to pay the arbitration filing fee.

P.S. on Law Latin for you new kids out there:

When a senior partner corrects your pronunciation of that dead language, a good thing to do is thank him or her, and repeat the "correct" pronunciation a few times while making a face like you are committing it to memory. 

A bad thing to do is to ask who was the emporer of Rome when he/she was growing up.