An Arbitration Primer for the Marijuana Industry, Part Two

In the first part of this series we covered the basics of how arbitration works, and some of the main differences between arbitration and litigation. Today we will consider some of the benefits and drawbacks of a cannabis business settling a dispute through arbitration.

Privacy. In the first part we discussed the “private” aspect of arbitration in the sense that parties in arbitration forego the publicly funded court system. But arbitration also offers privacy in the sense that the proceeding is not held in open court, with public access to court records and the possibility of media exposure; the parties can agree to keep the entire process confidential. Businesses and individuals alike appreciate that there will be no airing of dirty laundry in a public court. Moreover, because the arbitrator’s final award can be kept secret, its precedential value is limited. For example, say you arbitrated a dispute with a former employee over the employee’s wages and the employee prevails. If the arbitration award is kept confidential, a second employee would likely not be able to use the award from the prior case in his or her own dispute against your company.

How will you resolve your cannabis business dispute?
How will you resolve your cannabis business dispute?

For those in the cannabis industry, privacy cuts both ways. On the one hand, since the legality of marijuana is still murky, businesses and individuals buying and selling marijuana and ancillary products surely appreciate discretion. On the other hand, since there is so little case law to guide industry participants’ behavior and assist courts with deciding cannabis cases, it does the cannabis industry some disservice when parties choose to keep their proceeding confidential. Keeping marijuana-related litigation out of the courts also arguably contributes to the still-taboo image of legalized marijuana. If the marijuana industry is ever to be viewed as “normal,” having to go to court is just one more “normal” part of doing business it will have to accept.

Speed and Expense. These two considerations go hand-in-hand. In the first installment of this post, we discussed the expense of arbitration as it relates to filing fees and compensating the arbitrator. However, many observers believe that those up-front costs are more than made up when you consider that cases are often more quickly resolved in arbitration as compared to litigation. In most instances a case takes at least one and a half to two years or more to wind its way through the courts. By comparison, the same case in arbitration could be resolved in less than a year. Very simple cases may be wrapped up in three to four months. All those months equal months during which the parties are not incurring legal fees, which can add up to big savings.

Scheduling can often be more accommodating in arbitration as well. In many jurisdictions, the court will issue a standard case schedule that does not take into account the parties’ needs. Whether you like it or not, the main road markers such as the discovery cut-off and deadline to complete mediation will be spelled out for you, whereas in arbitration, the arbitrator often consults with the parties as to the anticipated motions practice, discovery needs, and the length of the hearing and can fast-track the proceeding if they so desire. Legal disputes can often evolve into consuming distractions, even for sophisticated businesspeople; the busy cannabis entrepreneur is often well advised to seek the more efficient path of dispute resolution — arbitration.

Discovery. In litigation, discovery is quite broad, reaching far into areas that might lead to the uncovering of useful, relevant information. Parties in litigation often issue multiple rounds of written interrogatories and document requests, and conduct many depositions. In contrast, the scope of discovery in arbitration is generally understood to be much narrower, and many arbitrators will seek the parties’ agreement as to the number of depositions and the extent of written discovery. This ability to tailor the discovery process can significantly decrease the cost and intrusiveness of the entire proceeding. However, if yours is the kind of case that will require much scrutinizing of documents or deposing many witnesses, you may be better served in litigation.

Binding award. Most of us have a general belief that there is a “right to appeal” an adverse court ruling. The procedural and substantive strictures of an appeal are more difficult than most people realize, but in most instances if you don’t like the result the judge or jury gave you at trial, there is at least one other court you can complain to about it. The same is not true in arbitration. Unless the arbitrator shows “manifest disregard” for the applicable law, or the losing party can show that that arbitrator or proceeding itself was somehow compromised or unfair, the award will be final and binding.

The fact arbitration usually lacks the second layer of review often initially strikes people as unfair. But in truth, very few cases are overturned on appeal, so the procedural safeguard you give up by opting into arbitration isn’t all that valuable anyway.

Formality. Though an arbitrator is often a well-credentialed lawyer, in most cases you will find he still does not demand the same kind of formal address and decorum as in a courtroom. This is a small point, but litigation is stressful, and the opportunity to resolve your dispute around a conference table in front of an arbitrator can make the whole process a little more tolerable. As compared to a judge, an arbitrator will probably care a little less about how you dress or wear your hair, and may be less concerned with the fact that you are engaged in the business of marijuana.

Stay tuned for the final part of this post, where we will discuss crafting an arbitration clause to suit your business’s needs, and what to watch for when signing an agreement calling for dispute resolution through arbitration.

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