What Is Baseball Arbitration

Risks of “Baseball Arbitration” in Resolving Real Estate Disputes

MLB (Major League Baseball) created the concept of “baseball arbitration” in 1974, which is now known as “baseball arbitration.” A final submission is made by each party if a compensation agreement between an eligible player’s representative and the club’s ownership cannot be reached through negotiation. A formal hearing is held during which each side — player and management — presents its case, and then the designated panel of arbitrators chooses one of the salary bids, with no other outcome permitted.

For example, many real estate attorneys are increasingly advising their clients to use “baseball arbitration” to resolve conflicts in the real estate industry.

Sounds Good in Theory

In such a procedure, the arbitrator’s discretion is restricted to selecting either one side’s viewpoint or the opposite party’s point of view. The idea behind this is that each side concerned that its plan would not be chosen will be driven into a “zone of reasonableness,” and as a result, the gap between the two viewpoints will be closed. Despite the fact that this strategy appears to be theoretically sound, it frequently fails in practice. In practice, it appears to be ineffective in the vast majority of arbitration proceedings.

  1. For starters, because of the way such provisions are often drafted, neither side is aware of the other party’s proposal until after the bids have been submitted.
  2. If such an occasion presented itself, it may help to increase the reliability of the hypothesis.
  3. This argument is predicated on the assumption that the arbitrator will be able to reach a ruling in a relatively short amount of time.
  4. Quick choices that are mandated by law may not always result in equal outcomes.
  5. Such deadlines may obligate the arbitrator to reach a conclusion as quickly as possible without also explicitly requiring additional relevant witnesses to be involved and committed to meeting the same deadline as the arbitration panel.
  6. It is reasonable for opposing counsel to believe that any arbitrator’s time commitment in such a case will be low because the arbitrator is tasked with only making a binary decision.
  7. In a real estate arbitration dispute with a significant amount of money at risk, there are several concerns that may need the arbitrator devoting a significant amount of professional thought and time to assessing the various elements that might have an influence on the either/or decision.

“Split the Difference”

One of the major justifications advanced in favor of baseball arbitration is that it eliminates the possibility that arbitrators may simply “split the difference” between the parties. Yes, there may be a few arbitrators who are willing to split the difference, but this is a wildly overblown issue, and attempting to prevent it does not justify picking an even more risky approach. Some baseball arbitration clauses provide that if the difference between the offers is in a “tight” range—for example, 5 percent or 10 percent—or some other predetermined percentage—the difference can simply be shared.

  1. An arbitrator may not be required in such instances if the arbitration clause is properly structured; nonetheless, this is an unusual occurrence.
  2. In the event that one party submits an outlandish proposal, this condition would favor the wilder actor while penalizing the party that provided a more realistic plan in a split-the-difference scenario.
  3. This cynicism is a natural right of both sides, but it is frequently not based in reality in most cases.
  4. Allowing the arbitrator greater latitude in the situation at hand would frequently result in more appropriate outcomes being achieved.
  5. Such conditions may simply result in the arbitrator being forced to choose the “least bad” of the two options available, with gambling being the order of the day for the opposing parties in the process.
  6. When it was sanctioned, the questionable assumption was that the victor of the combat was the lawful owner of the land in question.

Regardless of the outcome, an arbitrator is not entitled to remodel the lease or other legal arrangement in order to avoid an unreasonable outcome. Baseball arbitration, as opposed to a trial by combat, is still supported by a large number of professionals.

Reducing the Risk

Perhaps the most advantageous aspect of baseball arbitration is that it can scare the parties into agreeing to a settlement before the process even begins. However, if the process does proceed, it will be a high-stakes gamble involving the equivalent of a random roll of the dice with unpredictable outcomes. Although numerous recommendations have been made throughout the years to reduce the risk associated with baseball arbitration, these proposals include, but are certainly not limited to, the following:

  • A single proposal is chosen by two separate arbitrators without consulting each other
  • If they both choose the same bid, the winning submission is the one that was chosen by the arbitrators. If they both chose a different plan, the reward is the proposal that falls in the middle of the two entries. Three independent arbitrators choose one of the two submissions without consulting one another
  • If all three arbitrators make the same choice, then that is the award
  • If two arbitrators choose the same proposal and the third chooses the other submission, then the award is weighted in favor of the submission that has been chosen more frequently.

The implementation of these recommendations would be challenging logistically and would incur additional costs; nonetheless, they would be an attempt to make baseball arbitration less onerous for both parties involved in the dispute. Because of the money, time, and logistical challenges involved, such options are unlikely to be used in situations of modest financial impact; nevertheless, these approaches may be tested in a few bigger circumstances. Baseball arbitration agreements might benefit from the addition of two additional factors that, if included, could potentially lessen the risk associated with the process.

It is possible that revised submissions will be made after the first bids have been communicated and both offers are known to both parties, in an effort to reduce the range of the bids.

Conclusion

I have acted as an arbitrator in a variety of real estate disputes, including some involving baseball arbitration, and I would be willing to do so again in the future if the need arose. Perhaps, in order to reduce the likelihood of random injustice occurring, the parties would be best served by granting the arbitrators more latitude in their decision-making. ***** Currently, Gerald M. Levy is the president of Gerald M. LevyCo., a firm that provides real estate arbitration and mediation services.

He may be reached at the following address: While the opinions represented in this article are those of the writers, they do not necessarily reflect the opinions of their clients or other attorneys in their firm.

What is Baseball Arbitration? – The Rules and More Explained

Even baseball aficionados, admit it: you’re not quite clear what it means when a baseball arbitrator is called in to resolve a dispute. Even the most ardent supporters of Major League Baseball might be irritated by this term, which is also known as baseball arbitration, pay arbitration, or dispute resolution. However, when you look into it, the skill of conducting an arbitration hearing isn’t quite as difficult as you may imagine.

Understanding baseball’s unique free agency period is essential, because it may ultimately decide how much a player earns during his or her tenure with the organization. Do you see what I’m saying? If this is the case, let’s start with some basic definitions.

What is a “Baseball Arbitration”?

Consider the following scenario to better understand what baseball arbitration is. The following are some requirements that must be met before the procedure may begin.

  • A Major League Baseball player who has not yet been eligible for free agency. After a certain point, a player is free to make his or her own decisions—as long as the player is able to command the wage that is available on the market. However, not all players are presently eligible to leave their current teams. According to SportingNews.com, Major League Baseball salary arbitration kicks in for wage disputes involving players who have played at least three years in the major leagues but have not yet been granted free agency status. A disagreement about a contract. In the event that a player and a team reach an agreement on a reasonable pay, the narrative is over. There is no need for arbitration. The Major League Baseball organization, however, goes above and above for players and their proper baseball pay in order to bring them back in time for spring training. The Major League Baseball club intervenes to assist in the resolution of the contract disagreement between the two parties. Players may not be prepared for the forthcoming season if this is not done, and they may not receive a fair offer that is comparable with their performance if this is not done.

When a player fulfills the eligibility standards but the organization cannot come to an agreement on what a fair contract should be, the process may be forced to go to arbitration. Independent third-parties will next evaluate whether or not the offer is reasonable. Generally speaking, a third party evaluates the salaries of athletes who have similar statistical results in order to determine a reasonable wage.

Why is it Called Baseball Arbitration?

If we look at the definition of arbitration itself, we can see that it is defined as follows:the hearing and determination of a dispute or the settlement of differences between parties by a person or individuals chosen or agreed upon by them In this case, it is exactly what we are talking about. The Major League Baseball intervenes in the form of an impartial arbitrator to determine what is fair for a player who is qualified for arbitration. In this case, we’ve used the terms “arbitration” and “arbitrator” as though there were just one person who could resolve disagreements.

These individuals are often labor attorneys who are attempting to judge a fair case without having any prior financial or other stake in the outcome.

Based on this, arbitrators determine a compensation number, often for a one-year contract, that is reasonable for both sides.

What is a Baseball Arbitration Provision?

In the CBA, there is a clause that helps to ensure that some qualified players have the right to participate in an arbitration procedure if they believe they need it. Whatever your affiliation with the New York Yankees or the Kansas City Royals, if you have a dispute with a player who qualifies for arbitration, your team will be required to submit to this procedure if you want to keep him. As previously stated, eligibility for that position can be determined by years of service time, commonly known as years of big league service.

In baseball, this refers to a player who has more than two but fewer than three years of cumulative big league service time, but who is still considered to be a top performer among the arbitration-eligible players for the season in which he or she is playing.

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Other Rules of Arbitration

  • Compensation received in the past: Generally speaking, arbitration does not dramatically increase the pay of an MLB player, but it also does not drastically decrease it, based on compensation received in the past
  • Another name for baseball arbitration is salary arbitration procedure, which is used to describe the process by which a player’s suitable wage is determined. Binding arbitration is another title for the sort of arbitration used in baseball, in which both parties are required to settle for the amount of money agreed upon. Specifically, this relates to the process by which each side chooses a number they believe is reasonable, and the arbitration panel selects only from these two figures—and only those two numbers

Arbitration in baseball may be a huge storyline throughout the offseason.

Everything from the remainder of the season—from night baseball games to contract offers for the next season—could be determined by the outcome of salary arbitration this year. Overall, it’s one of the peculiar idiosyncrasies of baseball that adds an extra layer of intrigue to each off-season.

Conclusion on The Baseball Arbitration Process

To the already intricate game of baseball, the Baseball Arbitration Process adds another degree of complication. While most fans are aware that a player has been arbitrated, they may not be aware of the complete procedure that takes place. After reading this page, you should have a better understanding of how the process works. For starters, you may anticipate players who are attempting to earn more money than they feel they are worth. Two, a team will search for methods to lower the amount of money owed to a particular player.

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What Is Baseball Arbitration?

What Is Baseball Arbitration and How Does It Work? The 9th of June, 2011 is a Thursday. Arbitration in baseball consists of the following steps: Many people in the United States are unfamiliar with both the name and the practice of arbitration, with the exception of those who read the sports pages. The phrase “baseball arbitration,” on the other hand, refers to a broader kind of arbitration that can be applied in any situation, regardless of whether the dispute is directly related to baseball.

Understanding Baseball Arbitration

During this type of arbitration, an arbitration attorney is assigned to resolve matters that are in disagreement between two or more parties, and the decision is final. Contrary to common assumption, the arbitrator’s counsel is not always free to make any decision he or she desires. Instead, each party participating in the arbitration must submit a proposal to the arbitrator in advance of the arbitration session starting. When the “baseball” rules of arbitration are followed, the arbitrator’s discretion is often limited to these types of suggestions during the course of the arbitration procedure.

This is especially true when the arbitration is not binding on the parties.

This procedure is also known as a form of it “arbitration for baseball games at night.” It is not necessary for the arbitration attorney to study the parties’ proposals in advance when using this method of dispute settlement.

He or she makes a choice that is independent of them, and then whichever suggestion is the most similar to the decision is automatically accepted and implemented. In the National Arbitration Directory, you may look for an Arbitration Attorney.

Salary Arbitration

Players who have three or more years of Major League service but fewer than six years of Major League service become eligible for salary arbitration if they do not already have a contract for the next season, which is the case for most players. “Super Two” players are players who have less than three years of service time but more than two years of service time and who have met specific conditions to become arbitration eligible. These players are referred to as “Super Three” players. Players and teams bargain over pay, with the majority of the bargaining taking place based on comparable players who have signed contracts in prior seasons.

  • If the club and the player have not reached an agreement on a pay by a deadline in mid-January, the club and the player must exchange compensation numbers for the forthcoming season, which is a legal requirement in the United States.
  • If a one-year or multi-year settlement cannot be achieved before the hearing date, the matter is brought before a panel of arbitrators who will decide the outcome.
  • During the week leading up to the exchange of arbitration data, the great majority of arbitration cases are avoided, either via agreement on a one-year or multi-year contract or through other means.
  • Once a player becomes eligible for salary arbitration, he remains eligible each offseason (provided he is not offered a contract) until he has accrued a total of six years of service in the Major Leagues.
Example

Kole Calhoun, an outfielder with the Los Angeles Angels, finished the 2015 season with two years and 130 days of Major League service experience. As a result, Calhoun was eligible for salary arbitration as a “Super Two” player the next summer, having missed the cutoff date for eligibility the previous offseason by one day.

What is MLB arbitration? Explaining the rules, eligibility & how the process works

This time of year, everyone is talking about salary arbitration, but what exactly is it? For the uninitiated baseball fan, free agents are either available or not available. Compensation arbitration, on the other hand, is hidden neatly among the litany of MLB labor statutes — a procedure that takes place during the dead portion of winter, between the Winter Meetings and spring training.

It will take place in February when clubs and players will meet to negotiate salary amounts for the forthcoming season. There is a set procedure for this:

What is MLB arbitration?

Arbitration is the process that takes place when a player and a team are unable to reach an agreement on a wage for the forthcoming season. A hearing is held between the club and the player, and it is heard by a panel of impartial arbiters before a decision is made. The arbitrators then make a decision in favor of the player or the club.

MLB arbitration rules

If a player does not have a contract for the forthcoming season and a contract is offered by the club, the player and the club must agree on a pay figure for the player. By the middle of January, both parties must come to an agreement on a number. If the player and the club are unable to reach an agreement on a pay for the forthcoming season, the team and the player will proceed to salary arbitration. Both the player and the team submit a pay figure that they believe is reasonable, which is mostly based on the wages of players of similar caliber and productivity over the previous several years.

Occasionally a player and his club will come to an agreement on a pay amount before going to arbitration, and in recent years organizations have opted to sign players to contract extensions, often “buying out” years of arbitration and sometimes free-agency years.

Who is eligible for arbitration?

Free agency, which is gained after six years of MLB service time, is only available to players who have at least three years of MLB service time but have not yet reached the age of eligibility for salary arbitration in the Major League Baseball. In some situations, players who achieve a specific level of service time are eligible for arbitration a year sooner than they would otherwise be – this is referred to as a Super Two player.

What is a Super Two player?

An MLB Super Two player is a player who has more than two, but fewer than three years of Major League Baseball service time — that is, time spent on a 25-man roster or the MLB Injured List — but who ranks in the top 22 percent of service time is pooled with players who are arbitration eligible, thereby accelerating the player’s arbitration clock and granting him an additional year of arbitration eligibility.

Depending on when the top 22 percent of the league’s players were called up or placed on a 25-man roster, the cutoff date for Super Two eligibility varied from year to year.

Benefits of salary arbitration

Players on rookie contracts have no bargaining power when it comes to money, which means that the club has complete control over how much the player earns (usually around league minimum).

Players who are qualified for arbitration are more equitably compensated for their services to their big league team, and for the first time, they have a vote in how much they are paid.

Cons of salary arbitration

Arbitration can be a tangled, violent process in which organizations attempt to establish that a player is worth less than he feels he is worth, while the player attempts to earn a raise in the years preceding up to free agency, and the process may be frustrating. Trevor Bauer, Marcus Stroman, and Dellin Betances have all spoken out against the process in recent years, citing teams’ animosity and intent to discredit the player during the process as reasons for their positions.

Baseball Arbitration Law and Legal Definition

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Baseball Arbitration

Let’s talk baseball now that Spring Training has officially begun! Although not that sort of baseball, “baseball arbitration” is a topic that we will be covering in our series on arbitration. It is understandable that some parties are hesitant to bring their disputes to arbitration because they are concerned about receiving “split the difference” decisions. Arbitrators are normally chosen by the parties, either directly or indirectly, and are compensated by them. This gives the impression that arbitrators are motivated to issue rulings that will increase the likelihood that they will be appointed again in future conflicts by “splitting the difference” between the parties in order to avoid offending either side.

  • Arbitrators in Final Offer Arbitration must consider all of the outstanding problems as a package and choose one party’s package over the other party’s package in order to be successful.
  • The arbitrator is not permitted to establish a compromise or to seek a middle ground between the two parties.
  • If one of the two plans is deemed to be excessively radical, the other side will effectively be declared the winner by default.
  • Final Offer Arbitration, as opposed to traditional arbitration, where parties may take aggressive positions in an attempt to influence the arbitrator’s compromise, has the benefit of motivating the parties to go toward the middle of the bargaining table.
  • If the bids are significantly different, yet one party has filed an absurd offer, the arbitrator’s conclusion is rather straightforward.
  • Offer in its final form The use of arbitration has its advantages, but there are a lot of factors to consider before deciding to go this path.
  • One of the most important aspects of the arbitration agreement is that it clearly specifies when and how offers may be made, the deadline for revising offers, when offers are revealed to the arbitrator, as well as the types of relief that may be included in an offer.
  • Alternatively, they may stipulate that final bids must be filed within a specified number of days before the arbitration hearing is scheduled to begin.
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Alternatively, the parties may wish to consider “night baseball” arbitration, which requires the arbitrator to make a decision without having the benefit of seeing the parties’ proposals and then to award the award to the party whose proposal is most similar to the arbitrator’s proposal in terms of substance and substance-related issues.

Final Offer Arbitration is most effective when the parties are solely seeking monetary relief, or when the issue concerns price or value disagreements, as described above.

Always contact with professional legal counsel when preparing Final Offer Arbitration agreements and before signing final arbitration agreements to ensure that the arbitration agreement will accomplish the desired results and advantages.

Final Offer Arbitration, when properly designed, offers a significant incentive for the parties to go toward the middle of the negotiation table and speedily resolve their issues. See our previous postings on arbitration for additional information.

The Need for MLB Salary Arbitration Reform

To resolve compensation disputes between owners and players, the Major League Baseball (MLB) salary arbitration system was developed about fifty years ago to be used by the league. If the club and the player are unable to reach an agreement on a pay figure by the non-tender deadline in early December, an arbitration hearing will be held in February to resolve the matter. A panel of three arbitrators will hear both parties submit their respective pay figures before making a decision on whether the team’s or player’s salary should be increased.

  1. Players receive more equitable compensation through arbitration since their rookie contracts do not allow for bargaining.
  2. It is seen as particularly out of date in terms of the assessment methodologies it employs.
  3. Perhaps it is past time for the system to be overhauled.
  4. One year of service time is equal to 172 days, which is approximately 92 percent of the length of a complete football season.
  5. It serves as a yardstick for determining a player’s financial potential.
  6. The clubs therefore retain control over the players’ salary for a longer period of time than is necessary.
  7. For example, Kris Bryant, the third baseman for the Chicago Cubs, was eligible for arbitration in 2018.

Based on his previous season’s performance, he would have contributed 2.5 runs in those eight additional games if he had been on the active roster.

Last but not least, each club has the freedom to structure their roster in whatever way they see proper, although service time decisions should not be influenced only by the desire of a team to conserve its wage funds.

Teams may be prevented from manipulating their players’ service time as a means of saving money on their pay expenditures, though, if the MLB implemented a change to its arbitration system.

This is a significant decrease from the regular season’s total of over 100.

The ability of teams and players to defend their proposed compensation will be limited due to the lack of a recent comparable season to draw upon.

In any case, the data may be biased, which might lead to unequal compensation.

This would provide financial security for players while also providing predictability for teams about money allocation.

They are attorneys that decide which side a player will be paid for the forthcoming season based on his or her legal representation.

For the bulk of the year, these arbitrators are employed in the service industry and other commercial and public sectors, where they make decisions on arbitration cases.

However, because the arbitrators are not baseball specialists and do not even work for the MLB on a year-round basis, the information that they depend on the most in making decisions is referred to as “baseball card” data by the MLB.

Pitchers are judged on the most basic statistics, such as innings thrown and earned run average, when evaluating them (ERA).

While these statistics are significant in establishing a player’s worth, they only provide a partial picture of the player’s abilities.

The arbitrators, on the other hand, do not comprehend such figures.

As a result, they will never truly appreciate how significant these newer data are in demonstrating how good a player is for a particular team.

There is a possibility that players and clubhouses may suggest that the arbitrators be lawyers who specialize in sports law or other experts who work solely in baseball.

Alternative solutions include requiring present labor attorneys to learn a baseline of baseball knowledge, including the most important performance measures, before they can practice.

A new Major League Baseball collective bargaining agreement will be negotiated at the conclusion of the 2021 season.

References: Baker, J.

Photograph courtesy of the author.

Rivera’s article “The Arbitration Case for Kris Bryant” was retrieved from www.chicagostylesports.com/the-arbitration-case-for-kris-bryant/Rivera, J.

13, 2020).

The regulations, eligibility requirements, and how the procedure works are all explained.

Retrieved from Id.I d.Id.MLB.

This information was obtained from MLB.

Perry, D., ed., retrieved from (Mar.

Why service time is important in Major League Baseball, MLBPA negotiations, and what may happen to it if the 2020 season is canceled.

(Kelly, K.

1, 2020).

The data was retrieved fromId.Id.Id.

(Dec.

The non-tender threshold may result in a frenzy of activity.

Retrieved from Id.Id.Id.MLB.

S. Ring’s website was used to obtain this information (Jan. 18, 2019). Let’s Fix the Salary Arbitration System in Major League Baseball: The Arbitrators. Accessed using the following link: mlbs salary—arbitration–system—the-arbitrators/ID ID ID ID

MLB salary arbitration explained: How does arbitration work in MLB?

Kris Bryant was involved in a high-profile and contentious pay arbitration battle. The image is courtesy of Bleacher Report. In case you’re new to baseball and would like to learn more about the MLB’s wage arbitration process, you’ve arrived at the correct spot. Major League Baseball players, in contrast to athletes in most other major sports leagues, enjoy a significant advantage in negotiating their contracts. Once they become eligible for arbitration, they will have the option to renegotiate their wage, which means they might earn significantly more money than they were originally offered.

Hundreds of players are under the authority of baseball clubs through their farm systems, and the vast majority of them never make it to the Major League Baseball level.

MLB Salary Arbitration Explained

Despite the fact that we have superstars like Miguel Cabrera, Mookie Betts, and Bryce Harper who make a ton of money, this is not the reality for the vast majority of players in the league. A large number of people work their entire lives just to make ends meet and are hence far from affluent. Some of them are talented and fortunate enough to work their way up through the agricultural system to the top. However, even if they make it to The Big Show, it will be some time before they are able to cash in on their success.

What does arbitration mean in MLB?

Contrary to popular belief, some of the most prominent players in the game earn the smallest potential MLB pay. The fact that a team has ownership over a player allows the franchise to sign them to a discount contract until a player has earned his stripes and is eligible for a large salary in baseball. To put it simply, arbitration is the process by which a player and his club fail to reach an agreement on his or her wage after considering the player’s or team’s contributions on the field and comparisons with similar players who have just signed their contracts.

How does MLB Salary Arbitration work?

The MLB arbitration process is rather straightforward. The team, the player, and his agency will likely attempt and strike an agreement before they reach that level. If not, the player asks for an arbitration hearing where both sides explain their case.

What are the average baseball salaries?

Despite the fact that we will discover a large number of players at the lower end of the MLB wage spectrum, the average compensation for MLB players in 2017 was $4.17 million, according to Forbes. Mike Trout of the Los Angeles Angels earned $37.17 million this season alone, making him the top earner in the league. The lowest MLB wage is $570,500, and the highest is $37.17 million. That is a significant disparity.

When do players go to Salary Arbitration?

Players that are eligible for arbitration are those who have played in the Major League Baseball for a minimum of three years. However, it’s important to note that some of those players may not be eligible for free agency until later in their careers, meaning that arbitration might take place between their third and sixth seasons in the league.

Generally speaking, teams will attempt to achieve an agreement and find a middle ground before to reaching that stage.

Minor League Baseball salaries

It has already been established that team control in baseball may be quite strict. Minor leaguers earn less than a tenth of what their Major League Baseball counterparts do in terms of compensation. In fact, several teams did not even pay them when the COVID-19 pandemic blackout was in effect. Teams and players came to an agreement to raise their compensation by 38-72 percent for the 2021 season, although they are still significantly undervalued in contrast to other players in the league.

  • Single-A players get $500 each week and a total of $10,500 in compensation over the course of five months. Double-A players get $600 every week, or $12,600 in total compensation over the course of five months. Triple-A players get $700 each week, or $14,700 in total compensation over the course of five months.
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Hold on to your dreams of becoming the next Major League Baseball superstar if you’re a minor leaguer striving to make your way up the ladder of success. After a while, you’ll receive your luggage. You may find our other MLB explained articles by clicking here.

The Perils of Using Baseball Arbitration to Resolve RWI Policy Disputes

When it comes to M&A or private equity transactions, buyer-side representation and warranties insurance (RWI) is used to shift the risk of a seller’s representation to an insurance company. In order to appropriately protect the insurer, it becomes required in each post-closing claim to conduct a comprehensive claim investigation, followed by a predictable dispute resolution procedure as set forth in the policy, in order to protect the insurer. Processing these claims can take a long time, depending on the nature of the claim and the amount of information that has to be obtained and processed, which is generally done by specialist consultants.

However, while expeditious adjudication of any claim is advantageous, employing baseball arbitration to settle these issues in particular raises special challenges due to the knowledge imbalance that exists between the parties involved in the RWI claims process.

A draft arbitration agreement that incorporates these safeguards is provided at the conclusion of this article for your convenience.

The Rise of Baseball Arbitration in Commercial Disputes

The phrase “baseball arbitration” refers to a type of dispute resolution that can be used in any sector or situation, and is not limited to the Major League Baseball league structure. Generalized the major differentiating element of the procedure is that the arbitrator’s discretion is restricted to the proposals that have been given to the arbitrator by the parties prior to making a judgment. Most of the time, the arbitrator examines the proposals before hearing them, although this is not always the case.

  1. The arbitrator will almost certainly reject the excessively high or low offering and award the award to the party that made the more fair offer.
  2. Typically, the baseball arbitration procedure is most successful in situations where there is a greater disparity between the parties’ offers and the material underlying the claim is not internal to the parties and not concealed from the other side.
  3. To illustrate, consider the case of a disagreement about the wage of a baseball player.
  4. Furthermore, in the case of a disagreement over the rate of fair market value for the leasing of a property, the rental value of a property may be easily determined by comparing the rental rates of comparable properties that are publicly available.

In both cases, there is no information gap for either party prior to the filing of claims and the submission of final proposals to the arbitrator. Claims filed under buyer-side RWI insurance, on the other hand, cannot be considered comparable.

The Information Disparity Problem in RWI Policy Disputes

In contrast to the instances of the baseball salary and lease, a RWI policy issue is sometimes referred to as a first-party insurance claim. As a result, by the time the claim is filed, which is typically after the closing, only the buyer has access to the pertinent information required to evaluate a highly fact-specific claim. The buyer becomes the legal owner of the bought firms’ books and records, and he retains control over access to current company workers. As a result, in contrast to the seller who sold the firms and is claimed to have made false or misleading claims or omissions, the insurer may only obtain information about the companies through the buyer.

There is a way in which the odds are set against the insurer.

A buyer may also be more willing to launch an arbitration demand early in the claims appraisal process than he or she would otherwise be if the situation were reversed.

Safeguards to Include When Using Baseball Arbitration

We propose that certain precautions be included in the arbitration clause of the RWI policy in order to mitigate these risks for the insurer. First and foremost, the arbitration clause should require a reasonable amount of discovery, which is not often required in arbitration procedures. In arbitration, discovery is often limited, and any extra discovery is managed by the arbitrator in accordance with the rules of the arbitration institution, such as the AAA or JAMS regulations, which may differ from one party to the other.

Second, the arbitration rule should provide that the two parties will only be able to offer their awards once the discovery process has concluded.

In addition, the arbitration clause should provide for interlocutory judicial review — that is, review prior to the issuance of an award — of any party’s challenges to an arbitrator’s qualifications, including the candidate’s disinterestedness or bias, as well as whether the arbitrator meets specified knowledge and experience thresholds.

  • To cite one example, see Gulf Guar.
  • v.
  • Gen.
  • Co., 304 F.3d 476, 489-92 (5th Cir.
  • Moreover, parties may incur excessive fees and delays if they wait until after the award has been given, which would negate the objective of employing baseball arbitration in the RWI setting in the first place.
  • In the first instance, the parties might specifically indicate that the non-bias and qualification provision of the clause is an important condition precedent to the agreement and that it is at the heart of the parties’ agreement.
  • See, for example, Gulf Guar., 304 F.3d at 490 (“a court may not examine disagreements regarding the credentials of an arbitrator.

In addition, the parties might include in the clause an express provision that permits the court to entertain certain objections in the first instance.

As an illustration, see, for example, Baylor Health Care Sys., 3:13-MC-054–D, 2014 WL 66470, at *1; Baylor Health Care Sys.

Beech Street Corporation, 3:13-MC-054–D, 2014 WL 66470.

Tex.

8, 2014).

If the pre-award challenge is deemed to be jurisdictional, the court may return the case to the FAA and find that it lacks the power to examine it.

See, for example, Arista Mktg.

v.

App.

1998).

See, for example, Oakland-Macomb Interceptor Drain Drainage Dist. v. Ric-Man Const., Inc., 850 N.W.2d 498, 505 (N.W.2d 498, 505 (N.W.2d 505). (Mich. Ct. App. 2014). Once again, there is no guarantee that such a workaround will be effective in the long run.

Conclusion

Reiterating the point, insurers should exercise caution when utilizing baseball arbitrations to handle claims involving RWI. While the benefits of quick and efficient claims settlements are appealing to all parties concerned, baseball arbitration necessitates that both sides have equal access to the evidence underlying the claim at issue. This is because baseball arbitration is a game of skill rather than chance. There is also a natural knowledge imbalance in the RWI setting, which benefits the buying policyholder, placing the insurer at a serious disadvantage in this type of dispute resolution procedure, particularly in the context of RWI.

As the example arbitration clause illustrates, the contract should include provisions allowing for extra discovery as well as requirements mandating that discovery be completed in its entirety before any claims are brought to the arbitrator panel.

When it comes to employing baseball arbitration to address RWI policy conflicts, such measures are critical in order to level the playing field.

Sample Arbitration Clause with Baseball Arbitration Provision

SECTION ARBITRATION
(a) Any dispute between the Insurer and the Insureds hereunder shall be submitted to theinfor confidential, binding arbitration under and in accordance with its Commercial Arbitration Rules for Large, Complex Commercial Disputes then in effect, except to the extent otherwise expressly provided in this Section.
(b) There shall be three arbitrators. The Insurer and the Named Insured shall each select an arbitrator and the third arbitrator shall be selected unanimously by the two arbitrators. The arbitrators (1) shall be disinterested, and (2) shall have knowledge of (i) the matters which are the subject of the representations and warranties alleged to have been breached and (ii) the valuation of the alleged Loss. In the event that either party-appointed arbitrator shall be challenged for failure to qualify under these requirements, the arbitration tribunal’s procedure for adjudicating such challenge shall not be final, and the challenging party may seek judicial review to the extent permissible by law. This is an essential part of the agreement and its non-enforcement is considered a fundamental breach of the contract.
(c) The parties shall have full and fair access to discovery, from parties and non-parties, including both document and deposition discovery, and including pre-hearing discovery of opposing experts.
(d) Within two weeks of the completion of discovery, the Insurer and the Insureds shall each submit to the arbitrators and exchange with each other, in advance of the commencement of hearings on the merits, their last, best offers. Following the hearings, the arbitrators, in rendering their award, shall be limited to awarding only one or the other of the two figures submitted. No reasoned award is required.
(e) The arbitration dispute resolution mechanisms are intended to be the sole and exclusive dispute resolution mechanisms for any dispute arising between the Insurer and the Insureds hereunder and shall survive the cancellation or termination of this Policy and the exhaustion of the Limit of Liability.

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