In the 18th and 19th centuries, dueling with pistols was a popular form of alternative dispute resolution for insult-based offenses. Rather than suffer the time and expense of trial, an aggrieved party could clear his name in an afternoon by challenging the insulter to a duel. America’s most famous duel took place in New Jersey in 1804, when Aaron Burr, the sitting Vice President of the United States, mortally wounded Alexander Hamilton, the first Secretary of the Treasury. But Hamilton and Burr were certainly not the only prominent Americans to duel.
Former President Andrew Jackson participated in several duels before he was elected President, including one, in 1806, in which he shot and killed Charles Dickinson, who accused Jackson of cheating on a horse racing bet and marrying a woman who hadn’t yet finalized her divorce.
Dueling got so out of hand in the 1800s that the Kentucky oath of office to this day includes a clause affirming that any elected official has not participated in any duels. Henry Clay – the famed U.S. Senator and three-time presidential candidate from Kentucky – wouldn’t have been able to take this oath as he fought in at least two duels. And in 1842, Abraham Lincoln, who was born in Kentucky but was an Illinois state senator at the time, traveled to Missouri to participate in a duel with the Illinois state auditor, James Shields. Both men survived because the duel was averted by a last minute negotiation between Lincoln and Shield’s “seconds.”
Historians and economists explain that dueling prevails in times and places where credit markets are personal and lack transparency. They argue that dueling is prevalent under these conditions precisely because potential lenders would look to a potential borrower’s “honor” when deciding whether to make a loan. Now days, most loans are extended by institutions, and it is relatively cheap and easy for those institutions to screen lenders through credit reports and bank account statements. Although dueling is no longer prevalent here, the portraits of Hamilton, Jackson, and Lincoln remain on United States currency, perhaps in part because they were willing to die to defend their “honor.”
Today, alternative dispute resolution typically takes the form of arbitration. Arbitration has been around for many centuries, and over two hundred years ago George Washington included an arbitration clause in his will.
Like dueling, one of arbitration’s main virtues is that it is faster than going to court. In the Southern District of New York (which includes Manhattan and a handful of counties north of Manhattan), the average time between a civil case being filed and it going to trial is 32.1 months. In the Northern District of New York (which stretches from Albany to Syracuse to Plattsburgh), it is 66.3 months – over five and a half years. In contrast, the median time for the American Arbitration Association to rule on a business dispute in the amount of $1 million to $10 million is 13.8 months after it is filed. Smaller disputes take roughly 60 fewer days to resolve and larger disputes take 60 days longer. Similarly, it takes the Financial Industry Regulatory Authority between 14 and 15 months to rule on a typical arbitration claim. Because arbitration is faster than court, it is often much cheaper, in large part because lawyers have less time to spend on the dispute.
One of the biggest differences between dueling and arbitration (besides the lower mortality rate for arbitrations) is that while dueling is designed to preserve one’s reputation with creditors and the public, arbitration is typically confidential and permits parties to conceal the very existence of the dispute, as well as its outcome.
Because arbitration is normally confidential, faster, and cheaper than going to court, one would think that businesses would prefer arbitration. However, that is not the case when it comes to high stakes agreements. In 2013, the law professors Theodore Eisenberg and Geoffrey P. Miller studied over 2,800 contracts entered into by public companies. The contracts were sufficiently important to the companies’ bottom lines that the contracts were disclosed in securities filings. Yet, the companies opted for arbitration in only 10.6% of the contracts.
This is likely because businesses consider several other factors when deciding whether to arbitrate. As an initial matter, the procedural safeguards and high standards for admissible evidence that cause standard litigation to take longer than arbitration means that the results in standard litigation are more predictable. In addition, standard litigation is almost always subject to at least one level of appellate review, whereas arbitration decisions are almost impossible to appeal. The effective elimination of the right to appeal means that parties who opt for post-dispute arbitration have one thing in common with old-fashioned gun-slingers: extreme optimism. In a duel, somebody (usually) has to go. And, in an arbitration, somebody has to lose. Parties to duels and post-dispute arbitrations are usually pretty sure it’s going to be the other guy.
Not unlike public companies, at Mandel Bhandari, we believe in (i) thinking carefully before entering into an arbitration agreement; and (ii) never participating in a duel if you’re planning to run for governor of Kentucky.