The falsely held belief that arbitrators “split the baby” and deliver awards that

represent a compromise between claimants and respondents in arbitration has

persisted within the legal community for decades, despite a lack of empirical

evidence. This research presents an empirical analysis related to this assumption

as it impacts consumer and B2B commercial arbitration. It finds a dearth of actual

evidence of the incidence of compromise awards in commercial arbitrations.

Using a random sample of more than 400 confidential commercial arbitration

awards, this article concludes that the incidence of compromise awards in

commercial arbitration is insignificant.

 

 

Moreover, this research challenges many other assumptions about arbitration

generally, and about arbitrators splitting claims specifically. For example, some

practitioners believe former judge-arbitrators are less likely to issue compromise

awards than attorney-arbitrators. Not so. While the dataset does not support the

hypothesis that compromise awards are prevalent, it does indicate that

compromise decisions are more likely to be issued when two companies sue each

other, rather than when one litigant is a consumer. Yet, even in B2B arbitrations,

the incidence of claim splitting is minimal at best.

 

 

 

In 2011, RAND undertook a comprehensive study of how in-house counsel

perceive binding arbitration to understand why “corporate counsel do not use

arbitration more frequently.”1 An analysis of contracts from 21 of the largest

public corporations found that 77% of their consumer contracts included

mandatory arbitration, while only 6% of business-to-business contracts did.2 The

RAND study partially blamed the diminished use of abitration in B2B contracts

on the perception that arbitrators “split the baby.” Seventy percent of respondents

agreed that arbitrators “split the baby” despite empirical evidence from the AAA

that they do not.3 The report concluded, “[F]urther study of arbitration awards

(which is difficult at best) would be required to determine if arbitrators are

splitting awards.” If corporate counsel’s fear regarding the propensity of

arbitrators to split claims could be assuaged, they would use arbitration more in

their B2B contracts. At stake in this analysis is a multi-billion dollar industry of
private dispute resolution.