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What Happens If They Refuse to Arbitrate?

A recent case out of the Seventh Circuit, Bartlit Beck LLP v. Okada, dealt with a common question about arbitration: what happens when the other side refuses to participate. In Bartlit Beck, that law firm had represented Kazuo Okada in a multi-billion dollar lawsuit against Wynn Resorts, which resulted in a $2.6 billion settlement, and a $50 million contingent fee to his lawyers. Okada, who is in Japan, refused to pay up, and his lawyers commenced an arbitration under their engagement agreement.

Before the arbitral hearing, however, Okada decided not to participate in the arbitration, stating that he rejected the validity of the agreement and objected to the proceedings. The arbitral tribunal opted to follow the arbitral rules and determined that Okada had defaulted (every arbitral rule set has rules regarding what to do if a party refuses to participate). The tribunal thus heard the case solely on the submissions of Bartlit Beck, and awarded the full contingent fee payment. When Bartlit Beck sought to enforce the award, Okada attempted to have it vacated as denying his fundamental right to a hearing. The Seventh Circuit handily dispensed with Okada’s arguments, stating that “Okada took himself out of the race. He cannot now complain that he was unfairly deprived of the chance to win.”

The Seventh Circuit’s decision reaffirms that Courts have no tolerance for those who choose not to participate in a legitimate arbitration. Refusing to participate in hopes that a court will later invalidate the underlying agreement is a risky strategy that should only be adopted in the most extreme of circumstances.

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