A recent decision by the United States Court of Appeals for the Sixth Circuit demonstrates binding arbitration may not be the best way to limit rising litigation costs. It also serves as a warning – if you needed one — that “binding” arbitration awards are not subject to appeal for legal error.

Here are the facts, in a brief form: Two individuals (Schafer and Block) founded a company. As part of a series of corporate transactions, two employee stock ownership plans (“ESOPs”) were formed. Schafer and Block were appointed as trustees of the ESOPs, and entered into indemnification agreements with mandatory arbitration clauses. While the Department of Labor (“DOL”) was investigating its suspicion that the ESOPs had purchased stock at inflated prices, and with knowledge of this investigation, Multiband entered into a purchase agreement to buy the holding company. As part of the transaction, Multiband entered into indemnification agreements that contained essentially the same provisions as the prior indemnification agreements. Subsequently, the DOL informed Schafer and Block that it believed they had breached their fiduciary duties by allowing the ESOPs to purchase stock at inflated prices and offered to settle. Schafer and Block asked Multiband to indemnify them in accordance …