Arbitration Agreement

Arbitration agreements are legal documents used to specify how disputes between two parties will be handled, protecting the best interests of each party. Parties signing an arbitration agreement agree to settle disputes through an arbitration proceeding rather than litigating the matter in court.

An arbitration agreement is a written legal document in which the people or companies signing the agreement specifically state how disputes or disagreements will be resolved. Generally speaking, arbitration agreements are used to limit, or eliminate, the chances of having to go to court to resolve a dispute.

Arbitration is simply an alternative means of settling disputes outside of a courtroom. When parties sign an arbitration agreement, they are agreeing that any legal claims that arise out of a relationship or transaction will be handled through arbitration rather than through lawsuits in court.

The process of arbitration is similar to a trial proceeding in court. The parties often have attorneys representing them, and they exchange information, question witnesses, and present each side of the story. However, arbitration proceedings are generally less formal than courtroom litigation. Instead of being heard by a judge and a jury, a case that goes to arbitration is heard by an arbitrator (or a panel of arbitrators).

Arbitration is also usually "binding," which means the decision of the arbitrator(s) is final and cannot be appealed.

Arbitration agreements can help both parties by removing the potential need for costly lawsuits in the future if a dispute arises. The parties to an arbitration agreement agree to handle the dispute in a more cost-effective and timely manner than would likely be the case in a court battle.

When a dispute goes to court, it is a matter of public record. That is not the case when a matter is arbitrated. Testimony in an arbitration matter is not public, nor are the specific details about the dispute made public.

Arbitration agreements do not have to be long, but they should include the following key details:

• The date of the agreement
• The parties to the agreement
• Whether the agreement covers a current dispute or is instead designed to govern how future disputes will be decided
• A statement that disputes will be decided through binding arbitration rather than being litigated in court
• How arbitrators will be chosen and how many arbitrators will hear disputes
• Whether there are certain rules that will be used, such as those promulgated by the American Arbitration Association (AAA). Alternatively, an arbitration agreement might state that the arbitrator can decide which rules should be applied when hearing and deciding an arbitration dispute.

Both parties need to sign the agreement to make it legal, and both parties should maintain copies of the signed agreement for their records.

Depending on the state you are in, the court may choose an arbitrator for you or the attorneys will work together to choose an arbitrator from a list of court-approved arbitrators. In some cases, the parties may state the method of selection and the number of arbitrators in an arbitration agreement or clause. A common selection method for when the parties cannot agree on an arbitrator dictates that both sides choose one arbitrator and then the two chosen arbitrators choose a third arbitrator. Often, either party may unilaterally decide to use this method in order to ensure that the arbitrator has no interest in the matter.

Normally, the parties have no need to speak directly to the arbitrators. If the opposing party has an attorney and you do not, be sure to advise opposing counsel that you wish to see the list of arbitrators. You may be able to research the arbitrator online through his or her website in order to determine if the arbitrator has experience in cases like yours and to learn more about the arbitrator's work. You cannot choose someone that you personally know to arbitrate your case. In many cases, the court must agree to the arbitrator that you and the opposing party choose.

If you do happen to know the arbitrator personally, it is up to the arbitrator to decline the job, but it may be in your best interest to ensure that a different arbitrator is selected. If a court learns that you had a conflict of interest because you and the arbitrator know each other, it could render the decision invalid and could be vacated by the court. This would cost more money and attorney’s fees. Additionally, sanctions may be imposed upon you. The court could even impose sanctions on the arbitrator should he or she knowingly enter into the contract to arbitrate between you and the opposing party.

Once the arbitration award has been entered by the court, it is enforceable the same as any other court order, whether in federal or state court. If the opposing party is not complying with the arbitration agreement and subsequent order, you will need to file a motion to ask the court to enforce the terms of the agreement.

If, after the court enters an order to enforce the agreement, the opposing party is still in non-compliance, you may file contempt motions. Depending on the court and state in which you are filing, the contempt motion may be for civil contempt or criminal contempt. In some cases, criminal contempt motions may be filed in civil cases. Depending on the type of contempt filed, the court could order the party who is not in compliance to pay fines or receive severe sanctions.

Mediation and arbitration may or may not be binding, depending on the dispute resolution clause or contract agreed upon between the parties. In most cases, mediation is not binding. Both must use a neutral third party who has no personal interest in the case.

Furthermore, in mediation, the mediator does not judge the case. Instead, the mediator helps the parties negotiate a solution to the issue and eventually come to an agreement. Often, the parties or their lawyers will then put their agreement down in writing that both parties sign.

On the other hand, with arbitration, the arbitrator may act as the judge by making decisions about evidence and giving written opinions. Those opinions may or may not be binding. Other differences include the following:

• Arbitration may be decided by a panel of arbitrators or a single arbitrator. If a case goes to mediation, there is generally just one mediator.
• An arbitrator may render a decision on the matter, while a mediator facilitates a negotiation.
• Arbitration ends when the arbitrator hands down a decision. Mediation ends when the parties reach a settlement or an impasse.
• A court trial and judgment may be substituted by binding arbitration. Generally, with mediation, the trial is stayed pending the outcome of the mediation.

A case could take a few months to over a year. It is not unheard of for cases to take a couple of years, especially if a lot of evidence needs to be presented. If the parties agree to arbitrate or have signed a mandatory arbitration agreement or clause within a contract, that time could be significantly shortened.

Another factor that could move arbitration out is if a party files emergency motions or administrative motions with the court. If the court wants to hear a motion, you will not be able to arbitrate until all such motions are heard and decided upon.

Just as with a court hearing, arbitration cannot be held without first completing all of the discovery. Once the discovery phase is complete, all discovery should be forwarded to the arbitrator to review so that he or she may use it in making an informed decision on your matter.

As for the arbitration hearing itself, the length depends on the complexity of the case, including the amount of discovery. An arbitration could take as little as an hour or two or it could last for several days.

The time frame can also change depending on the particular set of arbitration rules that the parties choose to follow. For instance, if the parties are using the American Arbitration Association’s Commercial Arbitration Rules and Mediation Procedures, then their case may be eligible for arbitration under the Expedited Procedures section if no claim or counterclaim exceeds $75,000.

Arbitration does not have an appeal process but does have a procedure to overturn a decision. Although rarely used, appeals can occur for the following common reasons:

• The award was obtained by fraud, corruption, or some other undue means.
• The arbitrators were partial to one of the parties or were corrupt.
• The arbitrators refused to postpone the arbitration hearing when one or both parties or their attorneys gave sufficient cause, or the arbitrators refused to hear evidence that was material to the matter at hand. The award may also be vacated if the actions or inactions of the arbitrators caused prejudice to the rights of either party.
• If the arbitrators went above their powers or “imperfectly executed” the powers so that the award could not be mutual, definite, or final.

Whether arbitration is binding or not depends on the agreement signed prior to arbitration—usually a contract—or whether you and the other party agree to binding arbitration prior to the start of the hearing. If you agree to binding arbitration, then the decision is final and it may only be overturned or reviewed by the court if an appeal is properly filed.

If you choose non-binding arbitration, you have the option to reject the award and ask for a trial. Sometimes, the parties agree to non-binding arbitration to better assess the strengths of their cases in a potential lawsuit. In this case, if the parties do agree to the award, it may become binding. If the parties do not ask for a trial in the required time, the non-binding arbitration award becomes binding.

Several factors differentiate an arbitration hearing and a jury trial:

• An arbitrator does not have to go by the strict rules of evidence that the parties and their attorneys must abide by during a bench trial or jury trial.
• Hearsay and other evidence that would not be allowed in a jury or bench trial may be allowed in an arbitration hearing.
• The arbitrator's decision in binding arbitration must be followed, just as a court order. However, the arbitrator's decision does not have to be based on law, which it would be if issued by a judge.
• Any decision made by the court, whether in a jury trial or bench trial, may be appealed. A decision reached through arbitration is usually not subject to appeal except in rare circumstances.