Arbitration

Brien Roche

What Is Arbitration?

Arbitration is a process that allows parties to resolve their disputes outside of the court system. Proponents claim that it can help prevent a clogged court system and that a decision can be reached in a much quicker time than if a judge or jury heard the case.

Unlike a court hearing, an arbitrator does not have to be a licensed attorney. It can be anyone from a layman to an industry expert. There are many different arbitration types and several nuances that can add layers of complexity to an arbitration case.

What Is Mandatory Arbitration?

Many contracts have arbitration clauses within them. Their primary purpose is to prevent the case from going to court. Arbitration requires the parties to arbitrate any dispute that arises out of the contract. Therefore, before you sign such a contract, you should understand the differences between arbitrating instead of filing a lawsuit.

A single arbitrator conducts most arbitrations. This person is either appointed under the terms of the contract or agreed to by the parties. That person is paid a fee, and there is a chance that it may be high—in some cases, more than the legal fees you incur by filing a lawsuit in court. 

The largest arbitration association in the United States is the American Arbitration Association. They have a very defined set of rules and a number of approved arbitrators that the parties can agree on.

Arbitration clauses are widespread in their use. The Consumer Financial Protection Bureau (CFPB) reported their existence in:

• 44% of checking account contracts
• 83% of prepaid card contracts
• 86% of private student loan contracts
• 99% of mobile wireless contracts
• 99% storefront payday loan contracts

What Is Mandatory Arbitration-Arbitration vs Litigation

The reason that arbitration clauses appear in contracts is that most businesses do not want disputes with consumers tried in the courtroom. In other words, they don’t want to face a local jury. They would prefer to have the case decided by an arbitrator. This removes the unknown element from the case that otherwise exists with a jury.

Arbitrations are often touted as being less expensive than court trials. That is not always the case. Sometimes the fees paid to the arbitrator can equal or exceed the legal fees of the lawyers. As such, you need to think long and hard before signing a contract that requires arbitration.

Mandatory vs. Non-Mandatory Arbitration

Arbitration can be either mandatory or non-mandatory (voluntary). It’s essential to pay close attention to compulsory arbitration clauses as they commit both parties to several restrictions/limitations they may not have entirely thought through when they agreed to mandatory arbitration.

Binding vs. Non-Binding Arbitration

In binding arbitration, the arbitrator can impose a final and legally binding decision. This means that all parties are obligated to abide by and adhere to the decision of the arbitrator. 

In non-binding arbitration, the arbitrator only has the power to suggest or recommend a decision but not impose it. Their decision is not final and binding.  This form of arbitration is probably not terribly practical because it simply adds another layer to the decision-making process. 

Enforceable vs. Non-Enforceable Arbitration

Some arbitration clauses may not be enforceable. There are several reasons why:

• Does a waiver exist—in other words, has the suit already been filed by the other party?
• Is there some violation of law or equity i.e., is the agreement unconscionable.
• Do the elements of a contract exist, such as an offer and acceptance of that offer? 
• Is there any duress or fraud involved? 
• Are all parties legally able to enter into the contract?
• Does the arbitration clause apply to the claim in dispute or is it limited to some other issue?

These are just some of the many conditions that may render an arbitration unenforceable. This is why it’s best to contact an attorney and have them review the contract before agreeing to arbitration.

Learn More About Arbitrations

See Brien Roche’s book Law 101 published by Sphinx Publishing for more information on this subject.

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Legal answers were provided by Brien Roche, a personal injury attorney with over 40 years of trial experience. Contact Us today to discuss your personal injury matter.

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For more information on arbitration see the pages on Wikipedia.