Is Arbitration Right For Me?

Arbitration is a procedure that parties to an agreement may use in order to resolve their disputes outside of the courts.  

Litigating in court is often an expensive, time-consuming and emotionally draining experience.  In order to avoid this, many parties to a contract agree to arbitrate, rather than litigate, through a contractual provision called an arbitration clause.  

An arbitration clause compels the parties to resolve any disputes that they might have through arbitration. This way, the parties are contractually bound not to sue each other, but to instead settle their disputes without judicial involvement.

If a contract contains an arbitration clause, then the parties must arbitrate.  If such a clause does not exist, the parties may sue each other in court or they may nonetheless mutually agree to go to arbitration.

The person who presides over the arbitration proceeding is called the arbitrator.  The job of the arbitrator is to assist the parties in reaching a reasonable settlement.  Although the end result of arbitration may actually be the same as would have happened had the parties gone to court, the journey is vastly different.

Binding Arbitration vs. Nonbinding Arbitration

An arbitration clause may either be binding or nonbinding.

Binding arbitration results in the arbitrator’s decision being final and not subject to appeal.  With nonbinding arbitration, the parties may reject the arbitrator’s decision and are then free to take their dispute to court.  

Nonbinding arbitration is sometimes thought as being counterintuitive.  This is because if the arbitration is not binding, and the parties may nevertheless seek damages in court, then all the arbitration might do is add an extra step (both in time and expense) to the process before parties actually go to court.  This is something to think about when entering into an arbitration clause.

Advantages of Arbitration

Arbitration can have many advantages when it comes to dispute resolution.

1. Choice of Arbitrator

Unlike going to court, where a judge is assigned to your case, in arbitration the parties select the arbitrator.  In court, who you wind up with as the judge on your case often depends upon the luck of the draw. There is no science behind it.   With arbitration, the parties may mutually select the arbitrator. This enables them to pick somebody with specialized experience in the subject matter of the dispute.  For example, if the dispute involves a construction matter, the parties may select an arbitrator with a great deal of experience in that field.

2. Time and Expense

Sometimes, but not always, arbitration is a faster and less expensive option.  Unlike courts, which have highly-detailed and complex rules of procedure, arbitration is an informal process.  This may allow for a streamlined decision taking less time and therefore costing less money.

3.  Scheduling

When going to court, the court (judge) schedules the appearances and conferences.  With arbitration, the parties’ convenience is paramount and the arbitration session is scheduled according to the parties’ schedules.  

4. Privacy

Court documents are public records.  Therefore, they may be viewed by anybody who wishes to see them.  Arbitration may be held privately. Transcripts and documents are not available to the public.  In fact, it is possible to have the parties themselves subject to a non-disclosure agreement regarding the arbitration.  This means that after the arbitration is over, the parties will not be able to discuss it with others.

5. Custom-Made Parameters

The parties to arbitration may agree on the parameters of the arbitration award.  For example, they can ‘cap’ how high the arbitrator may go in awarding money to either party.  They may also limit the type of damages awarded, such as punitive damages and/or attorney fees.  Perhaps more important, the parties may agree on the procedural rules, something that courts generally do not allow.

Disadvantages of Arbitration

Like everything else, arbitration can have its disadvantages as well.

1. No Right to Appeal

If the arbitration is binding, then once the arbitrator makes a ruling, the decision is final and non-appealable.  In court, if a party doesn’t like the judge’s ruling, it may be appealed.

2. No Right to Discovery

In court, the parties are entitled to a discovery process.  This is where they request documentation and information from the other side, who must generally exchange such requested information.  With arbitration, there is no automatic discovery process. Whatever discovery process will be used must be detailed in the parties’ arbitration clause.

3. Arbitrary Decisions

Arbitrators may exercise wider discretion than a judge or jury.  Because of that, their decisions may be completely unpredictable.  If the decision is binding, you are stuck with it, regardless of how arbitrary it may be.

4. Lack of Formality

Although arbitration’s lack of formality is often helpful, it may also lead to a ‘wild west’ situation where it seems like there are no rules.  Because of its lack of rules, sometimes arbitrations may be dragged out for far longer than anticipated. When this happens, the streamlined process disappears and the costs may equal or surpass those of going to court.

The decision whether to opt for arbitration over litigation is an important one.  Factors such as time, expense and the experience and reputation of the arbitrator must be carefully considered.  Additionally, whether the arbitration will be binding upon the parties is an important decision with enduring ramifications.  

If you are entering into a contract that contains an arbitration clause, you should certainly have an attorney available to assist you with the contract review and preparation.  Should you find yourself in this position, contact the Greenbaum Law Firm, P.A. to schedule a consultation today.

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Greenbaum Law Firm, P.A.

The Greenbaum Law Firm, P.A. is a boutique, client-centric law firm concentrating in the areas of business and corporate law, contracts and agreements, and real estate. Our unique approach to the practice of law consists of positioning our clients at the center of the legal practice and pursuing their objectives in the most efficient and transparent manner.

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