Thinking about Arbitration?

Arbitration is a process that most people have heard of and know enough about to be dangerous.Frequently, business contracts have Arbitration clauses, either as a prerequisite to court or mandatory alternative to Court and Trial, which designate the rules and procedures. Your automobile insurance policy, in its Uninsured Motorist provisions (UM/UIM) has a mandatory arbitration clause.  You may have forgotten that your Employment Contract, your Homeowner Association Bylaws, and your Real Estate Purchase Agreements, among others, all have Alternative Dispute Resolution clauses, some of which are mandatory.  So, what can be bad about an Alternative Dispute Resolution (ADR) process that is usually faster, cheaper and less formal than court??  What Arbitration is:

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It is a process in which the arbitrator is asked to make a decision (or series of decisions). It can be binding or non-binding at the election of the parties. The California Code of Civil Procedure provides one set of rules and procedures. Organizations like the American Arbitration Association (AAA) and the National Association of Securities Dealers (NASD) have other rules and procedures to which the parties are contractually bound.  If you have ever bought or sold a house, you have encountered ADR clauses. If you are required to arbitrate by agreement or contract, you may have the ability to choose your Arbitrator--a good thing--or you may not.  The terms of selection are usually a part of the ADR provisions.  

At the time of setting of hearing, all of the “ground rules” are decided, explained and agreed upon. Then, the hearing can take place. The hearing is usually much less formal than court, though the Rules of Evidence can apply.  There is not usually a court reporter present.  The Arbitrator frequently asks questions of witnesses to clarify testimony as the hearing progresses.

This process is usually much less expensive than trial, and should be considered as a viable alternative to court.

An Award of Arbitrator can be given the same force and effect as an Order or Judgment rendered after a Court hearing or Trial. A Motion confirming the Award must be brought before a Civil Judge for this to occur.  Usually, this is a rather routine Motion.

What Arbitration is not:

In a word, Appealable!

There are important differences in the process with regard to appeal rights. Appeal of Arbitration Awards is allowed only in certain very limited circumstances. This limited right of appeal has been generally upheld by case law since 1992.  As a result, even if the Decision is wrong or incorrect on its face, it probably can't be reversed through an appeal.  For this reason, some people prefer a Private Judge over Arbitration, so as to preserve appeal rights. 

Click to view the Code of Civil Procedure (2010 version) Sections 1280 - 1288.8.  This is the complete section dealing with Arbitration, including the limited appeal rights. These rules apply to court-based arbitration and those contracts which specify the Code of Civil Procedure as controlling.  Additionally, there are recent cases that should be reviewed if you are evaluating appeal rights within the various ADR processes. 

Some contracts have a very different set of rules, maybe even unusual to some.  The American Arbitration Association Commercial Rules is an example.  The rules can impose additional (and expensive) requirements.

And, it isn't always cheaper, though it is usually cheaper.  A case with substantial discovery and depositions, voluminous documents, numerous experts or overly-zealous litigants (or counsel) can cause the costs of arbitration to mirror those of traditional court-based litigation. 

Questions about Arbitration? Email me.