The Law in Your Life

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Arbitration

Good or Bad For You?

Recently, arbitration has been hotly discussed as an alternative to costly lawsuits.

In many states, arbitration of disputes has become a popular method for resolving legal disputes. Many types of agreements now contain arbitration clauses. Some of these legal provisions actually require the parties to arbitrate certain disputes which may arise between the parties. Often, these arbitration clauses can have even broader scope, requiring the parties to a contract to resolve every dispute between them through the vehicle of arbitration.

These arbitration provisions have long been touted by many as having significant benefits over bringing a lawsuit to resolve a legal dispute. Lawsuits are often difficult, they take many years in court to resolve, invariably an attorney is required to be retained resulting in significant attorney's fees, and in many cases, the eventual winner really ends up just trying to get the whole mess finished. Other disadvantages of lawsuits include the lengthy appeal process, the failure to award attorney's fees in some cases, and the overall lack of interest displayed by all but the most tenacious clients by the time a trial date arrives. Perhaps this is one of the major reasons that less than three percent (3%) of the cases filed ever go through a full trial.

Arbitration can have the advantage of being more efficient, less costly, since clients can represent themselves more easily [although the author strongly recommends a client obtain the services of a lawyer for arbitration] and less time-consuming. Overall, often the advantages of arbitration can be significant.

Careful Consideration Must Accompany Any Decision To Use Arbitration

The decision to use arbitration should not be taken lightly, and you should make an informed decision about whether to use arbitration. To make an informed decision, you should absolutely consult with an attorney to discuss the pros and cons of arbitration.

Arbitration is not a solution to all legal problems. It does have the benefits of making some dispute resolution cheaper than a full-blown lawsuit. But it should not be considered cheaper in every instance. Many of the issues involved in arbitration can be complex and large. Many of these issues in arbitration will require many attorneys and experts to resolve.

Most important parties should understand that by electing arbitration, they may be giving up serious rights otherwise available to them in the legal system.

Disadvantages of Arbitration

Today, many contracts, especially those that are preprinted or form contracts, require you to submit to the process of arbitration to resolve any dispute which may arise between you and the company with whom you are contracting. For example, next time you sign a mortgage, or a stockbroker contract, or a mutual fund, read the fine print near the end in search of the preprinted arbitration clause in their agreement. You almost certainly can bet that it will be in there.

Companies often like the arbitration process for the primary right that many consumers unknowingly give up when they sign - arbitration does not have a right to a jury trial. [You should remember that not all lawsuits allow you to have jury trial either.]

Other reasons why companies like arbitration provisions include: (1) arbitration is considerably cheaper and faster; (2) arbitration is often confidential because these disputes are not a matter of public record; and (3) arbitration keeps the amount of money awarded lower [generally] because of the absence of a sympathetic jury.

While the idea of bringing a dispute to a quick and final resolution with little expenditure of money compared to a lawsuit sounds good, sometimes the actual experiences of parties are not so good.

For example, many arbitration clauses contain the provision that the party bringing the case pays the arbitration filing fees. For example, the provisions of the American Arbitration Association sets forth a substantial filing fee, sometimes in excess of $500.00. Additionally, the fees for arbitrators may run as high as $500.00, or more, per day and many arbitration provisions require three (3) arbitrators. Remember that, in court, there is a minimal filing fee to bring your action and there is no fee to have a judge hear your case.

Additionally, it is totally an unexpected forum for dispute resolution which is selected. Typically, the preprinted forms will contain arbitration clauses, making them effective at the time of the signing, not later when the dispute arises. While the consumer is focusing on the reason for the contract, many consumers do not realize that they are selecting a binding arbitration.

Other examples indicate that the problem with arbitration may be its finality. Thus a consumer who may never have read the fine print to know that he/she agreed to arbitration, now finds himself/herself committed to a binding arbitration, with no additional recourse, such as appeal or mediation.

Because of these real concerns with arbitration, we advise that you are intimately familiar with all of the ins and outs of arbitration, before you sign a preprinted contract that commits you to arbitration. It is a well-informed consumer who consults an attorney before signing a preprinted form about an arbitration clause, rather than one who consults an attorney at the time of the dispute.

We are very much in favor of cutting down the litigation process in our system. And as such, we think that arbitration, when properly understood and applied, is an excellent form of dispute resolution.

However, our experience indicates that many people do not realize that they are selecting arbitration as the only form of dispute resolution in some cases. Without being informed, arbitration, while being efficient and decisive, can lead to a costly end result for parties who have misunderstood the processes involved in arbitration.

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