Arbitration
Parties can choose to have their disputes heard by private individuals instead of judges. This process is called arbitration, and it is often faster and more flexible than proceeding with traditional litigation in court and abiding by court procedures. But it has its own challenges, as well.
Why should you read this post about arbitration?
You have consented to reading this post instead of reading government-disseminated information about arbitration.
You saw a statement of claim from some company and it looks like a complaint, but it’s not from a court, and you have no idea what is going on.
You think you want to be an arbitrator, but you need to read some blog posts on the subject to make sure.
How and Why Parties Choose Arbitration
There are several reasons why parties may choose arbitration over litigation. One reason is efficiency: arbitrations tend to move faster than court proceedings. This is because arbitrators often have lighter caseloads than judges and because they have the flexibility to skip various formalities. Also arbitration usually does not permit appeals, which saves the parties the costs of an appeal. Arbitrations are also usually private, so parties can avoid the publicity that arises from litigation. And arbitration lets the parties select their judges, so they can pick someone familiar with their cultural values or their particular industry.
Arbitration may also be attractive to people who do business in a jurisdiction where the courts do not regularly or reliably handle large commercial matters. Instead of submitting to the whims of an unpredictable judiciary, some feel safer submitting to the whims of an arbitrator from an institution they trust, like the American Arbitration Association or JAMS.
There are also less wholesome reasons why parties may prefer arbitration. Corporations that do a lot of business with arbitration service providers may believe that their arbitrators will be more favorable to them than judges, who may be more sympathetic to the average person. And arbitration rules may prohibit class actions cases, where an individual can exact leverage over a large company to address a problem that would otherwise be too costly to litigate. And they eliminate the chance that a case may be heard by a jury, which may be more generous to individuals than to large companies.
Parties often select arbitration by putting a provision in their agreements that say that any disputes between the parties will be arbitrated. Many organizations share sample provisions that can be incorporated into agreements to achieve this effect. But even if parties do not agree to arbitration ahead of time, they may choose to do so once a dispute arises. This is often technically what happens when people agree to have their dispute heard on TV judge shows like The People’s Court.
Once parties agree to arbitrate, however, they usually waive their right to proceed in court.
The Arbitration Process
Arbitration often begins like a lawsuit in court. One party files a document with the arbitrator and then serves notice of the arbitration on the other. But instead of a plaintiff and a defendant, there is a petitioner and a respondent. And instead of filing with a court and serving with a process server, the petitioner files with the arbitration services provider and often can serve the respondent by mail.
The arbitration services provider usually charges a steep up-front fee, and advises the parties that its services have high hourly rates. Although court filing fees can be in the hundreds of dollars, they are often much less than the fees arbitrators charge.
After the respondent files her answer, the services provider shares a list of potential arbitrators who can hear the case. Each side can identify arbitrators they like and do not like and the services provider selects one that is acceptable to both sides.
From there, the arbitrator often communicates with the parties by phone and email to set a schedule for discovery, motions, and a hearing. The parties then often work independently to proceed with their dispute, only contacting the arbitrator when a decision is necessary on a matter.
The arbitration process has its disadvantages. Because there is no appeal, the parties become bound by an arbitrator’s mistakes. And because cases move relatively quickly, parties may not be able to fully investigate or assert their claims or defenses. And although the rules are more relaxed, that usually also means it is harder to predict how the process will go.
Going to Court
Ultimately, although a judge has legal authority to issue orders and judgments, the arbitrator does not have any actual power to bind the parties. Instead, even when parties agree to arbitrate, they may still need to go to court in some situations.
In one situation, a party may need an emergency order right away, like a temporary restraining order, to avoid some irreparable harm. In that situation, the party may go to court and ask for interim relief while the arbitration is pending.
In another, a party may ask the court to compel a witness to provide evidence for use in the arbitration.
And once an arbitrator issues her decision, a party may go to court to convert the decision into a full legal judgment that can be used to collect money in the same manner as a judgment from litigation. This may also present the losing party in an arbitration the opportunity to ask the court to decline to recognize the arbitration award because of some impropriety in the proceedings. But these motions are difficult to win, as judges often defer to the decisions of arbitrators. In one case, the U.S. Supreme Court held that courts should allow arbitrators to decide some issues, even when the arguments put before them are “wholly groundless.” But courts may still vacate or modify an arbitration agreement when certain factors in the Federal Arbitration Act are met, such as “where the award was procured by corruption, fraud, or undue means.” (A different list of reasons to overrule an arbitration decision applies when the arbitration takes place abroad; that list is found in Section V of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards)