Arbitration is an alternative means of settling a dispute by an impartial third person (“Neutral”) without the need to proceed with a formal court proceeding. Arbitration has long been used in labor, construction, and securities regulation, but is now gaining popularity in other business disputes. In the past 20 years, Arbitration has become the preferred method for businesses to resolve their commercial disputes. While certain types of “tort” claims, e.g. those involving personal injury and wrongful death claims, malpractice claims against design professionals (architects and engineers), as well as numerous other types of claims involving real property are still generally resolved by civil litigation in court either because there lacks privity of contract or because the cause of action is one defined specifically by statute. Criminal cases are never resolved by Arbitration because the accused is afforded (among other things) certain rights under Articles V and VI of the Bill of Rights.
For business (contract) disputes, Arbitration is generally preferred as a means of resolving the matter in a forum which to avoids the expense, inherent delay, and acrimony of litigation and one which most importantly remains private. Absent an appeal, arbitration awards and the conduct of the proceedings themselves are not a matter of public record. Thus, businesses, can keep their business disputes confidential, can protect from the inadvertent disclosure of business records, (absent a court order, all pleadings, documents and records filed in a civil lawsuit, are available for anyone to review. With the increasing use of the internet, access to such public court filings could be detrimental to future business prospects and negotiations.
Parties to a contract can agree to Arbitration at the time of first signing their agreement (compulsory arbitration), or sometimes even after the dispute has arisen by way of a voluntary submission.
Other than certain types of court ordered arbitration not covered here, there are generally three types of Arbitration. Full Administered, Limited Administered, and Non-Administered.
In Full Administered arbitration, an independent administering agency is authorized to handle all procedural aspects of the arbitration from filing to award. The American Arbitration Association (http://www.adr.org/), JAMS (http://www.jamsadr.com/), and Namic Arbitration Service (http://www.namicarbitration.com/), are three such for profit companies which provide “Full Administered” type arbitration. Since they are for profit corporations, these service providers (and all others), charge administrative fees in addition to the amount actually paid to the Neutral actually hearing and deciding the case. Full Administered arbitration comes with the significant advantage, especially for those new to the process, of providing detailed rules of procedure, forms, and other processes to ensure a prompt and final resolution of the dispute.
Under full administration, all papers are filed with the administrative agency, from the demand for arbitration to final briefs. The administrator will hold any pleading, claim, or motion pending the expiration of an appropriate time for the other side to file a response and only after that time has expired with the documents be forwarded to the arbitrator for consideration and ruling.
In Limited Administration arbitration, there is still some independent administering agency, but they are used for only certain portions of the proceedings – generally just for the selection of the Arbitrator or Neutral. Thereafter, the parties themselves and the Neutral handled the balance of the proceedings including scheduling, hearings, and award preparation.
Non-Administered arbitration (Ad Hoc) has no independent administering agency and all matters are handled directly by the parties or the Neutral themselves. In this option, the parties (or their attorneys) mutually select the Arbitrator / Neutral who will hear and decide the dispute. In some cases where the parties cannot agree, various state laws generally provide for a process whereby each party can submit a listing of one or more names of acceptable Arbitrators to the presiding civil judge for the district and the judge will make the final selection. For parties where each side is represented by attorneys familiar with the arbitration process and its unique procedural requirements, Non-Administered arbitration can oftentimes provide the desired result.
Under limited or no administration, all papers are filed directly with the arbitrator and opposing side. Rules for responses and replies are either established by agreement of the parties or the arbitrator during one of the preliminary conferences.
Regardless of which format is used, the arbitration process is initiated by one party filing a “Demand for Arbitration.” No particular format is required. The Demand for Arbitration is generally just a short statement of the parties involved, a summary detailing the dispute, and the relief sought by the filing party.
Absent an agreement of the parties or unless specifically provided for in the applicable arbitration rules, there is generally no discovery permitted with the exception of the right of a party to subpoena documents and records (subpoena duces tecum) or the ability to subpoena witnesses to appear at the Arbitration hearing itself. Every state has in effect some statutory provision granting the right of the Arbitrator to execute a subpoena compelling the production of documents or witnesses. (Despite this, in the event a third party chooses to ignore the arbitration subpoena, the arbitrator lacks any further authority to actually force the third party to comply). In the event a third party chooses to ignore an arbitration subpoena (a rare instance), the party seeking the documents or person must go to civil court to obtain a formal order, signed by a judge, compelling production or attendance.
Absent an agreement to the contrary, there are simplified rules of evidence in arbitration, affidavits or declarations are generally admissible in lieu of live testimony of a witness, and many of the foundational type objections to the admission of documentary evidence are either relaxed or completely ignored. “Hearsay” is also frequently admitted into evidence and considered by the Arbitrator, even over the objection of a party (fear not, most Arbitrators are either former Judges, Attorneys, or other highly trained individuals who, while they will admit “hearsay”, give it substantially less weight than other more credible evidence because of the inherent unreliability of such evidence).
The arbitrators’ decision is given after an informal proceeding where each side presents evidence and witnesses. Arbitration hearings may last only a few hours or may take days or weeks for more complex matters. At the conclusion of the hearing and submission of exhibits, the Arbitrator will issue an Arbitration Award (generally 30 days after the close of the hearing).
When parties submit to arbitration, they agree to be bound by and comply with the arbitrators’ decision. While many parties believe that there is “no appeal” from an arbitrator’s decision, the opposite is actually true. Arbitration awards are subject to attack in most states if one or more of the following occurs:
1. The award was procured by corruption, fraud or other undue means;
2. There was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party;
3. The arbitrator(s) exceeded their powers;
4. The arbitrator(s) refused to postpone the hearing upon sufficient cause being shown or refused to hear evidence material to the controversy or otherwise so conducted the hearing, as to prejudice substantially the rights of a party; or
5. There was no arbitration agreement, and the adverse party did not participate in the arbitration hearing without raising the objection. (If a party actually participates in the Arbitration process or hearing, courts generally consider such action as constituting a “waiver” of the lack of an arbitration agreement.