Arbitration Overview
There
are situations that require a binding decision – either from a court - or an
arbitrator. Most people are familiar with a court proceeding, so it
begs the question… What is Arbitration?
Arbitration falls under the category of Alternative Dispute Resolution, commonly shortened to ADR. ADR offers an alternative path for people to resolve their disputes in ways that are outside of the normal legal channels, such as filing a lawsuit in court.
Arbitration is different than the court system. It is not a judicial process, even though there is sometimes pressure to treat it as such. Arbitration sprang from a premise that business and industry disputes may be best resolved outside of a criminal court system. A general contractor, for instance, may act as an arbitrator in construction disputes. The contractor has in-depth knowledge of the work and terminology used in the field, so the decision rendered by an industry arbitrator may be very different than a decision by a judge, whose background is steeped in the law.
Arbitration is common in business and commercial contracts. These are the cases that arbitration was originally designed to address, and they represent the bulk of the cases today. Arbitration is not generally used in criminal cases.
Using the court system to solve problems is often overkill. The length of time necessary to get to hearing is often prohibitive. The legal process is punctuated by formality and is often confusing to non-attorneys. A business or layperson’s understanding of the Rules of Evidence often prohibits submitting evidence in litigation unless it is done in a narrow, specific way. Legal formality fosters the need to hire an attorney, which adds to the cost of resolving the dispute, and the dispute itself is usually costly. It is not uncommon for litigation to take years! Additionally, the element of fairness may not be addressed by a judge because judges are bound by both the written law and an extensive body of case law, created over the years by a myriad of past cases that may or may not seemingly apply to your business case.
Arbitration offers a confidential hearing before a neutral decision-maker, often an industry expert, who delivers a binding award with limited appeal after providing the parties with a full and fair hearing. A “party” can refer to an individual or a business entity such as a corporation or partnership.
Arbitrators must disclose any known conflict of interest and sign an oath that they have no known bias and can be fair in dealing with the parties and the subject matter in dispute prior to accepting appointment to a case.
In most business contract and commercial cases, arbitration is confidential and the arbitration award is binding with very little opportunity for appeal. Confidentiality is perceived as a tremendous benefit, protecting the reputations of those involved in the dispute. This is in stark contrast to courts of law, where decisions are published and referred to for years to come.
Lastly, arbitration is not mediation. Mediation also falls under the category of ADR, and often these terms are used interchangeably due to confusion. To clarify, mediation is a formal negotiation of the matter and does not have a guaranteed conclusion. Just like when you offer to buy a car, if the seller doesn’t like the deal, they can walk away. If the seller likes the deal, they sign a contract and there is a legal consequence – the car’s ownership changes hands. However, arbitration results in a decision, like it or not. Arbitration offers a full and fair hearing of each party’s presentation of the evidence and testimony of the parties. There is a big difference between mediation and arbitration, even though they both fall under the category of Alternative Dispute Resolution |ADR.
Arbitration falls under the category of Alternative Dispute Resolution, commonly shortened to ADR. ADR offers an alternative path for people to resolve their disputes in ways that are outside of the normal legal channels, such as filing a lawsuit in court.
Arbitration is different than the court system. It is not a judicial process, even though there is sometimes pressure to treat it as such. Arbitration sprang from a premise that business and industry disputes may be best resolved outside of a criminal court system. A general contractor, for instance, may act as an arbitrator in construction disputes. The contractor has in-depth knowledge of the work and terminology used in the field, so the decision rendered by an industry arbitrator may be very different than a decision by a judge, whose background is steeped in the law.
Arbitration is common in business and commercial contracts. These are the cases that arbitration was originally designed to address, and they represent the bulk of the cases today. Arbitration is not generally used in criminal cases.
Using the court system to solve problems is often overkill. The length of time necessary to get to hearing is often prohibitive. The legal process is punctuated by formality and is often confusing to non-attorneys. A business or layperson’s understanding of the Rules of Evidence often prohibits submitting evidence in litigation unless it is done in a narrow, specific way. Legal formality fosters the need to hire an attorney, which adds to the cost of resolving the dispute, and the dispute itself is usually costly. It is not uncommon for litigation to take years! Additionally, the element of fairness may not be addressed by a judge because judges are bound by both the written law and an extensive body of case law, created over the years by a myriad of past cases that may or may not seemingly apply to your business case.
Arbitration offers a confidential hearing before a neutral decision-maker, often an industry expert, who delivers a binding award with limited appeal after providing the parties with a full and fair hearing. A “party” can refer to an individual or a business entity such as a corporation or partnership.
Arbitrators must disclose any known conflict of interest and sign an oath that they have no known bias and can be fair in dealing with the parties and the subject matter in dispute prior to accepting appointment to a case.
In most business contract and commercial cases, arbitration is confidential and the arbitration award is binding with very little opportunity for appeal. Confidentiality is perceived as a tremendous benefit, protecting the reputations of those involved in the dispute. This is in stark contrast to courts of law, where decisions are published and referred to for years to come.
Lastly, arbitration is not mediation. Mediation also falls under the category of ADR, and often these terms are used interchangeably due to confusion. To clarify, mediation is a formal negotiation of the matter and does not have a guaranteed conclusion. Just like when you offer to buy a car, if the seller doesn’t like the deal, they can walk away. If the seller likes the deal, they sign a contract and there is a legal consequence – the car’s ownership changes hands. However, arbitration results in a decision, like it or not. Arbitration offers a full and fair hearing of each party’s presentation of the evidence and testimony of the parties. There is a big difference between mediation and arbitration, even though they both fall under the category of Alternative Dispute Resolution |ADR.
Arbitration History & Current Use
Many of the United States
government’s structures and legal concepts were based on the designs of the
Greek Republic. Arbitration is no exception. Aristotle wrote extensively about the
concepts of justice, equity, and the law,
specifically addressing arbitration’s ability to provide a measure of
fairness that the law may not be able to provide. Fast forward 2200 years…
The US formally recognized the
benefits of arbitration early in the last century, especially its benefits with
regard to business transactions. The Federal Arbitration Act | FAA was enacted in 1925 and places specific
emphasis on business and maritime contracts relating to the purchase, sale and
transportation of goods, commercial contracts and the disputes that arise out
of the terms and conditions of these types of transactions. The FAA provides for mandatory,
binding arbitration when parties contractually agree. Interestingly, it limits employment
arbitration for railroad workers, sailors and others in cases of dispute. "Nothing
herein contained shall apply to contracts of employment of seamen, railroad
employees, or any other class of workers engaged in foreign or interstate
commerce."[i][1]
Arbitration for criminal cases is not provided for in the FAA.
The FAA provides for the following:
- Defines the types of transactions suitable for arbitration and provides for enforcement of arbitration agreements
- It addresses issues such as jurisdiction, appointment of arbitrators, and grants arbitrators the power to subpoena, with enforcement through the US District court
- The FAA also addresses awards, the confirmation of awards and their limited appeal
- And finally sets the expectation that the state courts will uphold awards
State Arbitration Laws:
State specific arbitration laws have become increasingly common since
1955 when The Uniform Arbitration Act was adopted by the National Conference of
Commissioners on Uniform State Laws.
Each of the 50 states may use The Uniform Arbitration Act’s standardized
language as a starting point to create and adopt as their own state specific
arbitration law, or they may create a state arbitration law that has no basis
in the Uniform Arbitration Act. It is
noteworthy that the Federal Arbitration Act tends to be more liberal than
individual state arbitration laws, which have become increasingly restrictive
in the last few decades; going as far as giving the court the ability to
appoint the arbitrator in some states, and retaining jurisdiction in commercial cases to perform a de novo
(new) hearing of the evidence when parties challenge the award delivered under
their state arbitration laws. Extremely
restrictive laws tend to erode the benefits of arbitration. In these cases, arbitration becomes
essentially a parallel tract to a court proceeding. All of the entanglements of litigation result
in a marked increase of cost, time, and formality across the board.
Rules of Procedure:
Each arbitration forum publishes their own Rules of Procedure, which are
a detailed “rules of the game.” These rules vary in terms of technical
terminology and the level of understandability for the layperson. There is also variance in terms of formality
and rigidity. If the arbitration
provision in the contract is silent on specific rules of procedure or fails to
name the specific arbitration forum, then the parties may file with any
established forum. Additionally, parties
may choose to use a different forum or set of rules by agreement when the need
to arbitrate arises.
Governing Law:
You may be wondering if federal or state law is followed in a particular
arbitration proceeding. Each arbitration
provision is unique to the contract, and when an arbitration provision is
silent on what governing law is applied, the Federal Arbitration Act is
generally applied.
However,
when arbitration is conducted as it was originally intended, it offers valuable
benefits. A carefully constructed
arbitration process is an ideal path for resolving disputes, as opposed to
litigating a commercial matter in the courts.
Tenets of Arbitration
The four basic tenets or
principles of arbitration include reduced formality, faster resolution, less
financial cost, and fairness and fair process.
In its pure, original form,
Arbitration is designed to be
·
Less Formal than a court proceeding. Arbitration gives the opportunity for parties
to represent themselves before a private decision maker – often an industry
expert – who is thereby more familiar and knowledgeable about the subject
matter in dispute. For instance, an
engineer may evaluate the testimony and evidence presented by the parties very differently than an attorney or
judge, when listening to both sides in a construction dispute.
·
Reduced formality invites people to present
their case.
Many people feel more comfortable in a private, more relaxed setting,
than in a formal court of law.
·
If you are
able to speak clearly and maintain your composure under pressure,
you may determine that you are able to present your own case and avoid the
costs of legal representation.
Attorney’s fees can be significant.
·
Industry
arbitrators recognize that the parties involved in the dispute know the details
best, and invite a full and fair hearing according to the priorities of those
presenting their case.
·
The
presentation of your case should be based on actual facts, rather than legal
theories.
Arbitration accommodates a
·
faster means
of resolution, significantly compressing the
timeframes that are typically
experienced in court. In contrast to
litigation, which can drone on for years, an arbitrated matter can be heard in a matter of months.
A properly designed Arbitration
program should
·
save
money. The program should absolutely withstand
the scrutiny of a cost/benefit analysis. In other words, does the claim amount justify
the cost to bring the matter to arbitration?
The ideal Arbitration process provides for a
·
a more
equitable, or FAIR way to
resolve disputes. Arbitration should absolutely keep an eye on fairness and fair process, rather
than basing decisions on the letter of
the law - or determining the case based upon past decisions of other judges
in previous cases. The arbitrator will
consider any case law presented, and let’s face it, case law may or may not be
helpful; each case and circumstance is different.
So why do we keep talking about
PURE arbitration and emphasizing its original design? Because in the last 30 or 40 years,
arbitration in the United States has greatly
increased in terms of cost and formality, sometimes reflecting the worst
excesses of litigation: massive discovery, excessive production of documents,
lengthy interrogatories, etc. These
changes have had a pronounced negative impact, eroding many of the original
benefits that arbitration was designed to address.
In the
recent years, United States Arbitration Association has recognized the need to
return to, and focus on, the original values of arbitration.
United States Arbitration Association Services
USADR, Inc.
offers a less litigious form of dispute resolution that is affordable. The written rules and procedures are
understandable in laymen’s terms. You
don’t have to be an attorney to understand the rules of the game. USADR offers an
accessible means of resolving disputes by embracing and promoting the
traditional values of arbitration: affordability, expediency, and Equity.
How common is it to be bound by
an arbitration agreement? Virtually everyone who conducts business has entered
into an agreement to arbitrate.
Arbitration clauses are commonly included in business and commercial contracts
- such as credit card agreements, insurance policies, cell phone contracts,
internet software terms and conditions, and other legally binding
documents. You may be completely unaware
that you have signed an arbitration agreement, so when a dispute arises and you
file suit in court, the court will reject your filing and refer you to
arbitration instead.
If you have signed an arbitration
agreement, you must arbitrate, even
when the cost of arbitration exceeds the amount being disputed.
This may
present a problem, because the costs of arbitration may climb quickly, and you
may not be able, or willing, to bear the necessary fees to see the matter to
conclusion. Currently, most national,
established arbitration forums are cost-prohibitive for small to mid-size
claims. It simply does not make
financial sense to arbitrate when you must agree to an unlimited expense in
exchange for a limited judgment amount.
In addition, the rules of procedure are frequently exhaustive; written in Legalese that may be confusing to
people outside the legal profession.
Many people feel that they have no choice but to hire an attorney to
navigate the process, and the fees for representation are added to the
administrative costs, as well as the hourly rate for the single arbitrator or
panel of 3 arbitrators who act as a private judge, or judges, who are hired to
hear the matter and make a decision.
United States Arbitration
Association acknowledges the need to provide a means of arbitration that is
efficient and contains costs. We have
carefully designed a process that is accessible, thereby paving the way to
resolve disputes.
USADR offers 3 types of
arbitration:
·
Documentary
Arbitration has been designed for claims under $15,000. An all-inclusive flat fee per party is
assessed for a hearing by a single arbitrator who renders a written simple
decision based on the papers.
·
Arbitration
by Teleconference addresses claims that are under $75,000. An all-inclusive flat fee is assessed when
the teleconference does not exceed 3 hours.
These matters are heard by a single arbitrator who renders a written,
simple decision based on the papers and oral arguments at the Teleconference.
·
Standard
Arbitration offers a physical hearing before a single arbitrator, and is
designed for large claims that exceed $75,000.
A filing fee is charged per party, with additional costs such as an
hourly rate for the arbitrator. All fees
are described in our straight-forward Fee Schedule posted on our website at http://usadr.org.
The following is an overview of
the 3 types of arbitration offered by USADR.
All parties are advised to read USADR Rules of Procedure at the time of
filing for further detail. The Rules of
Procedure are posted on our website at http://usadr.org/rules .
The first type of arbitration
offered by USADR is Documentary Arbitration, which is designed for claims under
$15,000. There is a per party flat fee
to include the administrative filing fee, documentary hearing, and a simple
written award. In addition to the
arbitration submission agreement, each party may submit written and digital
documentation that supports their claim at the time of filing. It is customary to provide a copy of the
signed contract, a statement of claim, other documents, and any digital photos
or video that supports the claim. The
statement of claim should include a detailed chronology of the dispute, any
steps taken to resolve the dispute such as a demand letter, mediation or other
actions, and a dollar amount that the party wishes to be awarded along with supporting
documentation such as receipts, estimates, etc.
The dispute is reviewed based on
the documents provided by the parties. A
simple written award is delivered after a single arbitrator reviews the
parties’ documentary evidence presented for the case. The documentary evidence reviewed by the
arbitrator should include:
1.
The signed
arbitration submission agreement.
2.
A Written
statement of claim submitted by the claimant and the response to the claim
submitted by the Respondent. These
statements and responses are a detailed chronology of the dispute from each
party’s perspective, along with any attempts made to resolve the matter, and
any relief sought by the parties, such as the specific dollar amount and other
remedies sought to satisfy the claim.
Keep in mind that the arbitrator cannot grant relief that is not asked
for, so be sure to ask for everything you want, including attorney’s fees,
interest, etc.
3.
A copy of
the signed contract between the parties that includes the arbitration
provision.
4.
Pictures,
videos, and notarized witness statements that support the claim or response
5.
Other
documents that lend weight to the claim or defense that should be considered by
the arbitrator
The second form of arbitration offered by
USADR is Arbitration by Teleconference, which has been designed for claims
under $75,000.
There is cost is a per party flat
fee to include the administrative filing fee, a 3 hour teleconference hearing,
and a simple written award. If the
teleconference exceeds 3 hours, an hourly rate is charge to each party for each
hour block that exceeds the 3 hour limit.
In addition to the arbitration submission agreement, each party may
submit written and digital documentation that supports their claim at the time
of filing. It is customary to provide a
copy of the signed contract, a statement of claim, other documents, and any
digital photos or video that supports the claim. The statement of claim should include a
detailed chronology of the dispute, any steps taken to resolve the dispute such
as a demand letter, mediation or other actions, and a dollar amount that the party
wishes to be awarded along with supporting documentation such as receipts,
estimates, etc.
The dispute is heard by a single arbitrator
based on the documents and oral arguments of the parties. A simple written award is delivered. The arbitrator will hear the presentation of
the parties’ case, to include:
1.
The signed
arbitration submission agreement.
2.
A Written
statement of claim submitted by the claimant and the response to the claim
submitted by the Respondent. These
statements and responses are a detailed chronology of the dispute from each
party’s perspective, along with any attempts made to resolve the matter, and
any relief sought by the parties, such as the specific dollar amount and other
remedies sought to satisfy the claim.
Keep in mind that the arbitrator cannot grant relief that is not asked
for, so be sure to ask for everything you want, including attorney’s fees,
interest, etc.
3.
A Copy of
the signed contract between the
parties that includes the arbitration provision
4.
Pictures, videos, and notarized witness statements that support the
claim and response
5.
Other documents that lend weight to the claim and that
should be considered
6.
Oral
argument by both parties and the presentation of their respective cases at the
teleconference
The third type of arbitration offered by
USADR is Standard Arbitration with a Physical Hearing, which is offered for
claims that exceed $75,000.
All costs are assessed to each
party equally. The administrative filing
fee is paid at the time of filing the arbitration submission agreement. Additional fees and arbitrator hourly rates
apply.
An initial pre-hearing
teleconference is scheduled for the purpose of establishing procedures, setting
dates, and resolving any pre-hearing disputes either by the decision of the
arbitrator or joint agreement. The
teleconference is usually attended by the arbitrator, the parties and their
representatives. After the
teleconference, a scheduling order is issued to the parties by the arbitrator
which details the dates and decisions and establishes the amount of the hearing
deposit.
All parties are given a full and
fair hearing of their evidence and testimony at the physical hearing. A simple award is rendered unless the parties
jointly agree that they want a detailed, reasoned award.
The dispute is heard by a single arbitrator,
unless all parties agree that they would like a panel of three
arbitrators. Additional fees apply for a
panel of three. The arbitrator or
arbitrators base the decision and award on the documents and oral arguments of
the parties. A simple written award is
delivered unless the parties unanimously request a detailed, reasoned award at
the time of the filing. The parties may
present:
1.
A Written
statement of claim submitted by the claimant and the response to the claim
submitted by the Respondent. These
statements and responses are a detailed chronology of the dispute from each
party’s perspective, along with any attempts made to resolve the matter, and
any relief sought by the parties, such as the specific dollar amount and other
remedies sought to satisfy the claim.
Keep in mind that the arbitrator cannot grant relief that is not asked
for, so be sure to ask for everything you want, including attorney’s fees,
interest, etc.
2.
A Copy of
the signed contract between the parties that includes the arbitration provision
3.
Pictures or
videos that support the claim and response
4.
Presentation
of witnesses or subpoenaed documents
5.
Other
documents that lend weight to the claim and that should be considered
6.
Oral
argument and presentation of the case at the physical hearing
United States Arbitration
Association is confident that the tiered arbitration services more closely
matches the needs of the parties when taking into consideration the
cost/benefit analysis of the claim amount.
USADR welcomes your questions, and invites inquiries either addressed to
our email support@usadr.org or by calling us at 303-864-9674. We take your dispute seriously and are
committed to assisting you in gaining resolution so that you are free to get on
with your life!
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