What is arbitration?

Posted by Clyde Hutchins | Dec 08, 2017 | 0 Comments

What is arbitration?

If you are like most Americans, you are a party to at least half a dozen arbitration agreements, if not more. Quietly, and discretely, arbitration agreements have slipped into many, many contracts and agreements between consumers and businesses. They are also found in many business to business agreements. Yet, many people do not even know what arbitration agreements are.

The closest analogue to arbitration is court, as it is a substitute for going to court. Arbitration bears many similarities to litigation. On the other hand, it has some remarkable differences from court.

Arbitration has some similarities to Court

Just like court, arbitration is where disputes are resolved. The opposing parties each present their respective positions before a neutral third party to have the dispute resolved. Like court, each party can present witnesses and evidence and cross examine the other side's witnesses. Like court, the parties present the legal basis for their positions and the neutral third party attempts to make a ruling based upon the law and the evidence presented.

Arbitration has many differences from Court

  • It is expensive

In contrast to court, the arbitration process is not cheap. Courts have minimal filing fees, and in some states, like Wyoming, there are no fees after the initial filing fee. This is because the state pays for the court system, including the judge's salaries. Arbitration is expensive because the parties have to pay for the neutral third party's time on the case. Even for a simple case, this fee can amount to several thousand dollars. For a large, complex case, the cost can be astronomical. The only exception is for some consumer arbitration, where the business pays most of the fees and the consumer only pays a small fee.

  • It can be secret

Another major difference is that some arbitration agreements and rules require that the arbitration be kept secret. In contrast, with the exception of some juvenile and minor proceedings, courts are open to the public. Furthermore, the arbitration order can be quite simple in some cases, with no explanation of the reasons for the decision. So even if the arbitration order is filed in court, there is no clear understanding of what happened.

  • It is quicker than court

Arbitration proceedings are typically faster than the court process. Arbitration can easily cut the time to fully resolve a matter in half.

  • The arbitration can be heard by a non-judge

The arbitration process allows lawyers instead of judges to act as the neutral third party.

  • No appeals

Although there are some ways to challenge the final order in an arbitration proceedings, you cannot really appeal a final order. The upside to the lack of appeals is that the parties reach a final resolution of the matter quickly. The downside is that there is no way to correct an error made by the arbitrator. (Note that a study a few years ago showed that nationwide, approximately 1/3 of appealed cases are reversed on appeal.)

  • Lower attorney fees

Although, as pointed out above, arbitration is not cheap, there are less attorney fees incurred. Since arbitration is a quick process, attorneys are not heavily involved in the developing the case as they are in some court cases.

  • Little or no discovery

A major part of litigation in the court system is conducting discovery. This is where you can find out evidence that can support your case. Arbitration does not allow for much discovery and many cases go straight to the arbitration hearing with only a superficial exchange of documents.

  • No chance for mediation

A big part of litigation is negotiating a resolution of the dispute. As the parties conduct discovery, they learn the strengths and weaknesses of the case. They then go to mediation (often confused with arbitration) where they have a chance to voluntarily reach a settlement. There is no such opportunity in arbitration. You go to the hearing and either win or lose. There is no real middle ground where the dispute can be voluntarily resolved.

  • The rules are bent or ignored

In court, everyone plays by the same rules. In arbitration, the rules of evidence can be bent or simply ignored. The neutral third party can bend the rules to allow evidence that would not be presented in court.

On balance, is arbitration good or bad?

Arbitration is useful in some situations, but not others. Arbitration should be open to those that knowingly and voluntarily choose it. It should not be secretly forced on people through the fine print.

Can I ignore the arbitration agreement and just file suit in court?

That is usually not an option. If an arbitration agreement is found in the fine print of your contract, you cannot take the other party to court. You have to sue the other party in an arbitration proceeding. If you ignore the arbitration agreement and file suit in court against the other party, they can ask the court to order you to go to arbitration.

How is the final order in arbitration enforced?

Once the final order is made, the parties have the option of filing it in court. Once it is "confirmed" by the court, the arbitration order can be enforced just like any other court judgment.

I have received a notice that my dispute is to be arbitrated. What do I do?

Don't delay! Contact a lawyer to review your situation, advise you of your options, and represent you in the arbitration proceedings. If you need help, please feel free to contact Harmony Law.

About the Author

Clyde Hutchins

Clyde Hutchins is the founder of Harmony Law. Mr. Hutchins started his legal career in Cheyenne, Wyoming as a law clerk for the district court judges. Mr. Hutchins then entered private practice with a Wyoming based litigation and business law firm. Later, Mr. Hutchins went to Alaska, where he was the chief litigator for a firm that engaged in bond law, corporate law, securities law, and municipal law. The State of Wyoming hired Mr. Hutchins from Alaska to represent the State of Wyoming in the national tobacco arbitration and act as its tobacco settlement attorney. While in that position, as a hobby, he developed an enforcement unit for consumer protection for Wyoming residents. Mr. Hutchins moved to Colorado in 2016 and founded Harmony Law, LLC. Harmony Law is primarily engaged in civil litigation. It is also a general practice firm in the areas of business law, estate planning, consumer law and family law. Harmony Law is active in all state and federal courts throughout Wyoming and Colorado.


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