Arbitrations are dispute resolution processes that operate similarly to court cases, but are private, often less procedurally formal, and tend to be focused on special commercial areas of law. Although the courts generally do not get involved in arbitrations, judgments rendered in an arbitration can be enforced by the courts once they are "confirmed" by a court judge. If a party does not carefully read the contracts they sign, they may be waiving their right to have their claims heard by a state or federal court, and be required to litigate their issues in an arbitration. These arbitration clauses are often found in agreements concerning terms of services for internet-based services, forms for sales of goods, and other commercial agreements.
To a person unfamiliar with court proceedings, arbitrations may seem very similar to court. An impartial arbitrator or tribunal (panel of arbitrators) is selected by the parties, the issues to be resolved by the arbitrator are often stated in a pleading based on a breach of contract, the arbitrator will hear testimony and receive evidence from the parties, and the arbitrator will render a decision, which can be turned into a judgment when brought to court. A very visible example of an arbitration is television's "Judge Judy" whose courtroom and robed demeanor convey the image of a court, but in actuality the proceedings are arbitrations.
But arbitrations differ significantly from court in that they often have limited subpoena powers, there is no "contempt" for disobeying an arbitral order (although it can affect the arbitrator's final ruling), the procedural rules are often not as strict as court rules, standards to admit evidence are often lower, and appeals are often limited to the arbitral institution's own system, which often lacks significant knowledge of the applicable law, or going to state or federal court to obtain a rarely issued vacatur (throw out) of the arbitral award. The amounts in controversy can be high, so it is nevertheless important to treat arbitrations as if the case was in court.
Arbitrations were touted as the cost-effective alternative to going to court throughout the late 1990s and 2000s. Businesses perceived opportunities to use fast, efficient private judges with expert knowledge of particular industries to resolve commercial disputes without all of the expected litigation expenses that tend to build up in court. Arbitral decisions were easily enforced by the courts, and were rarely overturned.
But recent trends in dispute resolution show that large corporate businesses are not as keen to include arbitration agreements in their commercial and consumer contracts anymore due to increased costs, less certainty in an arbitrator's ability to resolve disputes knowledgeably and fairly, and the inability to effectively appeal an arbitrator's ruling. Despite this growing trend to move away from arbitrations, many businesses still maintain these clauses in their contracts, and courts will enforce these provisions to avoid overcrowding their dockets.
Each arbitration institution has its own set of procedural rules and policies governing the conduct of an arbitration. It is important for litigants and their attorneys to know how the arbitral institution's rules will affect the case as it will affect what evidence can be used, how to properly vet an "impartial" tribunal, and what claims can be heard related to the contract.
Please contact our office if you are considering signing an agreement with an arbitration clause, if you are interested in using an arbitration clause in your contracts, or if you intend to prosecute or defend a claim in an arbitration.