ABOUT ARBITRATION

Arbitration is an alternative to resolving disputes in court.  The arbitration process allows the parties to select an individual or several individuals with a specialized expertise in the subject matter of the dispute to listen to the evidence and render a binding decision.  In residential construction arbitration, there is usually one arbitrator.  In more complex cases, the parties may request more than one arbitrator, and a panel of arbitrators is appointed.  Usually, an arbitration panel consists of three members, called a tripartite panel, one of which is designated as the chairperson of the panel or chief arbitrator.  In civil litigation a judge is randomly assigned to hear a particular case and may not have the necessary substantive or technical expertise to appreciate fully the intricacies of legal counsel’s arguments or have a comprehensive knowledge of the construction matters in dispute.  Also, the large volume of court caseloads sometimes results in substantial delays in processing individual cases.  Many judges are mandating mediation and/or arbitration prior to the beginning of actual court proceedings with the expectation that the case will be settled and the court litigation process will be avoided.

The most basic difference between arbitration and mediation is that arbitration involves a decision by the intervening third party (neutral) after an evidentiary hearing where the arbitrator is typically a passive participant whose role is to determine right or wrong and the mediator by contrast, is generally an active participant who attempts to move the parties to reconciliation and agreement, regardless of who is right or wrong.  At the end of a mediation, the parties write up their own settlement agreement with the assistance of the mediator and at the end of a binding arbitration, the arbitrator, usually within 30 days, makes an award to the prevailing party.  Both the mediation settlement agreement and the arbitration award are legal documents and are enforceable in a court of law.

In binding arbitration, the parties agree to abide by the decision of the arbitrator.  In non-binding arbitration, the parties do not agree to be bound by the arbitrator’s decision and they use the arbitration process in order to obtain an advisory opinion.  In non-binding arbitration, the parties may nevertheless abide by an arbitrator’s decision in order to end the dispute without resorting to what would probably be a lengthy and costly litigation.  If a party to the arbitration agreement files a lawsuit, the other party who wants to have the dispute arbitrated may request the court to suspend the lawsuit and compel the other party to arbitrate.  The courts favor arbitration, and the courts will usually enforce the parties’ agreement to arbitrate.  The court usually “stays” or “suspends” the proceedings in court pending the outcome of the arbitration, and may impose a time period during which the arbitration must be concluded.

In civil litigation, the court adjudication process and the procedures are highly structured and institutionalized, typified by detailed rules and numerous compliance mechanisms.  Rules of evidence enhance the reliability of proof of claims and defenses.  In disputes not requiring these types of stringent procedures, mediation and arbitration offer certain measurable advantages.  Arbitration, while having some of the evidential and procedural regularity of court adjudication, is conducted in a less formal and less rigorous setting, thereby enhancing the potential for a more expeditious resolution.

Arbitration proceedings generally begin with a pre-hearing or preliminary conference with the arbitrator that is attended by both parties along with their legal council to review the items in dispute and the ground rules and procedures that will be followed during the arbitration process.  After that conference, all communication with the arbitrator must be made jointly by both parties and private conversations between the parties and the arbitrator are generally not allowed and are commonly called “ex parte” conversations which may be a cause of action to vacate the arbitrator’s award.

The attorneys usually make opening statements and closing arguments where they frame the facts in argumentative terms in order to present the facts in a light most favorable to their clients.  These arguments, during the hearing, may be supported by actual testimony or by the documents submitted as hearing exhibits.  If necessary, subpoenas can be issued by the attorneys or by the arbitrator to insure that pertinent and relevant information is brought to light during the hearing process.  At the end of the arbitration process, which is quite involved, the arbitrator will make an award to the prevailing party.  The arbitrator may announce his/her decision at the end of the arbitration session or he/she may take up to 30 days to issue the award.  The arbitrator is not obligated to explain the award and may decide to only issue the award without explanation.  That award is generally not subject to appeal unless the arbitrator failed to follow certain rules or procedures that are required by law.  The main reason that arbitration awards are vacated is the arbitrator not disclosing a relationship that he/she had with one of the involved parties, their councilor, their councilor’s firm, one of the witnesses, etc.  It is not uncommon for an arbitrator to withdraw from a case if during the arbitration process he/she is made aware of a fact that would make him/her not to be a neutral arbitrator.  Many states have adopted some form of the “Uniform Arbitration Act” and are also bound by the rules and procedures of the “Federal Arbitration Act” which must be followed by the arbitrator.

Although arbitration is a very effective means of dispute resolution, I personally recommend Med-Arb, which is has the finality of an arbitration but affords the parties the opportunity to be more involved in the process, generally costs less than arbitration and can be conducted in a more timely manner.