Forced Arbitration: The Double Edged Sword

Businesses can have many contracts and agreements with joint partners, suppliers, clients and customers. Language in those documents should determine how disputes will be resolved. If those disputes cannot be negotiated amicably, instead of potentially ending up in the court system, these documents could mandate they be resolved through an arbitration process.

Arbitration is an alternate dispute method which is essentially a privately funded trial, not a trial in the public court system. A single arbitrator, or a panel of arbitrators, would hear testimony, take evidence, rule on motions and make decisions of law and fact and come up with a decision. Arbitration is usually much quicker and less expensive than the trial process and the evidence and proceedings can be kept confidential.

Arbitration, in and of itself, is not necessarily biased for or against one party, but how an arbitration is set up may favor one party or another. The judicial system is ruled by the Constitution, statutes, past court decisions and rules of civil procedure. Arbitration rules are set up by the parties and the more leverage or bargaining power one party has, the more potential there is that the rules could tilt the proceedings toward their favor.

Increasingly common in form contracts with everyone from cell phone providers to banks to car dealers, forced arbitration clauses require those signing the contract not to go to court but to arbitration to ultimately resolve disputes.

When it comes to contracts or agreements with other parties you need to think about the worst case scenarios and how that may play out to protect your interests:

If you are potentially the defendant and have the bargaining power to include favorable arbitration terms in a contract or agreement, including such terms may be beneficial to your businesses because it could greatly reduce the costs of litigation and potentially discourage it in the first place. If you are potentially the plaintiff, youre entering into a contract with another business which wants such terms in a contract, negotiating different details about the arbitration would be in your favor.

Arbitration is a tool to possibly lower litigation costs. Like any tool, whether its favorable or not depends on how its used and on which end of the tool youre on. If youre in the Rockville or Bethesda areas and have any questions about commercial litigation and how to avoid it through arbitration, call Longman & Van Grack at (301) 291-5027.