Arbitration is a technique used to resolve legal disputes outside of the courts. During arbitration, the involved parties consult a third party to review the case. This third party is also referred to as arbitrators, arbiters, or an arbitral tribunal. The arbitrators then propose a binding or non-binding decision to settle the dispute. Arbitration is considered less formal than courtroom proceedings, but more formal than negotiation or mediation.
Types of Arbitration
An arbitration clause contained in a legal contract is most often the cause of arbitrations. Arbitration clauses require that contractual disputes are resolved using arbitration. Arbitration clauses may feature several types of conditions. These conditions may be simple or complex, with control over several aspects of the arbitration process.
Binding vs. Non-binding Arbitration
Binding arbitration asserts that the arbitrator’s decision will be final. Only in limited circumstances is a court eligible to review or overturn the decision. These scenarios may involve issues such as misuse of power or fraud.
Non-binding arbitration allows either involved party to reject the arbitrator’s award in place of a trial. Non-binding arbitration is often used to independently asses a potential lawsuit’s strengths and weaknesses. In some cases, the award may become binding if both parties agree or wait past a certain timeframe to revisit the case in court.
Voluntary vs. Mandatory Arbitration
Arbitration clauses may be voluntary or mandatory. Mandatory arbitration agreements require that arbitration must be used to solve certain types of disputes. This means that both parties involved forfeit their right to file a lawsuit in court, appeal an arbitrator’s decision, or participate in a related class action lawsuit.
Voluntary arbitration involves an agreement from both parties to submit a disagreement to arbitration after other resolution methods have been evaluated. Many consumers view this form of arbitration as more fair, as it presents arbitration as a choice instead of a legal necessity.
Arbitration Pros and Cons
Parties involved in a legal dispute may favor arbitration because:
- The arbitration process may be faster than court litigation.
- Businesses may find arbitration to be less expensive and more flexible.
- Specially qualified arbitrators can be chosen for highly technical disputes, as opposed to litigation, where a judge cannot be selected by parties.
- Proceedings and arbitral awards can often be made non-public and confidential.
Disadvantages of arbitration may include:
- In some cases, arbitration is subject to pressures from more powerful law firms that represent the wealthier and stronger party.
- If the arbitration process is binding and mandatory, the involved parties waive their rights of accessing courts and having a jury or judge decide the case.
- Particularly in small consumer disputes, parties may be required to pay an additional cost for arbitrators.
- There are limited avenues for decision appeal, making it difficult to overturn an unfavorable or erroneous decision.
Florida Arbitration Ruling
In June 2013, the Florida Supreme Court voided the arbitration agreement of a now-deceased medical malpractice patient. After Joseph Franks underwent surgery to remove a lump in his groin, he developed a large hematoma. He died 11 days after the operation.
Before his first visit to the facility, Franks signed a “financial agreement.” The mandatory agreement stated that binding arbitration would be used for any disputes. Furthermore, the agreement contained a clause limiting non-economic damages to $250,000.
Donna Franks, Joseph’s wife, filed a wrongful death lawsuit on behalf of Franks’ estate. After two appeals, the Florida Supreme Court ruled that the agreement contradicted public policy under the Medical Malpractice Act. This was because the agreement removed significant incentives for claimants who wish to agree to voluntary arbitration.
Selecting an Arbitrator
Arbitration agreements often designate JAMS, the American Arbitration Association, or the National Arbitration Forum to handle arbitration. These arbitrators are typically practicing attorneys or retired judges with extensive legal experience. Arbitration associations typically charge a percentage of the disputed amount or a set amount. Case service fees are also charged. Independent arbitrators may also be used.