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Arbitration: Is it Required?


What is Arbitration?

Arbitration is a form of alternate dispute resolution in which an outside party, known as an arbitrator, evaluates a civil dispute between parties and, in essence, acts as the "judge and jury." The decision that the arbitrator makes is often binding upon the parties involved. A court of law is, in no way, involved in arbitration and will only interfere when there are egregious actions taken on the part of the arbitrator.

When is arbitration binding?

Arbitration can be either "binding" or "non-binding." Binding arbitration means that the successful party in arbitration takes an arbitration award. If the unsuccessful party to the arbitration refuses to honor the arbitration award the court can interfere and force the unsuccessful party to honor the arbitration agreement.

"Non-binding" arbitration is exactly what it sounds like, arbitration that does not result in a permanent resolution that can be enforced by the court system. Non-binding arbitration is usually used as a forum to resolve differences between the parties but no one must be bound by the arbitrator's decision.

Are there any safeguards to arbitration?

As noted earlier, arbitration occurs with little to no court involvement. As such it is up to the parties involved to be cautious about whom they select as an arbitrator. At times the result of arbitration can be unjust and when arbitration results in a completely unfair result the courts may intercede. The instances when a court will review an arbitration award include:

· Corruption, fraud, or miscarriage in arbitration proceedings
· Bias of the arbitrator chosen to be neutral
· The arbitration exceeded the powers authorized

Can arbitration be required?

As mentioned above, a court of law may not impose mandatory arbitration. However, the parties to a contract may stipulate the imposition of arbitration. This comes up most often when signing a boilerplate contract. Somewhere in a boilerplate contract will arise a subsection requiring mandatory arbitration or mediation. These sections are customary in many contracts and are a way for corporations and other entities to settle legal matters out of court. The policy behind this is not only financial but also based on public perception.

Where matters that arise in front of a court of law are not only publicized in the media and open to the public, they are also part of the public record and accessible to all. Arbitration, on the other hand is a private matter and the negotiations involved, and the results, are not a matter of public record and often take place in private.

Are arbitration clauses enforceable?

Current Supreme Court decisions have solidified the enforceability of mandatory arbitration clauses. Specifically in Buckeye Check Cashing, Inc. v. Cardegna the Supreme Court held that even if a contract is found to be completely void on its face, the mandatory arbitration clause will stand. This is a prime example of how the judicial system favors arbitration.

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