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B.  ALL ABOUT ARBITRATION

This informal process is used to resolve employment and labor misunderstandings, recover uninsured motorist and no-fault insurance claims, settle disagreements between businesspeople, clarify property distribution clauses in divorce cases, and enforce consumer purchases and contracts.

Arbitrators have broader powers than judges and are not limited by strict rules of evidence. They can hear all relevant testimony when making a decision, including some forms of evidence (hearsay, questionable copies of documents, etc.) that would be excluded in a regular court. Arbitrators have the authority to hear witnesses out of order. Their decisions are legally binding and unappealable.

How to Obtain Arbitration

Individuals cannot initiate arbitration hearings merely because they have a dispute that requires legal intervention. In order to obtain a hearing, both parties must agree in writing that the controversy will be submitted to binding arbitration. (Oral agreements to arbitrate disputes are not enforceable.)

The right to proceed to arbitration is usually accomplished by including the following type of clause in an employment contract, lease, loan agreement, or other document:

 

Any controversy or claim arising out of or relating to this agreement, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

By signing an agreement containing such a provision, both parties waive their right to sue in court and agree to submit future disputes to the binding decision of arbitrators.

Hearings can be obtained another way. At any time, the parties are free to sign a document called a "submission agreement." This is usually prepared after a dispute has arisen and the parties agree it is better to arbitrate than face the expense, time delay, and inconvenience of litigation.

To be valid, the submission agreement must disclose the identity of the parties, the nature of the controversy, and the manner of arbitrator selection. For example:

We, the undersigned parties, hereto submit to arbitration under the Commercial Arbitration Rules of the American Arbitration Association the following controversy (cite briefly). We further agree that the above controversy be submitted to (one) (three) arbitrator(s) selected from the panels of arbitrators of the American Arbitration Association. We further agree that we will faithfully observe this agreement and the Rules and that we will abide by and perform any award.

Both a signed agreement containing an arbitration clause and a submission agreement bind the parties to the arbitration process in most states.

For disputes under $20,000 it costs about $1200 to commence a hearing. The figure increases proportionally with the amount at stake--$1,200 for disputes up to $40,000 and $1,400 for disputes up to $80,000.

Advantages and Disadvantages of Arbitration

Expense. Unlike small claims court, you need an attorney for arbitration, but fees are reduced because the average hearing is shorter (typically less than a day) than the average trial. Expensive pretrial procedures, including depositions, interrogatories, and motions, are usually eliminated.

Out-of-pocket expenses are reduced because stenographic fees, transcripts, and other items are not required.

Time. Arbitration hearings and final awards are obtained quickly; cases are usually decided in a matter of months, compared to several years in formal litigation.

Privacy. The arbitration hearing is held in a private conference room. Unlike a trial, the hearing cannot be attended by the general public. Thus, unwanted publicity is often avoided.

Expertise. Arbitrators usually have experience in the area of the case. Their knowledge of trade customs helps them identify and understand a problem quicker than a judge or jury

Finality. Arbitrators, unlike judges, need not give formal reasons for their decisions. Nor are they required to maintain a record of the proceedings. The arbitrator's decision is binding except in a few extraordinary circumstances where arbitrator misconduct, dishonesty, or bias can be proved.

Loss of jury Some lawyers believe that Juries tend to empathize with certain kinds of people. Their view is that salespeople, fired employees, accident victims, destitute wives, and older individuals are better off seeking damages before a jury than a panel of arbitrators. Arbitrators are usually successful lawyers, professionals, and businesspeople, who are not easily swayed by a talented lawyer's style. Their philosophical orientation sometimes leans closer to companies than individuals.

Loss of discovery devices. Some claimants must rely on an adversary’s documents and records to prove their case. For example, independent sales agents, songwriters, authors, patent holders, and others often depend on their company's (or licensee's) sales figures and accurate recordkeeping to determine how much commission and royalties are owed. The same is true for minority shareholders who seek a proper assessment of a company's profit picture. These people may be disadvantaged by the arbitration process.

In court, lawyers have ample opportunity to view the private books and records of an adversary before the trial. This is accomplished by pretrial discovery devices such as interrogatories, depositions, and notices to produce documents for inspection and copying. These devices are not as readily available to litigants in arbitration. In many instances, records are not viewed until the day of the hearing. This makes it difficult to detect whether they are accurate and complete. And it is often up to the arbitrator's discretion whether to grant an adjournment for the purposes of reviewing such records.

Steps Leading to the Hearing

Commencing the hearing is a relatively simple matter once arbitration has been selected as the method of resolving a dispute. Either you or your lawyer sends a notice, called a "Demand for Arbitration," to the adversary (see Figure 7.2). The notice briefly describes the controversy and specifies the kind of relief sought, including the damages requested. Copies of the demand are sent to the American Arbitration Association (AAA), along with the appropriate administrative fee.

The AAA is most often selected to arbitrate disputes. It is a public service, nonprofit organization that offers dispute settlement services to business executives, individual employees, trade associations, unions, management, consumers, farmers, communities, and all levels of government.

The other party responds to the charges, usually within seven days. It may also allege a counterclaim for damages. Either party can add or change claims in writing until the arbitrator is appointed. At that point, changes can be made only with the arbitrator's consent. After the AAA receives the Demand for Arbitration and reply, an A-AA administrator usually supplies the parties with a list of potential arbitrators. The list contains arbitrators' names, occupations, places of employment, and appropriate background information.

Such individuals are usually lawyers, accountants, consultants, and experts in the particular industry or field in which the controversy occurred who have served successfully as arbitrators before. The AAA constantly upgrades their accomplishments and expertise. It also admits new people to its master computer list when such individuals demonstrate a talent to serve as arbitrators or when recommended by other experts in the field; they are included on the list after an interview and analysis and approval of their qualifications. Typically in each case, an AAA administrator will provide the parties with approximately five to ten potential arbitrators randomly selected from the computer (after weeding out for specialty) in each case.

The parties mutually agree to nominees from this list. If the parties do not agree beforehand to the number of arbitrators, the dispute is decided by one arbitrator, unless the A-AA determines that three are appropriate. Potential arbitrators are obligated to notify the AAA immediately of any facts likely to affect their impartiality, such as prior dealings with one of the litigants, and disqualify themselves where appropriate.

Once the arbitrator is selected, the AAA administrator schedules a convenient hearing date and location. There is no direct communication between the parties and the arbitrator until the hearing date; all requests, inquiries, and so on are received by the administrator and relayed to the arbitrator. This avoids the appearance of impropriety. The parties are free to request a preheating conference to exchange documents and resolve certain issues. Typically, however, the parties, administrator, lawyers, and arbitrator meet face to face for the first time at the hearing.

The Hearing

Most hearings are conducted in a conference room at an AAA regional office. A stenographer is present, if requested, and the requesting party bears the cost.

The arbitrator introduces the parties and usually asks each side to:

• briefly summarize its version of the dispute

• state what he or she intends to prove at the hearing

The complainant presents his or her case first. Witnesses are called to give testimony (usually under oath). These witnesses are then usually cross-examined by the opposing party's lawyer and may also be questioned by the arbitrator. The complaining party introduces documents, affidavits, and all other supporting materials.

The opposing party then introduces witnesses, documents, and so on. These witnesses are then cross-examined by the opposing party's lawyer and the arbitrator.

Finally, both sides are usually asked to summarize what they believe was proved at the hearing. (Sometimes, before rendering a decision, the arbitrator also requests that both parties submit legal briefs that summarize their positions.) The arbitrator then concludes the hearing.

The Judgment

Arbitrators are generally required to render written decisions within 30 days unless the parties agree to some other time period. When there is more than one arbitrator, a majority decision is required. The arbitrator can make any award that is equitable. He or she can order the losing party to pay additional costs, including AAA filing fees and arbitrator fees.

Legal fees may be awarded if the arbitration clause in the original agreement provided for them.

Arbitrators have no contact with the parties after the hearing. The AAA administrator notifies the parties of the decision in writing by sending each a copy of the award. The decision in a typical commercial case is brief, with no formal reasons given for a particular award or the basis on which damages were calculated.

It is practically impossible to appeal a losing case. The arbitrator has no power once the case is decided. The matter can only be reviewed by a judge, and judges cannot overturn the award on the grounds of insufficient evidence. The only ways a case can be overturned on review are:

• for arbitrator dishonesty, partiality, or bias

• when no valid agreement existed authorizing the arbitration

  process

• when an issue was ruled on that the arbitrator was not

  authorized to decide

In addition, awards are modifiable only if there was a miscalculation of figures or a mistake in the description of the person, property, or thing referred to in the award.

How to Increase Your Chances of Success in Arbitration

Hire the right lawyer. Hire a lawyer who is experienced with the intricacies of the arbitration process.

Prepare for the hearing. It is important that both you and your lawyer carefully prepare for the hearing. Your goal is to submit evidence that will prove your case.

Hire a lawyer who is experienced in the intricacies of the arbitration process.

Organize the facts: Gather and label all documents you will need at the hearing. Put them in the order they will be presented. Make copies for the arbitrators and your adversary. If some of the documents you need are in the possession of the other party, ask that they be brought to the hearing. In some states, the arbitrator or an attorney of record has the authority to subpoena documents and records.

Interview witnesses: Be sure that friendly witnesses, if any, will testify on your behalf. If there is the possibility that additional witnesses may have to appear, alert them to be available. Be sure the witnesses understand the case and the importance of their testimony. Select witnesses who are believable and will not say things at the hearing that will surprise you. Coordinate the witnesses' testimony so that your case is consistent and credible. Prepare them for the rigors of cross-examination. If one of your witnesses requires a translator, make arrangements.

Consider your opponent's case: Study the controversy from his or her point of view. Anticipate what your opponent will say to defeat your claim and be prepared to refute that evidence.

Make appropriate arrangements: For example, if it is necessary for the arbitrator to visit a building for an inspection, plan this. The arbitrator must be accompanied by representatives of both sides unless the parties permit the arbitrator to conduct the investigation without them.

Practice your story: Practicing what you will say will put you at ease and help you organize important facts.

Act professionally: Show respect for the arbitrators. Listen to their questions and instructions. Never argue with them. If an arbitrator asks you a question while you are speaking, stop immediately. Answer his or her question honestly and to the point. Do not argue with your opponent at the hearing. Interrupt his or her presentation only if absolutely necessary.

What to Do After Obtaining a Judgment

Most losing parties voluntarily comply with the terms of an unfavorable award. However, if you obtain a judgment and your opponent decides not to pay, your lawyer can enforce the judgment in a regular court.

The most effective way to complain is in a reasonable and friendly fashion: Don't initially make demands. Presenting your complaint in person is often more successful than complaining over the telephone. In either case, always record the person's full name and title and the date and time of the conversation. Then write a letter to that person, thanking him or her and confirming when and how the matter is to be resolved.

Savvy consumers always first attempt to negotiate solutions to their problems.

Savvy consumers always first attempt to negotiate solutions to their problems. They also have figured out their next step. If you are having trouble getting through to an employee, speak to his or her boss. Go directly to the owner or president of an establishment if you are being ignored or encountering unnecessary delays. Be persistent when dealing with large companies or bureaucracies and get the names of everyone you deal with. Finally, know the law and which agency is authorized to protect your rights if your problem is still unresolved.

Whenever you have a consumer problem, write a demand letter and send it certified mail, return receipt requested. The importance of sending such a letter cannot be overemphasized. In addition to documenting your claim, the letter will advise your adversary that the matter must be corrected to your immediate satisfaction or you will take additional action. If there is no response to your letter, send a follow-up letter reporting that your initial letter has not been answered. The letter should also state what your next step will be if this letter is ignored.

Don't Get Taken!
Copyright © 1996 Steven Mitchell Sack