An Alternative to Court

Arbitration can often help businesses settle disagreements faster and with less expense than for filing a lawsuit

In business circles, “See you in court!” is out. “Let’s arbitrate!” is in.

As the costs of lawsuits have climbed out of sight, business owners and managers have discovered that arbitration is generally a better deal. Usually, arbitration is cheaper and speedier than litigation – and it’s private. There’s no need to parade a business dispute before the public as happens in a court case.

Sooner or later, almost every business will run into a dispute that can’t be settled by negotiation. For example, a painter redecorates your facility and insists on full payment even though the job was poorly done and he spilled paint on the carpet.

Or maybe your landlord hasn’t installed improvements as promised in your lease. Or perhaps a customer to whom you sold a service is claiming her business lost money because your work was tardy or substandard.

Disputes such as these can be arbitrated. And in many cases, the business relationship can continue: Arbitration seems to create less rancor than litigation. If you decide that arbitration is the right choice, you and the other participants are free to decide on the procedures and the person who will arbitrate.


Agreeing to arbitrate

Many businesses choose to arbitrate through the American Arbitration Association (AAA), a national organization with years of experience. You can do likewise by putting this wording in a business contract:

“Any controversy or claim arising out of or relating to this contract, or a breach of this contract, shall be settled by arbitration under the commercial arbitration rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction.”

The arbitrator’s ruling is binding. Except in extreme cases, such as those involving fraud, neither party can appeal the arbitrator’s decision. But you can go to court to enforce the decision, just as you would enforce a judgment given by a judge or jury.

So far, so good. But what if a dispute comes up and you haven’t already provided for arbitration? No problem. You and the other party can submit the dispute to arbitration by signing a clause such as: “We agree to submit the following controversy to arbitration under the commercial arbitration rules of the American Arbitration Association.” You then go on to briefly describe the dispute.


Starting the arbitration

What next? If you’ve agreed to use the AAA, you file one of two forms that organization provides: a Demand for Arbitration, or a Submission to Dispute Resolution. These are simple, one-page forms. The second requires both parties’ signatures.

The AAA will send each party a list of proposed arbitrators, including biographical info on each one. The AAA compiles its short list from a panel of more than 50,000 arbitrators with backgrounds in many industries, trades and professions. You and the other party each have 10 days to study the list, strike any names you object to, and number the remaining names in your order of preference.

The AAA administrators then look for a mutually acceptable name. If you and the other party can’t agree, the AAA will choose an arbitrator – one neither side has rejected.


Preparing for the hearing

The arbitrator will make an award based on facts and exhibits presented at a hearing, so prepare carefully. Assemble the papers you’ll need at the hearing, making photocopies for the arbitrator and the other party. If crucial documents are in the hands of the other party, ask that they be brought to the hearing. In some states, the arbitrator or a party can subpoena documents and witnesses.

Interview your witnesses. Make sure they understand what the dispute is about and know their role at the hearing. Make a written summary of what each witness will prove. This will help you make sure nothing has been overlooked. Study the case from the other side’s point of view. Be prepared to answer the opposition’s evidence. If a lawyer will represent you, notify the AAA and the other side.


Presenting your case

Arbitration hearings are less formal than court trials. Arbitrators don’t have to follow strict rules of evidence. The direct testimony of witnesses is usually more persuasive than hearsay evidence. To present your case effectively:

1. Make an opening statement that briefly describes the controversy and tells what you’re going to prove.

2. Explain what you’re asking for. Do you want money awarded to you? If so, how much? Or are you asking that a bill that was sent to you be voided? Be specific.

3. Introduce your witnesses and documents, and be prepared to cross-examine witnesses on the other side.

4. Summarize your case in a closing statement and show how you have refuted the arguments of the opposition.

Arbitrators are human, so courtesy and cooperation do count. Exaggeration and concealing facts, on the other hand, can hurt you.


The award

Within a few weeks of the hearing, the arbitrator gives a written award, usually on a single sheet of paper. Typically, the party who owes money will pay promptly or work out a payment plan with the other side. But the winning party can have the award turned into a legal judgment and take collection action, such as garnishment of bank accounts.

Keep in mind too, that many business disputes are resolved by mediation, which is non-binding. A neutral mediator tries to bring the parties to a voluntary settlement. Mediation can be even faster and less costly than arbitration.


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