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Arbitration: It's Not Just For Baseball Players Anymore

By Curtis D. Brown   E-mail: cbrown@arb-forum.com

When most people hear the word "arbitration" they think of union strikes or a baseball player "going to arbitration" to ask for an astronomical salary. Today, arbitration is much more than that-- it's the hottest idea for eliminating lawsuits and saving money on legal expenses.

Consumers are using arbitration as a fast, inexpensive and non-threatening way to solve disputes over faulty products and services. Companies are increasingly following the lead of the major banks by adding arbitration clauses to their customer's accounts.

A NEW SOLUTION

Over the past several years, the U.S. Supreme Court has ruled that parties can insert arbitration clauses into their agreements to shift future legal disputes out of the court system, with its downside risk and expense, and into a neutral and independent "court system"--arbitration.

Arbitration is good for businesses and consumers. In the 1995 Allied-Bruce-Terminix case, the U.S. Supreme Court noted arbitration's benefits to consumers, including: less expense than litigation; simpler procedural and evidence rules; minimizing hostility between parties; less disruption to ongoing and future business dealings among the parties, and more flexible scheduling of times and places for hearings and discovery.

With a little planning, companies and individuals can easily avail themselves of the major benefits of arbitration: protection from unexpected lawsuits and reduced court costs.

Companies report that they can use arbitration to collect delinquent accounts quicker and cheaper. Arbitration replaces the expense of paying an attorney to simply write a legal-sounding collection letter to the debtor, allowing creditors to reduce collection and litigation expenses.

Costs for consumers are reduced because claims can be decided in a matter of a few months rather than the year or more (with accompanying legal fees) it would take to get a decision from a court.

Companies and their customers also report an excellent quality of decision-making in arbitration because their cases are decided by arbitrators who are experienced attorneys and who understand business and contract law.

HOW DOES ARBITRATION WORK?

First, parties need to insert an arbitration clause into their agreements. Arbitration clauses are many and varied. The clause used by one major bank reads as follows:

ARBITRATION: Any claim, dispute or controversy by either you or us against the other, or against the employees, agents or assignee of the other, arising from or relating in any way to this Agreement or your Account, including Claims regarding the applicability of this arbitration clause or the validity of the entire Agreement, shall be resolved by binding arbitration by the National Arbitration Forum, under the Code of Procedure in effect at the time the Claim is filed. Rules and forms of the National Arbitration Forum may be obtained and Claims may be filed at any National Arbitration Forum office, http://www.arb-forum.com, or P.O. Box 50191, Minneapolis, MN 55405, telephone 1-800-474-2371. Any arbitration hearing at which you appear will take place at a location within the federal judicial district that includes your billing address at the time the Claim is filed. This arbitration Agreement is made pursuant to a transaction involving interstate commerce, and shall be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16. Judgment upon any arbitration award may be entered in any court having jurisdiction.

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Nothing in this Agreement shall be construed to prevent any party's use of (or advancement of any Claims, defenses, or offsets in (bankruptcy or repossession, replevin, judicial foreclosure or any other prejudgment or provisional remedy relating to any collateral, security or property interests for contractual debts now or hereafter owned by either party to the other under this agreement.

IN THE ABSENCE OF THIS ARBITRATION AGREEMENT YOU AND WE MAY OTHERWISE HAVE A RIGHT OR OPPORTUNITY TO LITIGATE CLAIMS THROUGH A COURT, AND/OR TO PARTICIPATE OR BE REPRESENTED IN LITIGATION FILED IN COURT BY OTHERS, BUT EXCEPT AS OTHERWISE PROVIDED ABOVE, ALL CLAIMS MUST NOW BE RESOLVED THROUGH ARBITRATION.

A party may use a lawyer in arbitration, but it is not absolutely necessary. To begin an arbitration action, a party simply fills out plain-English forms (supplied by the National Arbitration Forum or other arbitration provider), attaches the relevant documents, and pays a reasonable filing fee.

It is also not necessary to have a hearing with a room full of attorneys and company personnel. Many disputes (if the parties so choose) can be decided by the arbitrator based upon the documents supplied by the parties. The cost of this type of hearing is minimal. The filing fees start at $49 for a $1,000 dispute. These fees are also recoverable. The arbitrator can add the winning party's arbitration costs to the amount of the final award.

If both parties abide by the arbitrator's ruling, the process is over. However, if the arbitration award must be enforced, it is taken to a court and "confirmed" as a legal judgment, which has the force of law. Afterwards, the prevailing party can proceed with garnishment, liens, foreclosures, or other collection procedures just as if they had gone through the court system in the first place.

A CHANGE FOR THE BETTER

Surprisingly, every company's legal counsel has not yet recommended arbitration. Partly, is simply a variation of the old theme, "We've always done it this way."

But times change and new challenges arise to which business people must adapt (including the threat of Y2K lawsuits). With benefits of lower court costs and lower aggravation, there are more than enough reasons for parties to incorporate arbitration clauses into their agreements in 1999 and beyond.