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Arbitration clauses

I’m in a dispute with someone, and I just took a look at our contract and it has an arbitration clause. I’ve heard of arbitration on the news, but it always sounds complicated. Is it a good thing or a bad thing? If it’s bad, can I get out of it?

Arbitration is an alternative to pursuing litigation in court. Sometimes, parties include an arbitration clause in their contract that requires that they arbitrate disputes instead of going to court, but parties may also voluntarily submit a dispute to arbitration even without an arbitration clause.

Arbitration is usually faster than litigation and typically involves a much simpler discovery process. Arbitration’s advocates often say that it’s less expensive than litigation, but that’s not always the case. Arbitrators can charge upward of several hundred dollars per hour, but a judge doesn’t charge anything for his or her time.

Arbitration usually requires the same amount of preparation as a court trial, but the parties can choose a more relaxed system of preparing and presenting evidence. Arbitrations can be kept confidential, unlike most trials, which can be desirable.

There are drawbacks to arbitration. Arbitration awards are usually final and not subject to appeal. Although unlikely, an arbitrator could choose to ignore a legal principle that would otherwise be controlling, and there’s little that an aggrieved party can do.

Sometimes it’s better to have a jury hear a dispute rather than one arbitrator. A jury may have more sympathy for you if you’ve been wronged, and may be more likely to award punitive or emotional distress damages.

You may have a few options if you find yourself wondering how to get out of the arbitration clause to which you agreed. If your agreement to arbitrate is both procedurally and substantively unconscionable, or extremely unfair, you may be able to use that to get out of mandatory arbitration.

Procedural unconscionability involves the manner in which the agreement was negotiated, such as where you really didn’t have any bargaining power or had no choice when you entered the agreement. Substantive unconscionability comes up when the terms of the agreement are completely one-sided or overly harsh.

If you knowingly, clearly and unmistakably agreed to arbitrate, you’re probably stuck with that decision. This may or may not be to your benefit, depending on your circumstances.

Arbitration is merely one type of alternative dispute resolution. If you find yourself in a dispute and going to court doesn’t seem like the best solution, consider mediation or another method of reconciliation.

Mary Luros is a business law attorney with Hudson & Luros LLP in Napa, and can be reached at mary@hudsonluros.com. The information provided here is not legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information.

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