Things to know about Arbitration

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The Truth about Mandatory Arbitration
October 15, 2012
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Arbitration agreements are routinely enforced and should be when the parties to the agreement have equal bargaining power and an equal level of sophistication. However arbitration clauses that are buried in fine print in a stack of admission records to a nursing home or small print paragraphs in new patient questionnaires at doctor’s offices are one sided and severely limiting basic rights of patients.  These types of sneaky arbitration agreements are seen more and more often and they require a closer scrutiny of fairness.

Many contracts that are in existence have mandatory arbitration clauses within them. The mandatory arbitration clause requires the parties to arbitrate any dispute that arises out of the contract. This is in direct contradiction to a basic right given to us in the United States Constitution and Florida Constitution.   Article III of the Constitution states that all trials shall be by a jury. 

The right to trial by jury in a civil case is addressed by the 7th Amendment, which provides: “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.

DID YOU KNOW: If you sign an arbitration agreement, you are signing away or “waiving” your right to a trial by jury and agreeing to submit your cause of action to a professional arbitrator who is usually a retired judge or an experienced attorney.  In essence, it becomes a procedure that is no longer a trial in front of your peers but an argument to another lawyer.   

Before you sign such a contract you should understand the differences between arbitrating a dispute as opposed to filing a lawsuit and have any case tried before a judge or jury.

Understanding a trial

A trial is a judicial examination and determination of issues between parties to action, whether they be issues of law or fact. The trial takes place before a court that has jurisdiction. If you have ever watched shows like Law & Order or the Practice, you have likely seen a trial proceeding and have a sense of how they are conducted.

The average trial is presided over by a neutral judge or magistrate with an attorney representing each party. If it is a jury trial, jury selection is done in a process called voir dire, which means œto speak the truth. After the jury has been selected or if there is no jury, the trial will begin with opening statements by each side. Next, the plaintiff (in civil cases), will present its side followed by the defense. Each side can also rebut the other’s side by presenting more evidence.

After rebuttal, each side gives its closing arguments. If there is a jury, the judge instructs them on the law that they must use to decide the case. The case concludes when the jury (or judge if there is no jury) reaches a verdict. If the losing side is not satisfied with the verdict, they can appeal it in the hopes of overturning the judgment at the next trial.

Understanding Arbitration

If you have signed a credit card contract, a health insurance application, or a variety of other contracts, you have probably already agreed to arbitration without even knowing it. Arbitration clauses are found in an assortment of different agreements and often require parties to use arbitration to resolve any disputes arising out of the contract.

The following is an example of a typical arbitration clause: œAny controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the (insert arbitrator) in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

Arbitration is a type of alternative dispute resolution that takes place outside of court. Instead of trying the case in front of a judge, the parties take their dispute to a third party”an arbitrator. Parties usually submit documents or other tangible items to the arbitrator and also make oral arguments in favor of their case. Occasionally, witnesses for each party will testify about the case.

After reviewing the presentation from both sides, the arbitrator will make a final, often binding, decision. Unlike in trials, this decision does not have to be based on the law. The arbitrator can make a decision based on what he or she thinks is right. Moreover, the decisions are usually regarded as final and can only be appealed in very limited circumstances.

Reasons for Choosing a Trial Over Arbitration

Trial proceedings are chosen for a variety of reasons. Some parties do not want a single person deciding their case, but would like the opportunity to present their problem in front of their peers (a jury) and an impartial judge. Others want to stand up for a cause or principle (for example, tobacco or asbestos litigation) and would rather try their case in the public eye. Other people do not have a lot of money and need an attorney who is willing to work on a contingency fee basis. This means that you do not pay unless you win. Another attractive option is that should you lose, you can appeal the decision and try your case in another court.

Businesses like arbitration because it takes out the unknown variable that exists with a jury.   They would prefer to have it decided by the unbiased and professional arbitrator.  If the case is presented to a jury for resolution in the jury typically has a great deal of discretion as to how they decide the case. Arbitration proceedings are sometimes touted as being less expensive than court trials. That is not necessarily the case. Sometimes the fees paid to the arbitrator can exceed any legal fees  incurred by either party in terms of litigating the matter.  Most arbitration agreements have a cap on damages that the plaintiff could potential receive, unlike in a jury trial where there is no cap on compensatory damages.

We will discuss arbitration in more detail in Things to Know About Arbitration Part 2!

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