Whenever a dispute arises, whether involving a real estate transaction, contract or other civil controversy, we frequently think in terms of a prospective lawsuit. However, Alternative Dispute Resolution (ADR) is another means of resolving legal disputes. One example would be informal negotiations between the parties and/or their respective attorneys. Mediation is a more formal settlement method whereby a third party Mediator will assist the parties in an attempt to reach a negotiated settlement of the dispute. Of course, many disputes are unable to be resolved by these methods, which are non-binding and most frequently involve compromise.
Arbitration is another form of ADR, and indeed, one of the oldest methods, tracing its origins to ancient Rome and perhaps even before that time. Each year, as baseball season approaches, we frequently read or hear about salary disputes involving players being submitted to arbitration. This form of ADR involves appointment of an independent Arbitrator, or sometimes three Arbitrators, to hear the facts of a case and make a determination. In 1925, Congress passed the Federal Arbitration Act, which recognizes arbitration as a means of dispute resolution and provides for judicial enforcement of arbitration agreements. Similar provisions are found in Article 75 of the New York State Civil Practice Law and Rules.
There may be non-binding Arbitration, but today cases are more commonly decided by binding Arbitration. The procedure resembles a court proceeding to the extent that the parties serve pleadings, in the form of a complaint and answer, and present evidence to the Arbitrator, who then makes a decision. There are distinct advantages as compared to a case being decided as part of the judicial process, including expense to the parties and a more expeditious conclusion. Discovery, which may extend over years in litigation, is relatively limited in arbitration cases, and the hearings are scheduled within a short period of time because there is no case backlog as frequently occurs in the judicial system. Unlike a court trial, hearings are somewhat informal and there need not be strict adherence to the rules of evidence. Another advantage is the fact that the parties actually participate in selection of the arbitrator.
Many commercial contracts specifically provide that, in the event of a dispute, the parties agree to submit the matter to arbitration. For instance, brokerage agreements commonly contain a provision that, if a dispute arises between a customer and broker, the parties agree that the issue be submitted to an arbitration panel of the Financial Industry Regulatory Authority (FINRA). Commercial contracts frequently provide for arbitration services from other arbitration services, such as the American Arbitration Association (AAA). Absent an agreement, a party to a contract, which provides for referral to arbitration, may compel the other party to arbitrate by application to the court.
A decision made by the arbitrator following a hearing is enforceable in court and the prevailing party is entitled to a judgment. However, if such an application becomes necessary, a court does not readdress the merits of the case. An arbitration award may be set aside by a court only in certain instances, such as corruption, fraud or other misconduct in procuring the award or partiality and prejudice demonstrated by the arbitrator.
In conclusion, the next time a dispute arises, especially in the context of a commercial matter, perhaps some thought should first be given to "arbitrate" and not "litigate".
Justice Cornelius serves as counsel to the law firm of McConville, Considine, Cooman, and Morin, P.C.. He is a member of the Commercial Panel of Arbitrators for the American Arbitration Association(AAA) and Dispute Resolution Board of Arbitrators for the Financial Industry Regulatory Authority (FINRA), and has conducted private arbitrations, as well.