Clause and Effect – What You Should Know About Arbitration

Most businesses in the United States have an arbitration clause in their contracts with customers, suppliers, and anyone else they do business with on a daily basis.  While many business owners adopt the premise that arbitration is the best way to handle disputes, they may not know that there is very little chance of having an adverse arbitration overturned in court.

Draft the Arbitration Clause You Want

What You Should Know About ArbitrationBusinesses have sole control of the arbitration clauses they put in their contracts.  Having an arbitration clause that is specific in scope is key to having an arbitration that runs efficiently and more affordably.  Clients should consult their lawyers about the best language to use.  Further, it would be wise for clients to hire attorneys who have conducted numerous arbitrations to learn how to best draft the practical aspects of an arbitration clause, such as controlling the time of the proceeding, the process, and its costs.

It’s Your Arbitration Clause, So Know What’s In It
The first thing businesses should do is come to an understanding what is in the arbitration clause of the contract at issue and convey this understanding to their lawyers.  Knowing what the arbitration clause says is important for a variety of reasons.  For example, your arbitration clause may state that all claims shall be arbitrated between the parties but that extraordinary relief, such as an injunction, may be obtained at the courthouse; other arbitration clauses may not have this and ay have an arbitration clause for all causes of action between the parties.  In the latter situation, you may have to seek immediate relief from an arbitration panel or go to court and then move to compel the matter to arbitration.  Also, the arbitration clause at issue may have limitations on discovery, time limits, attorneys’ fees, and the number of persons on a panel, deadlines, and many other details.  Clients and lawyers need to know the terms of the arbitration clause.

The Scope of your Arbitration Clause Is Important

There are two ways that a party can find itself in arbitration.  One, the aggrieved party can file an arbitration action against the other party in the forum that is selected in the arbitration clause.  Alternately, a judge can order arbitration.  If you are unsure whether a matter is subject to arbitration, a trial court will make this decision.  But, once the trial court decides that the case belongs in arbitration, the arbitrator will decide the scope of the arbitration agreement.

The claims to be arbitrated depend almost entirely on the arbitration clause at issue and the claims that are being asserted.  Because the parties can expand the scope of the arbitration clause by agreement or waiver, the client and the lawyer must be diligent in keeping the arbitration in line with the terms of the arbitration clause.  The law is replete with numerous cases that address the scope of waiver.  You should be kicking your lawyer under the table when you believe testimony or issues being discussed are outside the scope of the arbitration clause.  Have your counsel object early and often to any expansion of the clause’s scope, and, if necessary, seek court intervention to preserve this issue for the appellate system.

It Is Good To Know the Arbitrator

The selection of an arbitrator is important, and the client should have significant input on this decision and ultimately choose the arbitrator.  Knowing the arbitrator is not meant in the sense of knowing him or her personally (which would be grounds for disqualifying a potential arbitrator), but in the sense of knowing what philosophy the arbitrator has on a particular issue or area of law or how the arbitrator will handle the final hearing or a difficult witness. You should rely on your counsel to research a particular arbitrator being considered.  Further, your counsel should find out if any other lawyer in his or her firm has a business or social relationship with the proposed arbitrator and whether they have had any arbitrations with him or her.  In most cases, the arbitrator will disclose what he or she knows about the parties, witnesses, and lawyers.  But, the arbitrator may have forgotten about a case with one of the parties, witnesses, or a member of your counsel’s firm.  Clients should ask their lawyers whether they have searched for and disclosed any relationships with the arbitrator.

The Costs of Arbitration

The common thought of the business community is that arbitration is faster and cheaper.  But, this may not always be the case.  Arbitration can be as expensive as a normal lawsuit at the courthouse.  The one advantage to arbitration is that it can be a quicker path to a final resolution (mostly due to the lack of appellate rights and the difficult task of overturning an arbitration award).  Clients should discuss the costs of arbitration with their counsel and understand that-unless the arbitration clause limits the amount of discovery—the arbitration may have the same amount of discovery as it would in the court system along with the added cost of the one-or three-person panel.

The biggest question facing arbitrators today is whether the lawyers or the arbitrator should reign in discovery.  There is no easy answer to this question, but a practical tip for limiting discovery would be for the clients to ask their lawyers to work out an agreement with the opposing counsel.  Clients should be proactive in helping to limit the amount of discovery (hence the key nature of drafting the arbitration clause and that the arbitrator should enforce any limitation on discovery featured in the arbitration clause).

Vacating a Final Award

Trying to overturn an arbitration award is a daunting task.  Put simply, your chance of overturning an adverse award is exceptionally slim.  You should know this at the outset and discuss this with your counsel.  Each jurisdiction has case law on what avenues are available to overturn an award.  Further, the law varies depending on what state you are in, whether you are in state court or federal court, and whether the FAA is the governing law or another law.

Conclusion

If you know your arbitration clause and your forum and prepare your arbitration case just like you would a case tried before a judge or jury, you will be in the best position to obtain a favorable ruling.  Have your attorney draft the arbitration clause you want, implement the clause, and then finish strong with a well-prepared presentation.  Remember, as in a courtroom, the arbitrator will not appreciate and should not tolerate unprofessional behavior.

This article was written by Joseph M. Cox, partner in the Dallas office of Bracewell & Giuliani and was written for educational and informational purposes only. 

Contact Hubbard Law Firm, at 281-358-7035 or visit our website at www.hubbardlawgroup.com  for guidance and insight on the process on the arbitration process and guidance on how you and can be better prepared for arbitration.

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    The Patrick G. Hubbard law firm has been providing legal services to individuals and businesses in Kingwood and the Greater Houston Area for over 25 years. If you have questions for Mr. Hubbard please contact us at 281-358-7035 or email us at [email protected].