Court vs. Arbitration: The Case for Each, and Neither

By Benny L. Kass
Saturday, June 30, 2007

Q: We bought our house about a year ago and recently discovered a number of defects that were not disclosed to us by the sellers. For example, we were told that the electricity had been upgraded, but it had not. We were also told that there was never a water problem in the basement, but some recent storms have flooded the downstairs. We have reason to believe that the sellers flat-out misrepresented facts in the disclosure form they gave us.

It will cost about $9,000 to repair these problems. We sent a demand letter to the sellers, and they have denied making any false statements. Our sales contract provides that any dispute between buyer and seller must first be mediated. Accordingly, we went to mediation, but without success.

The mediator suggested that instead of filing a lawsuit, we should go to binding arbitration. What is the difference between litigation and arbitration?

A: First, do you really want to spend a lot of time fighting over this? While I am not belittling the cost of your repairs, if you decide to retain a lawyer, the legal fees may well exceed your damages. Sometimes it pays to accept that you may have been misled, correct the problems and move on with your life. Sitting in a court -- or appearing before an arbitrator -- can be traumatic and frustrating.

Litigation is time-consuming and expensive. Courts have excessive case loads, and despite the efforts of judges and court administrators, litigation can drag on for years. And, as we saw recently in the infamous "missing pants" lawsuit, frivolous, vexatious lawsuits can also be brought -- even by judges.

Arbitration offers another path. If both parties to a dispute agree to take their case to binding arbitration, then, under most circumstances, the proceeding can be completed in less than a year, often in less than six months.

More corporations are requiring arbitration for consumer disputes. Courts are divided on whether such arbitration clauses in boilerplate contracts are valid and enforceable. Some courts take the position that unless the consumer fully understood the consequences of arbitration when he or she signed the contract, that clause cannot be enforced. Other courts have taken the opposite position.

However, when two parties have voluntarily entered into a contract that requires arbitration, in most cases the courts will not permit the dispute to be litigated.

If you are interested in arbitration, here is how it works: If you are using the American Arbitration Association, the leading organization in the field, you file your complaint with the association's local office. There is a fee that's based on the amount you claim.

The association assigns a caseworker to coordinate the proceedings. Both parties receive a list of about 20 potential arbitrators, with brief biographies of each. Either side can, for whatever reason (or no reason) cross off as many names as they wish. An arbitrator, or panel of three arbitrators, is selected from the remaining names.

The arbitrator submits a calendar to both parties, who cross off dates that are not available for the hearing. Once the arbitrator receives the list of available dates and determines approximately how much time the proceeding will take, a date is set.

Under some circumstances, the rules of the arbitration association permit the parties to engage in a form of discovery proceeding, whereby either side may pose questions that must promptly be answered in writing. Discovery is at the discretion of the arbitrator.

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