Sections within this essay:Background
Contractual versus Compulsory Arbitration
Who Are the Arbitrators?
The Arbitration Process
The Uniform Arbitration Act (UAA)
The American Arbitration Association (AAA)
The American Bar Association (ADR Section)
Arbitration refers to one of several methods, collectively referred to as "alternative dispute resolution" (ADR), for resolving legal disputes other than through a formal court system. Arbitration is very similar to a trial in court, except that the claims and defenses are presented to a privately-retained neutral party ("arbitrator" or "arbiter") rather than a judge or jury. After listening to summary arguments and considering all the evidence presented in a dispute, an arbitrator renders a decision tantamount to a court decision or judgment.
Since it is intended to substitute for a trial, formal arbitration is generally as binding as a court adjudication. Therefore, like it or not, a decision of an arbitrator may be appealed only under very narrow circumstances and criteria. (In fact, the arbitration agreement may designate that the decision is final and binding and cannot be appealed.) However, some forms of arbitration may be expressly designated as "non-binding." In those circumstances, one may accept or reject the arbitration decision and continue with litigation in the courts.
Arbitration has become a preferred alternative favored by both courts and parties for resolving disputes. All 50 states acknowledge some form of arbitration for the resolution of certain disputes. A majority of states (48 as of 2002, excepting Georgia and Mississippi) have adopted the Uniform Arbitration Act (UAA) and/or its revised version, published in 2000, or substantially similar legislation. Washington, D. C. and Puerto Rico also have adopted versions of the Act.
The use of arbitration has greatly expanded in recent years, because of the fast resolution of disputes, and the relative consistency and near-uniformity in procedural requirements (thanks to the UAA). The arbitration process also affords the parties a degree of privacy for sensitive or personal matters. Health care providers and insurance companies almost universally favor arbitrations because of the opportunity to avoid the publicity of court trials and jury verdicts.
Voluntary arbitration refers to an agreement entered into by two or more parties who choose to arbitrate a matter rather than litigate the matter in court. The agreement is a binding contract, and if a dispute later develops, one cannot choose to ignore the arbitration agreement and file suit instead.
But arbitration is not "compulsory." It simply means that persons have voluntarily agreed in advance to arbitrate any future disputes and cannot back out of that agreement once a dispute arises. Failure to abide with "contractual arbitration" as agreed constitutes a breach of the agreement. If an individual has entered into such an agreement and later decides to file suit instead of arbitrating the dispute, the other person or party may take that individual to court to compel arbitration.
One of the most common circumstances where this situation arises is in the health care and insurance industries. When individuals enter a hospital for treatment or care, or fill out "new patient" forms for a physician, they may be asked to sign a document in which they agree to arbitrate any dispute which may arise. If they later attempt to sue the doctor or hospital for malpractice or a billing dispute, the agreement they signed will be presented to the court and their lawsuit will be dismissed and/or the court will order them to arbitrate the matter. The real danger in having their case dismissed is that the time limit for filing a dispute in arbitration may have expired while they were attempting to file a lawsuit in court (in some jurisdictions, a court may "stop the clock" to provide them with enough time to dismiss their court case and file it in arbitration). The lesson to learn is that they should carefully read all documents their health care provider may present to them prior to treatment or care, and they need to be always be certain to retain a copy for their records.
In many states, laws prohibit health care providers from refusing to treat individuals if they will not sign a voluntary arbitration agreement. On the other hand, only in rare circumstances will a court permit them to "set aside" a signed agreement to arbitrate and allow them to file suit instead. Usually, they will have to prove to the court that they did not sign the arbitration agreement "voluntarily." For example, there is some legal precedent for allowing agreements with health care providers to be set aside (making them "voidable") when evidence shows that they were signed while under extreme duress or in pain, semi-conscious, etc. In even more rare circumstances, a court may find an agreement to arbitrate "unconscionable" as against public policy and determine it to be null and void.
It is common practice for insurance policies (e.g., automobile, home, health, etc.) to contain language that commits an insured to the use of arbitration in the event of a dispute with the insurer. Many insureds do not realize that such language is contained in the lengthy policy language at the time they apply for insurance coverage. It often remains unknown and unrealized until a dispute arises and the insured attempts to sue his or her insurance provider. In most insurance policies, the agreement to arbitrate is not a separate document, but rather a statement contained in the policy, such as, "You agree to arbitrate any dispute relating to …" Individuals who sign the application for insurance coverage and have a policy issued to them have agreed to those terms.
On the other hand, "compulsory arbitration" is generally the result of express statute or regulation that mandates the arbitration of certain matters. The most common of these is the mandatory arbitration of labor disputes. If individuals are members of a union, the bargaining agreement for their bargaining unit will most likely contain provisions for the arbitration of all disputes.
One of the most compelling reasons for mandating the arbitration of certain matters is that such matters tend to be very complex, specialized, or too time-consuming for a general jury trial. For example, a dispute over a provision in the Internal Revenue Code may be technically complicated. Instead of a jury trial, arbitration will provide the opportunity for appointment of a neutral arbitrator or panel of arbiters who may be knowledgeable and experienced in tax matters and can more readily understand the arguments presented. The "State Provisions" Section below summarizes key areas where states have mandated compulsory arbitration of certain matters.
If the subject matter of a particular dispute falls within the scope of subjects that the parties agreed in advance to arbitrate, then the particular dispute is "arbitrable." However, many disputes involve multiple issues, not all of which were contemplated when the arbitration agreement was executed. For example, a claim may state an arbitrable issue of wrongful discharge from employment. But the defense may raise an issue of untimely filing of the claim or some other procedural error or fatal flaw on the part of the complainant. Who decides that?
Most federal and state appellate court decisions have concluded that the only proper inquiry that a court should make, on a motion to compel arbitration, is (1) whether there exists a valid agreement to arbitrate between the parties, and (2) whether the agreement covers the dispute at hand. All other issues, particularly defenses such as untimeliness, collateral estoppel, res judicata, etc., should properly be decided by the arbitrator.
If such an event should occur (the raising of an issue not related to the subject matter of the dispute at hand), the arbitrator may render one decision covering all or may be forced to render a separate opinion on the "arbitrability" of the separate claim or defense, without ever reaching the main issue of the dispute. Still, sometimes the arbitrability of the main issue is, in itself, the actual dispute, as often occurs in labor contracts.
The majority of arbitration agreements contain provisions governing the selection and appointment of an arbitrator or arbitration panel. Private arbitration contracts may designate any person or any method for choosing a person or persons as arbitrators. If an arbitration panel is elected (usually comprised of three persons), each party may nominate or appoint one arbitrator, and both sides will decide on a "neutral" third person. Or, the parties will each select one arbitrator, and the two arbitrators will then select a third "neutral." Alternatively, three "neutrals" may be selected by having each party alternately strike names on one list until only three names remain. In single-arbitrator arbitrations, an external source of available arbitrators is often consulted.
The American Arbitration Association (AAA) is the largest full-service ADR provider in the United States. It maintains a National Roster of Arbitrators and Mediators (containing nearly 17,000 names and resumes as of 2002). The persons named on the Roster have been nominated by leaders in their industry or profession. The AAA has strict criteria for its Roster members, and those selected are generally recognized for their standing and expertise in their fields, their integrity, and their dispute resolution skills. Many are attorneys, but being one is not a requirement. Many arbitration agreements expressly designate the use of AAA as the preferred source for arbitrators.
Under the Federal Arbitration Agreement (FAA) (see below), if an arbitration agreement does not contain a provision for the naming or appointing of an arbitrator, "the court shall designate and appoint an arbitrator …" (9 USC Section 5).
The arbitration process generally begins with the filing of a request for arbitration. This action may be performed by direct application to the forum designated in the private arbitration agreement or by court order. Parties who simply wish to arbitrate a matter should contact a local entity that offers arbitration services. Often, a local circuit or district court may have information or services available. There are several national organizations that also offer local arbitrations or supply lists of arbitrators (see listings below).
The chosen forum will most likely furnish the parties with a copy of rules and procedures. Attorneys may or may not represent the parties. Generally, an arbitration hearing parallels a court trial, in that there is the taking of testimony from witnesses and the introduction of evidence. However, many arbitrations are conducted on the basis of "summary briefs" from each party, which outline the issues and the arguments in document form. Arbitration decisions are always in written form. A decision may or may not be appealable, depending on the forum and the agreement of the parties.
The Uniform Arbitration Act, promulgated in 1955, has been overwhelmingly adopted by state legislatures and federal district courts for alternate dispute resolution. Its popularity derives from the advantages of uniformity and thoroughness, and in 2000, the National Conference of Commissioners on Uniform State Laws approved and recommended a revised version of the UAA for enactment in all the states. The UAA provides a structured procedure to be followed in all arbitrations, and, most importantly, includes details addressing matters that are often overlooked in privately drafted arbitration agreements. The revised UAA includes provisions not addressed in the original UAA, but deemed important as a result of the increased use of arbitration. Some of the new provisions address matters such as (1) who decides the arbitrability of a dispute and by what criteria; (2) whether arbitrators have the discretion to order discovery, issue protective orders, decide motions for summary judgment, etc.; and (3) to what extent arbitrators and arbitration organizations are immune from civil lawsuits.
Amendment VII (1791) provides that "In all suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved …" This provision guarantees individuals their "day in court" unless they either voluntarily choose an alternative dispute resolution, or the subject matter of their dispute falls under a compulsory arbitration mandate by law. Generally, if arbitration is made compulsory, there is a right of appeal through the courts of an arbitration decision.
Arbitration in the federal courts may be the result of a private contractual agreement to arbitrate, a statutory mandate, or a court-ordered arbitration. A majority of federal courts have authorized or established at least one court-wide ADR program, which may include court-ordered mediation, arbitration, early neutral evaluation (ENE), etc. These measures are the result of the Civil Justice Reform Act of 1990 (CJRA) (28 USC 471 et seq.). The CJRA has changed the use of ADR from being the initiative of individual judges to being part of court-managed, district wide programs.
The Alternative Dispute Resolution Act of 1998 (ADRA) (28 USC 651 et seq.) further expands upon the CJRA by mandating that courts establish and authorize the use of ADR in all civil actions. The federal government also encourages arbitration and mediation within its own ranks. The Administrative Dispute Resolution Act of 1996 provides a mediation forum for handling disputes within agencies or between citizens and agencies (claims against the government).
Arbitration in the federal court system is governed by the Federal Arbitration Act (FAA), first enacted in 1925 and codified in 1947 under Title 9 of the United States Code. Chapter 1 of Title 9 (General Provisions) contains such directives as the method for naming or appointing an arbitrator (Section 5); for summoning witnesses to testify (Section 7); and for remedy and recourse for failing to arbitrate as agreed (Section 4). While the FAA is not in itself a procedural mandate, it provides an authoritative backdrop for arbitrations and commands that arbitration agreements be enforced in accordance with their terms.
Importantly, the FAA "preempts" any state law that conflicts with its pro-arbitration public policy or any state law that renders moot or limits contractual agreements to arbitrate. The rule of preemption applies in both federal and state courts (adjudicating federal claims). However, if the parties clearly express an agreement to conduct their arbitration under state law/rules (under a "choice of law" provision), the FAA will not preempt this.
The following states provide for ADR (arbitration or mediation) for certain types of disputes:
ALABAMA: Alabama Code, Ch. 25-7-4 applies to labor disputes.
ALASKA: Alaska Statutes 42.40.840 and 23.40.190 address labor disputes. Family disputes are governed by 25.20.080 and 25.24.080. Disputes involving automobile warranties are governed by 45.45.355.
ARIZONA: Arizona has adopted the UAA under Sections 12-1501 to 12-1518 of the Arizona Statutes. Provisions for arbitration/mediation of family disputes is covered under 25-381.01 to 25-381.24. Automobile warranties are covered under 44-1265.
ARKANSAS: The UAA has been adopted under Arkansas Statutes 16-108-201 to 16-108-224. Sections 11-2-201 to 11-2-206 govern labor disputes.
CALIFORNIA: California's Code contains extensive provisions for the arbitration and/or mediation of many types of disputes. Labor disputes are addressed under Sections 65, 66, and 3518. Family disputes are covered in Sections 5180 to 5183. Education matters are covered by 48260.6, 48263, 48263.5 (truancy), and 56503 (special education). There is a special provision for the arbitration of cable TV franchise disputes under 53066.1(n)(1). Environmental regulatory disputes, including issues involving pesticides, are covered under 13127(c)(1). Water rights disputes are handled under 1219. Community disputes of a business or professional nature are covered under 465 to 471.5.
COLORADO: Colorado's statutes provide ADR for labor disputes under 8-3-113. Family matters are covered by 14-10129.5. Agricultural debts are governed by 6-9-101 to 6-9-106. A special statutory provision exists for ADR of disputes involving mobile homes under 38-12-216. The UAA has been adopted under 13-22-201 to 13-22-223. Dispute resolution in general is covered by 13-22-301 to 13-22-310.
CONNECTICUT: Labor disputes are covered under Connecticut Statutes 31-91 to 31-100, 5-276 and 5-276a. Family disputes are resolved under 46b-59a. Public Act 87-316 Section 8 (1987) is covered under 42-182.
DELAWARE: Delaware's Code covers labor disputes under Title 14 Section 4002 and 4014, Title 19 Section 110 and 113, and Title 19 Section 1614. Automobile warranties are covered under Title 6 Section 5007.
FLORIDA: Florida Statutes Annotated 448.06 and 681.110(4)9d) cover labor disputes. Family disputes are addressed under 44.101, 61.183, 39.42, 39.427 to 39.429, 39.436, 39.44, and 39.442. Automobile warranty disputes are provided for under 681.108 and 681.111 Mobile home disputes fall under 723.037 and 723.038. The state maintains "citizen dispute settlement centers" for ADR assistance under 44.201.
GEORGIA: Labor disputes are covered under Georgia Code 34-2-6(5), 25-5-1 to 25-5-14, 45-19-32, and 45-19-36. Public employee grievances and "unlawful practices" labor arbitrations are mandated under 45-19-36.
HAWAII: Hawaii Revised Statutes 371-10, 98-11(b)(1)(d), 89-12(a) and (b), 380-8, and 377-3 cover ADR for labor disputes. Automobile warranty disputes are covered under 490-2 and 313-1. Medical conciliation is addressed by 671-11 to 671-20. There is a special statutory provision for ADR of geothermal resources disputes under 205-5.1. International disputes are covered by 1988 Haw. Sess. Laws, Ch. 186, Sections 1-9.
IDAHO: Idaho Statutes Title 7, Special Proceedings, Chapter 9 adopts the UAA. Idaho Section 44-106 governs labor disputes.
ILLINOIS: Labor disputes are covered by Illinois Compiled Statutes, Ch. 48, paragraphs 1612, v1706, 1712, 1713(b); and Ch. 10, paragraph 26. Family disputes are covered by Ch. 40, paragraph 602.1 and 607.1. Automobile warranty disputes are covered by Ch.121.5, paragraph 1204(4). Disputes involving public utilities fall under Ch. 11, paragraph 702.12a. Illinois operates several nonprofit community dispute resolution centers under the auspices of Ch. 37, paragraph 851.1 to 856.
INDIANA: Labor disputes are covered under Indiana Code 5-14-1.5-6.5(2), 22-1-1-8(d), 22-6-1-7, 20-7.5-1-9 to 20-7.5-1-13. Family disputes are covered under 31-1-24-1 to 31-1-24-9, 31-1-23-5 to 31-1-23-9. Automobile warranties are handled under 24-5-13-19. Civil Rights disputes are covered under 22-9-1-6. Consumer protection disputes are covered under 4-6-9-4(a)(4). There is a special Code provision for water rights disputes under 13-2-1-6(2).
IOWA: Labor disputes are covered under Iowa Code 20.19 to 20.20 and 679B to 679B.27. Family disputes are covered under 598.16 and 598.41(2). Agricultural debts are handled under 654a1 to 654a14. Civil Rights disputes are covered under 601A.15(3)(c). Informal dispute resolution in general is addressed under 679.1 to 679.14.
KANSAS: Kansas Statutes 5-401 to 5-422 expressly adopt the UAA. Labor disputes are covered under Kansas Statutes 44-817, 44-819(j), 44-820(c), 44-826, 44-828, 72-5413(h), 72-5427, 72-5429, 72-5430(b)(7), 72-5430(c)(7), 75-4322, 75-4323, 75-4332, and 75-4333. The ADR provisions for family disputes are covered under 23-601 to 23-607 and 23-701. Automobile warranties are handled under 50-645(e). Civil Rights disputes are covered under 44-1001 to 44-1005. There is a special ADR provision for barbershop business disputes under 65-1824(4).
KENTUCKY: Kentucky has extensive ADR provisions in its Kentucky Revised Statutes (KRS). The UUAA has been adopted under KRS 417.045 to 417.240. Labor disputes are covered under KRS 337.425, 345.080, 336.010, 336.020, 336.140, and 336.151 to 336.156. Family disputes are covered under KRS 403.140(b) and 403.170. Automobile warranties are handled under KRS 367.860 to 367.880. Civil Rights disputes are covered under KRS 344.190 to 344.290 and 337.425. Education matters are covered under KRS 165A.350 and 360. Disputes involving the production and distribution of agricultural products are covered under KRS 260.020.030(e) and 260.020.040(l) There is a special provision for community agency funding at KRS 273.451.
LOUISIANA: Labor disputes are covered under Louisiana Statutes, Title 23, Section 6. Family disputes are covered under Title 9, Sections 351 to 356. Automobile warranties are handled under Title 23, Section 1944. Housing civil rights matters are addressed under Title 40, Section 597. Barbershop disputes are covered under Title 37, Section 381. There is a special provision for a Medical Review Panel at Title 40, Section 1299-47.
MAINE: Maine's statutes provide ADR for the following areas of dispute: Labor disputes are covered under Title 26, Section 1026, 965, 931 to 936, 979-D, 1281, 1282, and 1285. Family disputes are covered under Title 4, Section 18 (1 to 5), Title 19, Section 214 (1,4), Title 19, Section 518 (1,2, and 4), Title 19, Section 656,665, and Title 19, Section 752(4). Automobile warranties are handled under Title 10, Section 1165. There is a special ADR provision for pro-fessional negligence claims (malpractice) under Title 24, Sections 2851 to 2859.) Disputes involving the production and distribution of agricultural products are covered under Title 13, Sections 1956 to 1959.
MARYLAND: Labor disputes are covered under Maryland Code Article 6, Section 408(d) and Article 89, Sections 3, 9, and 11. Maryland also has an employment agency dispute ADR provision under Article 56, Section 169. The UAA has been adopted in its original text under gcj, Sections 3-201 to 3-235.
MASSACHUSETTS:. Labor disputes are covered under Chapter 150, Sections 1 to 3 of the General Laws. There is an ADR provision for cable television disputes under Chapter 166A, Section 16. A Community Mediation provision is covered under Chapter 218, Section 43E.
MICHIGAN: ADR provisions for labor disputes are covered under MCL 432.1, 423.9 to 423.9c, 423.25, and 423.207. Family disputes are covered under MCL 552.64, 552.505, 552.513 to 552.527, and 552.531. Automobile warranties (regarding service) are handled under MCL 257.1327. A special ADR provision for general tort actions is contained under MCL 600.4951 to 600.4969. Medical malpractice ADR is provided for under 600.4901 to 600.4923, and more generally under 600.4951 to 600.4969. Disputes involving the production and distribution of agricultural products are covered under 290-714. A small claims conciliation statute is contained under MCL 730.147 to 730.155.
MINNESOTA: Minnesota has adopted the UAA under Statute Section 572.08 to 572.30. Labor disputes are covered under Minnesota Statutes 179.01, 179.03, 179.04, 179.06, 179.14, 179.15, and 179.02 to 179.09. Family disputes are covered under 518.167 and 518.619. Automobile warranties are handled under 325F.665. Civil Rights disputes are covered under 63.01 and 63.04 to 63.06. Conciliation Courts are provided for under 487.30. Civil Mediation is outlined under 572.31 to 572.40. Civil litigation ADR is covered separately under 484.74. There is also a statutory ADR provision for community dispute resolution programs under 494.01 to 494.04. A special provision for debtor-creditor mediation is found under 572.41, and worker's compensation disputes under 176.351(2a). Disputes involving the production and distribution of agricultural products are covered under 17.692, 17.695, 17.697 to 17.701. Environmental issues are covered under 40.22, 40.23(3), 40.242, 40.244, 221.035F, 221.036(9), 116.072(1), and 116.072(6) to 116.072(8). Environmental waste management issues are covered separately under 115A.29(2)(a) and 115A.38(2).
MISSISSIPPI: Automobile warranties disputes are handled under Code provisions, 63-17-159 and 63-17-163. Agricultural debt is addressed under 69-2-43 to 69-43-51.
MISSOURI: Labor disputes are covered under Statutes 290.400, 290.420, 290.430, and 295.030 to 290.190, as is 105.525. Civil Rights disputes are covered under 213.010(1), 213.020, and 213.075.
MONTANA: Labor disputes are covered under Montana Code 39-31-307. Family disputes are covered under 26-1-81 and 40-3-111 to 40-3-127. Agricultural debt ADR is handled under 80-13-191 and 80-13-201 to 80-13-214. Civil Rights disputes are covered under 49-2-501(1), 49-2-504 to 49-2-506, and 49-2-601. Worker's compensation disputes are covered under 39-71-2401 to 39-71-2411. There is a special Code provision for special education matters under 20-7-462(4). Medical malpractice panels are covered under 27-6-101 to 27-6-704. Disputes involving the production and distribution of agricultural products are covered under 80-1-101 and 80-11-103(9). The UAA has been adopted under MCA 27-5-111 to 27-5-324.
NEBRASKA: The UAA has been expressly adopted under Nebraska Statutes, Sections 25-2601 to 25-2622. Family disputes are covered under 42-801 to 42-823, and 42-360. Agricultural debt is covered under 2-4801 to 2-4816. Civil rights disputes are covered under 20-113.01, 20-114(1)(2).
NEVADA: Nevada has copious provisions for ADR in its statutes. Labor disputes are covered under 288.190, 288.200, 288.205, 288.215, 288.220, 288.270, 614.010, and 614.020. Automobile warranties are handled under 598.761. Civil Rights disputes are covered under 233.020 to 233.210 and 244.161. Consumer credit and civil rights disputes are covered under 598B.150. Educational dispute ADR is found under 394.11, and mobile home disputes are handled under 118B.024, 118B.025, and 118B.260.
NEW HAMPSHIRE: Labor disputes are covered by New Hampshire Statutes 273-A:1, 273-A:12, 273.215, 273.220, 273.270, 614.010 and 614.020. Automobile warranties are handled under 357.0:4.
NEW JERSEY: Labor disputes are covered under 34-13A-4 to 34-13A-16 and 34-13A-15. Civil rights disputes are covered under 52:27E-40, 52:27E-41. A gen-eral ADR provision is found at 2A:23A-1 to 2A:23A-19. Disputes involving the developmentally disabled are covered under 52:27E-40 and 41. Home warranties are covered under 46:3 B-9. Radioactive waste issues are handled under 32:31-5.
NEW MEXICO: Family disputes are covered under 40-12-1 to 40-12-6, and 40-4-9.1(B) and (J)(5). Automobile warranties are handled under 57-16A-6. Small claims are handled under 34-8A-10.
NEW YORK: Labor disputes are covered under Sections 205 and 209 for civil service, and Sections 750 to 760 for labor. Family disputes are covered under Sections 911-926. Automobile warranties are handled under Section 198-a (general business) Tax matters fall under Section 170(3a). Community Dispute Resolution Programs are governed by Sections 849-a to 849-g (judicial law).
NORTH CAROLINA: The UAA has been expressly adopted under Statutes Section 1-567.1 to 1-567.20. Labor disputes are covered under Statutes 95-32 to 95-36. Automobile warranties are handled under 20-351.7. Civil Rights disputes are covered under 143-422.3 (unemployment) or 41A-6(6), 41A-7(a), 41A-8 (housing).
NORTH DAKOTA: The UAA is found under Code Sections 32-29.2.01 to 39-29.2.20. Family disputes are covered under Code Sections 14-09.1-01 to 14-09.1-08, and 27-05.1-01 to 27-05.1-18. Automobile warranties are handled under 51-07-18(3). A provision for ADR of agricultural debt can be found at 6.09.10-01 to 10-09. Debtor-creditor disputes are covered under 11-26-01 to 11-26-08.
OHIO: Lengthy provisions under Ohio's Code for labor disputes are covered under 4117.02(A), (E), (H)(7), (N),4117.14(A) and (C). Family disputes are covered under 3117.01 to 08. Automobile warranties are handled under 1345.75 and 77. Civil rights disputes (housing matters) are covered under 1901.331.
OKLAHOMA: The UAA has been adopted in its original text at Title 15, Sections 801 to 818. Automobile warranties are handled under Statute Title 15, Section 901(f). Civil Rights disputes are covered under Title 25, Sections 1505, 1704, and 1705. 22-9-1-6. General dispute resolution programs are covered under Title 12, Sections 1801 to 1813.
OREGON: Oregon's statutes covering labor disputes are found at 662.405 to 455, 662.705(4), 662.715, 662.785, and 243.650 et seq. Family disputes are covered under 107.510 to 107.615, 107.755 to 107.795, and 107.179(4).
PENNSYLVANIA: Pennsylvania Statutes, Title 42, Part VII, Chapter 73, Subchapters A, B, and C cover statutory arbitration, common law arbitration, and judicial arbitration respectively. Title 43, Section 211.31 to 39, and Title 43, Section 213.13 cover general labor disputes, as well as Title 43, Section 1101..801,.802, and Title 43, Section 217.3. Automobile warranties are handled under Title 73, Section 1959. Civil Rights disputes are covered under Title 43, Section 957(i) (unemployment) or Title 43, Section 959(a) to (c) (employment). Eminent domain issues are covered under Title 52, Section 1406.15.
RHODE ISLAND: Labor disputes are covered under General Law 28-10-1, 28-9.4-10, 28-9.4-17, and 28-7-10. ADR for consumer issues is found at 42-42-5 to 42-42-7.
SOUTH CAROLINA: Codified laws in South Carolina include adoption of the UAA under Title 15, Chapter 48. ADR provisions for labor disputes are found under 41-10-70 (wage mediation) and 41-17-10. Civil rights disputes are covered under 1-13-70 and 1-13-90 (employment). Consumer disputes are covered under 37-6-117. Employment grievances are covered under 8-17-360 and 8-17-370.
SOUTH DAKOTA: South Dakota has ADR for labor disputes under 60-10-1 to 60-10-3.
TENNESSEE: The UAA has been adopted under Statutes 29-5-301 to 29-5-320. Bank patrons may resolve their disputes under Tennessee's Code 45-1-301 to 45-1-309.
TEXAS: Labor disputes are covered under Article 5154c-1, Section 9. ADR procedures in general are covered under Article 4590f-1, title 7, 154.001 to 154.073 Section 3.07(d).
UTAH: Family disputes are covered under 30-3-16.2 to 30-3-17.1, 30-3-4.1, and 30-3-4.3. Automobile warranties are handled under 30-20-7. Medical malpractice resolution is provided for under 78-14-1, 78-14-2, and 78-14-12 to 16.
VERMONT: Labor disputes are covered under Vermont Code Title 21, 924 and 925, Title 3, 8.25, and Title 21, 521 to 554. Special education matters are covered by Title 16, Section 2941, 2959.
VIRGINIA: The UAA is found under Code Section 8.01-581.01 to 8.01-581.016. Labor disputes are cov-ered under Virginia's Code, 40.1-70 to 40.1-75. Family disputes are covered under 16.1-69.35 and 16.1-289.1. Automobile warranties are handled under 59.1-207.15. Civil mediation programs are found under 16.1-69.35(d) There is a special Code provision for local government dispute mediation at 15.1-945.1 et seq.
WASHINGTON: Labor disputes are covered under 49.08.010, 41.56.430, 41.56.440, 41.56.450, and 41.59.120. Family disputes are covered under 26.09.015. Automobile warranties are handled under 19.118.150. Civil Rights disputes are covered under 49.60.130. Dispute resolution centers are found at 7.75.010 to 7.75.100
WEST VIRGINIA: West Virginia has an ADR provision for labor disputes at Code Section 21-1A-1. There is also an ADR provision for automobile warranty disputes at 46A-6A-8 and 46A-6A-9.
WISCONSIN: Wisconsin Statutes cover ADR for labor disputes under 101.24, 111.11, 111.39, 111.53-56, 111.70, and 111.77. Family disputes are covered under 753.016 (conciliation), 767.081-82, 767.001(3) and (4), 767.11, and 767.327(1) and (2). Automobile warranties are handled under 218.015(3) to (7). Civil Rights disputes are covered under 118.20 (employment), 230.85 (employment), and 1419 (governor and mediation).
WYOMING: Automobile warranties are handled under Statute 40-17-101(a) and (f). Agricultural debt is covered under 11-41-101 to 110. Environmental issues are handled under 35-11-701(a) to (c).
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ARBITRATION , method of settling disputes by their submission, voluntarily and with the mutual consent of all parties, for adjudication by a person or institution.
Function of Arbitration
In ancient Greek and Roman law – up to the middle of the third century c.e. – the adjudication of disputes was primarily dealt with by arbitration. But in Jewish law such adjudication from the beginning was based on a system of regular courts, empowered to enforce their judgments on the parties. This is ordained in the Pentateuch (Ex. 18:25–26, and more specifically Deut. 16:18 and 17:8–13). Reference is made to a system of established courts in the time of King Jehoshaphat in the eighth century b.c.e. (ii Chron. 19:5–11), and talmudic tradition ascribes to Ezra, in the middle of the fifth century b.c.e., an enactment that courts (battei dinin) be held on Mondays and Thursdays (Ket. 1:1; bk 82a) to judge the people whether they wish it or not (Sif. Deut. 144 – contrary to the opinion of B. Cohen, Jewish and Roman Law, 2 (1966), 657ff., 796, and Baron, Social2, 2 (1952), 266f., that arbitration preceded a system of presiding courts in Jewish law as well; see bibliography below: Gulak, Assaf).
The beginnings of the arbitral institutions are traceable to the middle of the second century c.e., in the period of Hadrian's decrees or even, it has been suggested, to the time of Rabban Gamaliel of Jabneh (first to second century; see G. Alon, below). This was one of the low periods in the history of Jewish judicial *autonomy, in which judicial authority was restricted, even in the field of civil law, i.e., dinei mamonot (see *Mishpat Ivri), as opposed to criminal law (tj, Sanh. 7:2, 24b), and the prohibition against ordination (*semikhah) was decreed (Sanh. 14a). To ensure the continued existence of Jewish judicial authority, therefore, the institution of arbitration was resorted to, and Jews turned to it of their own free will, prompted by their religio-national feelings. The laws of arbitration are first discussed by R. Meir and other scholars of that period (Sanh. 3:1) and the institution was known and employed mainly in Ereẓ Israel and not in Babylonia, where the Jews enjoyed wide judicial autonomy. For this reason too, the original meaning of the mishnaic term shetarei berurin ("deeds of arbitration," mk 3:3; bm 1:8; bb 10:4) was forgotten, and it was interpreted as meaning the statements of the parties, claims, or pleadings (bb 168a), whereas the amoraim of Ereẓ Israel adhered to the original meaning of the term, i.e., "Compromisin, this one chooses one [arbitrator] and this one chooses another" (tj, mk 3:3, 82a). The existence in practice of the situation as described, and the background to the creation of arbitration as an institution of Jewish judicial authority, find expression in an order of Honorius in 398 c.e., according to which Jews were rendered subject to Roman law and the regular courts, but permitted, in civil law matters and by mutual consent of the parties, to resort to their own arbitration proceedings, enforceable at the hands of the provincial judges (Codex Theodosianus, 2:2, 10; also quoted, with slight changes, in Codex Justinianus, 1:9, 8).
At various times and in different countries of the Diaspora, arbitration continued to serve as a substitute for judicial autonomy, in particular where such autonomy had been weakened. But it also fulfilled important functions even where there was autonomy, which was general in the countries of the Diaspora. Thus, it aided in relieving the burden on the regular courts and in speeding up legal proceedings (see e.g., Or Zaru'a, bk 10:436) or was employed when the regular court was disqualified from hearing a suit because of its own interest in it (see S. Dubnow (ed.), Pinkas ha-Medinah (1925), 6, no. 13 and 307, no. 12) or for other reasons (Shevut Ya'akov, vol. 2, no 143).
Ordinarily, in Jewish law, the arbitral tribunal is composed of three arbitrators. The Mishnah (Sanh. 3:1) records a dispute between R. Meir and other scholars, the former stating that each party chooses one arbitrator and both choose the third, while the other scholars hold that the two arbitrators choose the third. Gulak correctly points out that the scholars sought to lend to arbitration proceedings (at least externally, although the matter is of substantive importance too: see below) the appearance of a Jewish court, composed generally of three judges, in contrast with the single arbiter customary under Roman law. The plain meaning of R. Meir's statement seems to be that the third arbitrator is chosen by the two parties only (so too, tj, Sanh. 3:1, 21a), but the interpretation of the Babylonian amoraim was that all agreed that the consent of the two (arbitrators) is required for the appointment of the third and that R. Meir merely added that the consent of the parties to the third (arbitrator) is also required. The halakhah was decided accordingly (Sh. Ar., Ḥm 13:1; Maim. Yad, Sanh. 7:1 gives conflicting interpretations). However, the opinion has been expressed that where the arbitrators are empowered to decide not only according to strict law, but also to effect a *compromise (pesharah), the two arbitrators may not appoint a third without the consent of the two parties (Arukh ha-Shulḥan, Ḥm 13:1).
When the two arbitrators are unable to agree on the appointment of the third, the appointment is made by the elders of the city – whose status in various matters is as that of the court (see *Takkanot ha-Kahal; and cf. Piskei ha-Rosh, Sanh. 3:2; Sh. Ar., Ḥm 13: 1, Isserles ibid.) and it was often customary for the rabbi of the city to be the third arbitrator (the "shalish"; I. Halperin (ed.)., Pinkas Va'ad Arba Araẓot (1945), 111–2, no. 270; 142–3, no. 335; Dubnow, op. cit., 246, no. 932; Shevut Ya'akov, vol. 2, no. 143; He-Avar, 2 (1918), 73, no. 16). In the Vilna community, where, as in other communities, arbitration was customary despite the existence of regular battei din, it was the practice to stipulate in the rabbi's letter of appointment that he would not be required to serve as a third or fifth arbitrator etc., as the case might be (He-Avar, 2 (1918), 66, no. 11). The parties to arbitration may agree to a smaller or to a larger number than three (Sh. Ar., Ḥm 3:2; Resp. Rosh, 56:1 and 56:7; Resp. Rashba vol. 2, no. 83; Resp. Jacob Weill 11; Naḥmanides, to Deut. 1:12; Isserles to Sh. Ar., Ḥm 13:1), a rule carried out in practice (Halperin, op. cit., 85, 308; Dubnow, op. cit., 225, no. 843; 232, no. 888), and in one case cited, ten arbitrators were appointed (Resp. Ritba 85). A party is not heard, however, if an increase in the number of arbitrators is requested as a subterfuge (Arukh ha-Shulḥan, Ḥm 13:5). When four arbitrators are appointed, the fifth is again chosen by them and not by the parties (Noda bi-Yhudah, Mahadura Kamma, Ḥm 2).
The plain meaning of R. Meir's statement would allow for either party to reject the other's arbitrator, even if the latter be competent to judge and an "expert" (mumḥeh; tj Sanh. 3:2, 21a). The Babylonian Talmud, however, interpreted R. Meir as conceding that an expert could not be so rejected (Sanh. 23a). The opinion of the scholars who differ from R. Meir is that one party cannot reject the other's arbitrator in the absence of evidence that the latter is a relative of the litigants (or of the other arbitrators: Resp. Rema 104) or not competent to serve as a judge (as detailed in the Mishnah, Sanh. 3:3–4). A bond of friendship between a party and his arbitrator does not of itself entitle the other party to disqualify him (Resp. Maharik 16), but if a defendant wishes to appoint an arbitrator whose integrity is in question, the former is not heard and he is compelled to appear before the regular court. Similarly, the defendant need not appear at arbitration proceedings until the claimant has appointed an honest arbitrator (Piskei ha-Rosh, Sanh. 3:2; Sh. Ar., Ḥm 13:1). An arbitrator cannot be disqualified merely because he is not "godfearing" (Resp. Ri-Migash 114).
Status and Functions of Arbitrators
The talmudic sages saw a particular advantage in arbitration, in that each party could nominate an arbitrator of his own choice who represented the interests of the party choosing him and therefore a just decision was ensured (Sanh. 23a and Rashi, ibid., cf. tj, Sanh. 3:1, 21a). In the 13th century, *Asher b. Jehiel pointed out that it was wrong to interpret the above passages as justifying the arbitrator's blind support of the party by whom he was chosen when they should rather be read as meaning that the arbitrators appointed by both parties would thoroughly investigate the facts objectively and negotiate on the respective merits of the litigants' claims – the third arbitrator listening to them and then deciding between them (his Comm. to Sanh. 3:2; see also Darkhei MosheḤm 13:3 and Resp. Maharik 16).
The status of arbitrators has been described as equivalent in every way to that of dayyanim (Panim Me'irot, vol. 2, no. 159), and hence an arbitrator is precluded from hearing the contentions of the party appointing him in the absence of the other party, unless this is agreed upon or is local custom (Arukh ha-Shulḥan, Ḥm 13:4). Arbitrators' fees are payable to the arbitrators chosen by each party, regardless of the outcome, lest the arbitrator be unduly influenced because of his interest in recovering his fees (ibid.). To ensure the maximum integrity of the arbitrators, an opinion was expressed that these fees be defrayed from a communal fund especially set up for this purpose and that a ban (*ḥerem) be imposed on both the donor and recipient of any gift beyond the allocation from this fund (Panim Me'irot, ibid.), but this far-reaching proposal was apparently not adopted (S. Assaf, Battei Din… (1924), 57).
On the other hand, formal legal requirements are relaxed in arbitration proceedings (see e.g., Resp. Rashba, vol. 2, no. 64). From the procedural point of view, too, arbitrators act as dayyanim and in various places special rules of procedure in arbitration proceedings are provided for. Thus in Cracow, in the 17th century, it was determined that arbitrators were required to commence their hearing within 24 hours of their appointment and to give their decision within three days of the hearing, a limit of nine days being provided for when the issue was complicated (Balaban, in: jjlg, 10 (1912), 333–4).
Agreement to, and the Subject Matter of Arbitration
The Talmud does not deal specifically with the question as to when an agreement to resort to arbitration is considered irrevocable. The problem is touched upon in connection with a case where the parties accepted a relative or other person legally incompetent to act as judge or witness, when it was held that, if accompanied by an act of kinyan (see Modes of *Acquisition), such acceptance could not be revoked; if there was no such kinyan, either party may revoke its acceptance at any time up to the completion of the litigation, but not thereafter (Sanh. 24a–b). A fortiori, where legally competent arbitrators are appointed, there can be no withdrawal from the submission to arbitration if agreed upon by way of a kinyan, nor after the conclusion of the proceedings (Beit ha-Beḥirah, Sanh. 83–84; Isserles to Sh. Ar., Ḥm 13:2).
However, additional ways were sought to enhance the institution of arbitration and to prevent a party's withdrawal of its submission thereto. One such way was the drawing up of a deed of arbitration, referred to already in the Mishnah (above), which can be written only on the decision of both parties, both of whom pay the scribe's fees (bb 10:4 and Codes). The Mishnah also mentions a deed of arbitration as one of the documents permitted to be written on ḥol ha-mo'ed ("the intermediate days of a festival"; mk 3:3). Rashi's opinion is that the purpose of a deed of arbitration is to render submission to arbitration irrevocable (bm 20a), since the writing of a document has the same legal effect as a kinyan (Nov. Ramban, bm 20a; see also Nimmukei Yosef, mk 3:3). Support for the fact that writing a deed is regarded as a kinyan is to be found also in the case of providing surety for which kinyan is required (Sh. Ar., Ḥm 129:4–6; see also Ket. 102a), a view supported in most of the Codes. Other scholars express the view that a deed of arbitration is written "so that the arbitrators should not forget" (cited in Beit ha-Beḥirah, Sanh. 84; cf. Maim. Yad, Yom Tov, 7:12) and its mere reduction to writing does not preclude the parties' revocation of the arbitration agreement. Yet another opinion is that the deed is an undertaking by the arbitrators to hear the matter, which they cannot later deny (Or Zaru'a, bb 10:232).
A further opinion, accepted in most of the Codes, is that once the parties have commenced their pleas before the arbitrators, they (the parties) can no longer withdraw from the arbitration (Ha-Ittur, vol. 1, s.v.Berurin; Beit ha-Beḥirah, loc. cit; Nimmukei Yosef, bm 20a. Their reliance on tj, Sanh. 3:4, 21a and on bk 112b may, however, be considered as not being within the plain meaning of these texts). This view is also quoted by Isserles (to Sh. Ar., Ḥm 13:2), who holds that it is generally agreed that where it is not customary for a deed of arbitration to be written, the parties may not withdraw after the commencement of their pleas. Two extreme and contradictory opinions are, firstly, that once the names of the arbitrators have been determined the parties may no longer withdraw, even if no deed has been written and the parties have not yet commenced their pleas (Or Zaru'a, Sanh. 3:8), and secondly, that even where there are legally competent arbitrators the parties may withdraw at any time before the proceedings have been concluded, except where the agreement to arbitrate was effected by an act of kinyan (Ibn Migash, quoted in Ha-Ittur, loc. cit.).
There is a complete consensus of opinion that where the arbitrators are empowered to adjudicate on the basis of a compromise, the parties may withdraw, provided that they had not already performed a kinyan or undertaken in writing to observe any such compromise, as the absence of a kinyan gives rise to the suspicion of a mistaken release (see *Meḥilah), or *asmakhta (Sh. Ar., Ḥm 12:7 and Isserles ad loc.). It was customary for most arbitration deeds to be effected with the aid of a kinyan, apparently also because the arbitrators were generally empowered to adjudicate both on a strictly legal ruling and by way of compromise (see forms of arbitration deeds in Gulak, Oẓar, 281–6). Similarly it was customary to provide therein for payment of a fixed penalty upon withdrawal, or to deter such withdrawal by the imposition of an oath or ban (ibid.).
The subject matter of an arbitration may be an existing dispute between the parties, or one that is likely to arise between them as a result of a particular transaction (as, unlike in the case of real acquisition, a man may obligate himself in respect of something which is not yet in existence, or not quantified (see *Contract; Leḥem Rav 82, and see Warhaftig, pp. 516–7)). Similarly, in the opinion of Nissim Gerondi, the issue for arbitration may relate to matters of both civil and criminal law, e.g., "robbery (gezelot) and assaults" (Nov. Ran, Sanh. 23a), contrary to the view of Warhaftig, pp. 518–9, that Jewish law permits arbitration in civil cases only. The reason therefore would seem to be that at times the regular courts, required to be composed of expert and professional judges, were themselves obliged to resort to the principle of arbitration, but in practice it was customary only for civil law cases to be referred to arbitration (see e.g., S. Dubnow (ed.), Pinkas ha-Medinah (1925), 145, no. 609). An important detail, frequently prescribed in deeds of arbitration, was that the proceedings had to be concluded within a stated period, the arbitrators themselves sometimes being given authority to extend such period at their discretion (Gulak, Oẓar, loc. cit; see also above).
Decision of the Arbitral Body
As in the case of the regular court, the decision of the majority prevailed, unless they were authorized to impose a compromise, for which a unanimous decision was required (Sh. Ar., Ḥm 12:18). According to talmudic halakhah, a party may require the regular court to submit written reasons for its judgment (Sanh. 31b and Codes), but an arbitral body is not obliged to do so, even upon request (Tos., Yad Ramah, ibid. and Beit ha-Beḥirah, Sanh. 138, Piskei ha-Rosh, bm 5:45, Sh. Ar., Ḥm 14:4, Isserles). Sometimes however, it is considered desirable to make known the reasons for a judgment – as was held by M.M. Krochmal in the 17th century, in a suit by members of the community of Vienna against the leaders for the return of money allegedly misappropriated, so that "you shall be blameless in the eyes of God and of the people" (see his Ẓemaḥ Ẓedek 37).
A decision on a matter not included in the issues submitted to the arbitrators for decision, renders their decision void pro tanto (Resp. Rosh 85:5–6, see also Resp. Jacob Berab 27; Resp. Maharashdam, Ḥm 4; Divrei Rivot no. 155; Leḥem Rav 85). A compromise imposed by the arbitrators, when they were not authorized to do so in the deed of arbitration, is also a void decision (Resp. Bera 27). Similarly, their decision is voidable in the event of improper conduct on their part, e.g., if it appears that any one of them was acting for his own benefit (Resp. Maharashdam, Ḥm 4) or that they gave their decision without hearing both parties (Leḥem Rav 87) or that it was given after the period prescribed in the deed of arbitration had expired (Resp. Rashba vol. 3, no. 209. See also Resp. Ribash 300; Resp. Radbaz 953 (518)). The right of appeal against the arbitrator's decision is coextensive with the right of appeal against judgments of the regular courts (opd 71ff.), but the parties may stipulate, at the time of the arbitration agreement, that they shall not appeal against or object to the arbitral decision but accept it as final (Resp. Radbaz 953; Gulak, Oẓar, 284–5, no. 306; Takkanot Moshe Zacuto; see Assaf, p. 78).
On the role of Arbitration during the Emancipation, see M. Elon, Ha-Mishpat ha-Ivri (1988), 1324–29; idem., Jewish Law (1994), 1582–88.
In Modern Israel
In the years 1909 to 1910 there was founded in Palestine the Mishpat ha-Shalom ha-Ivri, an institution designed to serve the Jewish yishuv as a forum for the adjudication of all disputes of a civil law nature, and thus to revive the jurisdiction of Jewish law. From the point of view of the general law of the land, this institution functioned as an arbitral body, reaching the peak of its activities in the years 1920–30. Its presiding arbitrators adjudicated mainly in accordance with general principles of justice, equity, and public order. The rabbinical courts too – whose jurisdiction from the general law viewpoint is confined to matters of personal status only – have had a certain proportion of matters of a civil law nature referred to them for adjudication when sitting in effect as arbitral bodies. This tendency has to a certain extent been intensified in recent years and decisions of this nature of the rabbinical courts carry with them an element of laying down guiding principles with reference to new problems arising in all fields of civil law.
Arbitration in the State of Israel is governed by the Arbitration Law, 5728/1968, based on the recommendations of an advisory committee in 1965. The law deals in detail (inter alia) with the manner of appointing arbitrators and their removal from office, their powers and the auxiliary powers of the regular courts, and with the rules of procedure in arbitrations and the manner of confirming or setting aside decisions. The provisions of a common form of agreement between the parties to submit to arbitration, appearing in a schedule to the law, is binding upon them unless they have otherwise agreed. These provisions deal with the composition of the arbitral tribunal, the manner in which it is to be conducted, and its powers visà-vis the parties. Several of the provisions of the above law are based on Jewish law.
As stated, the Arbitration Law deals with the validity of an arbitration agreement, the manner of appointing an arbitrator, the arbitration procedure, and the validity of the arbitration decision. In 1992 the Courts Law [Consolidated Version] 5744–1984 was amended, and a provision was added, establishing recourse to arbitration as an integral part of legal proceeding:
(a) A court adjudicating a civil matter may, with the consent of the litigants, submit the matter before it, wholly or partially, to arbitration; and the court is also permitted, with their consent, to define the conditions of the arbitration.
(b) The litigants will, with the approval of the court, appoint an arbitrator; should the litigants fail to agree on an arbitrator the court may appoint him from a list submitted to it by the litigants, or, in the absence of such a list, of its own choice.
The proceeding regulated by this law is an arbitration proceeding to which the litigants are referred after the beginning of the court proceeding. With the litigants' consent the court transfers the proceeding to arbitration, according to the provisions of the Arbitration Law, 5728–1968
See also *Compromise.
[Menachem Elon (2nd ed.)]
A. Gulak, Yesodei. 4 (1922), 23–32; Gulak, Ozar, 281–6; S. Assaf, Battei Din… (1924), 54–57; Z. Warhaftig, in Mazkeret…Herzog (1952), 507–29; G. Alon, Toledot, i (1954), 137ff.; idem., Mehkarim, 2 (1958), 30ff., 44ff.; et, 11, (1965), 684–97; B. Cohen, Jewish and Roman Law, 2 (1966), 651–709, 796f.; M. Elon, in ilr, 2 (1967), 528ff.; 3 (1968), 421ff, 434ff. add. bibliography: M. Elon, Ha-Mishpat ha-Ivri, 1 (1988), 1:18–31, 574, 668ff.; 2:978, 1254; 3:1324f, 1334, 1340, 1529; idem., Jewish Law (1994), 1:19–29; 2:707, 825f.; 3:1182; 4:1582f., 1593–94, 1600, 1818. M. Elon and B.Lifshitz, Mafte'aḥha-She'elot ve-ha-Teshuvot shel Ḥakhmei Sefarad u-Ẓefon Afrikah, 1:25–27; B. Lifshitz and E. Shochman, Mafte'aḥ ha-She'elot ve-ha-Teshuvot shel Ḥakhmei Ashkenaz, Ẓarefat ve-Italyah (1997), 22–23.
ARBITRATION is the use of an impartial third party to resolve a dispute. Unlike mediation or conciliation, in which a third party facilitates the end of a dispute by helping the negotiators find common ground, an arbitrator ends a dispute by issuing a binding settlement. Before submitting their dispute to arbitration, the parties to a dispute agree to abide by the arbitrator's ruling.
Arbitration has been used to resolve disputes for centuries. Examples from as far back as the sixth century b.c.e. affirm the use of arbitration to resolve disputes between individuals and between city-states in ancient Greece. In the Old Testament, King Solomon acted as an arbitrator to resolve a conflict between two women over the identity of a child (1 Kings 3:16–28). George Washington in 1799 provided for the use of arbitration should any disputes arise over his will.
In U.S. history, labor arbitration, to settle industrial disputes between labor unions and employers, and commercial arbitration, to settle disputes involving business and consumer transactions, have been the most extensive uses of arbitration. The development of labor arbitration stems from the government's desire to avoid strikes that threaten the public interest, while commercial arbitration results from a desire to avoid the court system.
Commercial arbitration has expanded to include international commercial arbitration and has become more widespread as participants in the legal system have explored the use of alternative dispute resolution (ADR) to reduce the costs and delays of court cases. ADR includes arbitration, mediation, and other forms of dispute resolution. A significant example is the growing trend to use arbitration instead of the courts to resolve employment disputes involving allegations of discrimination and other violations of federal and state employment laws.
The Arbitration Process
The central features of the arbitration process are generally similar regardless of the topic of the dispute. Except in some cases in which arbitration is required by law, the parties agree ahead of time, usually when drafting a contract, to submit any disputes to binding arbitration. Nearly every union contract between labor unions and employers specifies arbitration as the final step of the grievance procedure to resolve employee grievances. A typical clause in contracts between builders, architects, and owners in the construction industry might read as follows: "Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof."
Once arbitration is initiated by one of the parties, an arbitrator must be selected. If the parties have not selected an arbitrator, agencies such as the American Arbitration Association and the Federal Mediation and Conciliation Service can provide a short list of qualified arbitrators. The parties then select an arbitrator from this list, for example, by alternately striking out names. Some arbitration processes may involve a panel of arbitrators, especially in complex commercial cases. When labor arbitration involves a panel, it is common to have an impartial chairperson, one member selected by labor, and one member selected by management.
Each party to the dispute then presents its case and argues its position at a hearing. It is of utmost importance that each party receives a full and fair hearing. Witnesses and exhibits often are presented to support a case, though the strict rules of evidence used by judges are not followed. The arbitrator decides the relevance and importance of the evidence. As with a traditional court case, opening and closing statements are made, and witnesses can be cross-examined. The parties frequently are represented by attorneys.
After the hearing, the arbitrator considers all of the material and issues a ruling. In commercial arbitration, it is common for the decision to simply provide the arbitrator's resolution to the disputed issues without providing details about the arbitrator's reasoning. In labor arbitration, however, it is common for the decision to be accompanied by an opinion indicating the reasons for the decision. The opinions are often used as precedents in subsequent cases.
The parties agree ahead of time to abide by the arbitrator's ruling or award. Laws such as the Federal Arbitration Act and judicial precedent have established the authority of arbitration awards, and the scope for challenging an award in court is limited to alleged problems in the process, such as arbitrator misconduct or disregard for the contract or law. The merits of an arbitrator's decision are not subject to judicial review, and awards can be enforced by the courts.
Labor arbitration usually resolves disputes involving labor unions, employees, and employers. It is commonly divided into two distinct categories: interest arbitration and rights arbitration.
Interest arbitration resolves conflicts of interest over the establishment of the terms and conditions of employment, for example, the wage rate, working hours, and number of vacation days for each employee. In labor relations, these terms and conditions are negotiated through collective bargaining, and agreements are formalized in collective bargaining agreements or union contracts. A breakdown in these negotiations typically results in a strike. Interest arbitration avoids or ends strikes. In the United States the development of interest arbitration can be attributed to the government's desire to protect the public interest by preventing or ending strikes in key industries during the first part of the twentieth century. In 1902, President Theodore Roosevelt ended a five-month coal strike via arbitration, and several laws provided for voluntary arbitration in the railroad industry and the appointment of boards of inquiry if interstate commerce was affected.
Interest arbitration in the private sector is voluntary, and the parties can choose arbitration as an alternative to a strike if desired. Examples have involved the apparel and steel industries as well as Major League Baseball. Congress, however, has prevented railroad strikes through arbitration, and President Bill Clinton ended a flight attendants strike at American Airlines in 1993 by persuading the parties to submit their dispute to arbitration.
In the public sector, interest arbitration is often compulsory, that is, required by law, which echoes the rationale of preventing strikes that harm the public interest. At least twenty states and the federal government deny government employees the right to strike and instead require interest arbitration. These compulsory arbitration laws are especially prevalent among occupations deemed essential, such as police officers, firefighters, and prison guards. Most interest arbitration in the United States occurs in the public sector under these compulsory statutes; private sector negotiators are generally reluctant to give up their right to strike and to turn over their decision making authority to a third party.
In contrast, rights arbitration is widely used in both private-and public-sector labor relations. Rights arbitration resolves conflicts of rights, more commonly referred to as grievances, which are disagreements over the application or implementation of an existing union contract. In other words, has a right that was granted by the contract to a specific party been violated? A common example involves the discipline and discharge of employees. Most union contracts specify that employees can only be disciplined and discharged with just cause, so grievances are frequently filed over whether or not a specific instance of discipline or discharge was consistent with the requirements of just cause. An arbitrator might rule that the discharge was consistent with just cause and therefore stands or that management violated a principle of just cause and therefore the grievant is entitled to be reinstated to his or her job, perhaps with back pay. Other examples include questions of whether or not the contractual provisions were followed in layoffs or promotions, whether or not a specific employee was eligible for vacation pay, or whether or not management has the right to subcontract work.
The widespread adoption of rights or grievance arbitration in the United States originated during World War II. This period was marked by significant growth in union membership and an obvious public interest in avoiding strikes that interrupted war production. The U.S. government, through the National War Labor Board, prompted organized labor to give up the right to strike over grievances in return for binding grievance arbitration as the final step of the grievance procedure. At the conclusion of the war, the only thing that labor and management could agree on was that grievances were best settled through a grievance procedure ending in binding arbitration rather than a strike.
Grievance arbitration was further institutionalized by the important Supreme Court decisions in Textile Workers v. Lincoln Mills (1957) and the Steelworkers Trilogy Cases (1960). In short, these decisions prohibit labor and management from ignoring an arbitration clause in their contract, provide significant legitimacy to the arbitration process, and restrict the scope of judicial review.
No-strike clauses are in 95 percent of union contracts, and clauses providing for binding arbitration to settle unresolved grievances are in nearly all contracts. Note carefully that these no-strike clauses pertain to grievances, rights disputes during the term of a collective bargaining agreement, not to interest disputes at the expiration of the agreement. This system of grievance arbitration, with its established body of precedents on just cause and other important issues, is widely recognized as a positive contribution to labor-management relations in the workplace.
However, the application of arbitration to employment disputes in the nonunion arena is contentious. A number of employment laws provide employees with rights pertaining to nondiscrimination, safety and health, family and medical leave, and other subjects. To avoid costly litigation, some employers require employees, as a condition of employment, to agree to arbitrate any future employment law disputes rather than take the employer to court.
The Supreme Court, in Gilmer v. Interstate/Johnson Lane Corporation (1991), upheld forcing an employee who agreed to binding arbitration in advance to submit his or her dispute to arbitration, but numerous legal and policy questions remained. In particular, it is central to the legitimacy of arbitration as a dispute resolution process that all parties receive due process. In light of the differences in resources between corporations and individual employees, it is debatable whether or not employees are provided with due process in this nonunion context, especially if they must waive their right to litigation as a condition of employment in advance of any dispute. This issue impacts significantly arbitration in the United States.
Commercial arbitration resolves disputes involving business transactions. Merchants and traders have used arbitration for centuries. The chambers of commerce of New York and other eastern cities used arbitration before 1800, though perhaps not frequently. Widespread acceptance of commercial arbitration, however, did not start until the 1920s. New York State passed a law in 1920 and Congress passed the Federal Arbitration Act in 1925, making contract clauses containing an agreement to arbitrate disputes legally binding. Also significant was the founding in 1926 of the American Arbitration Association, a not-for-profit organization that provides guidelines and assistance in using arbitration.
As a result, contracts in the United States between builders, architects, and owners in the construction industry or between cloth mills and garment manufacturers in the textile and apparel industry often have a clause specifying that disputes will be resolved through arbitration. Transactions in the real estate, financial securities, and publishing industries often include arbitration as the dispute resolution procedure. One of the largest commercial arbitration applications involves uninsured motorist claims, in which liability and damages are determined through arbitration.
While labor arbitration developed as a means for avoiding strikes, the rationale for commercial arbitration is to avoid the court system. Relative to court action, arbitration can be faster, less expensive, and more private. Moreover, arbitrators are experts in the subject matter of the dispute. Increased economic globalization and complex international business relationships combined with a reluctance to litigate disputes in a foreign court have increased adoption of arbitration to resolve international business disputes.
Bales, Richard A. Compulsory Arbitration: The Grand Experiment in Employment. Ithaca, N.Y.: ILR Press, 1997. Overview of arbitration to settle employment law disputes. Includes historical and contemporary developments.
Bühring-Uhle, Christian. Arbitration and Mediation in International Business: Designing Procedures for Effective Conflict Management. The Hague and Boston: Kluwer Law International, 1996.
Devinatz, Victor G., and John W. Budd. "Third Party Dispute Resolution—Interest Disputes." In The Human Resource Management Handbook, part 2. Edited by David Lewin, Daniel J. B. Mitchell, and Mahmood A. Zaidi. Greenwich, Conn.: JAI Press, 1997. Reviews the extensive research literature on interest arbitration.
Dunlop, John T., and Arnold M. Zack. Mediation and Arbitration of Employment Disputes. San Francisco: Jossey-Bass, 1997.
Elkouri, Frank, and Edna Asper Elkouri. How Arbitration Works. 5th ed. Edited by Marlin M. Volz and Edward P. Goggin. Washington, D.C.: Bureau of National Affairs, 1997. The classic treatment of grievance arbitration.
Kheel, Theodore W. The Keys to Conflict Resolution: Proven Methods of Settling Disputes Voluntarily. New York: Four Walls Eight Windows, 1999. Wisdom and examples from an experienced arbitrator and mediator.
Ponte, Lucille M., and Thomas D. Cavenagh. Alternative Dispute Resolution in Business. Cincinnati, Ohio: West Educational, 1999.
The submission of a dispute to an unbiased third person designated by the parties to the controversy, who agree in advance to comply with the award—a decision to be issued after a hearing at which both parties have an opportunity to be heard.
Arbitration is a well-established and widely used means to end disputes. It is one of several kinds of alternative dispute resolution, which provide parties to a controversy with a choice other than litigation. Unlike litigation, arbitration takes place out of court: the two sides select an impartial third party, known as an arbitrator; agree in advance to comply with the arbitrator's award; and then participate in a hearing at which both sides can present evidence and testimony. The arbitrator's decision is usually final, and courts rarely reexamine it.
Traditionally, labor and commerce were the two largest areas of arbitration. However, since the mid-1970s, the technique has seen great expansion. Some states have mandated arbitration for certain disputes such as auto insurance claims, and court decisions have broadened into areas such as securities, antitrust, and even employment discrimination. International business issues are also frequently resolved using arbitration.
Arbitration in the United States dates to the eighteenth century. Courts frowned on it, though, until attitudes started to change in 1920 with the passage of the first state arbitration law, in New York. This statute served as a model for other state and federal laws, including, in 1925, the U.S. Arbitration Act, later known as the Federal Arbitration Act (FAA) (9 U.S.C.A. § 1 et seq.). The FAA was intended to give arbitration equal status with litigation, and, in effect, created a body of federal law. After world war ii, arbitration grew increasingly important to labor-management relations. Congress helped this growth with passage of the taft-hartley act (29 U.S.C.A. § 141 et seq.) in 1947, and over the next decade, the U.S. Supreme Court firmly cemented arbitration as the favored means for resolving labor issues, by limiting the judiciary's role. In the 1970s, arbitration began expanding into a wide range of issues that eventually included prisoners' rights, medical malpractice, and consumer rights. In 2003, all 50 states had modern arbitration statutes.
Arbitration can be voluntary or required. The traditional model is voluntary, and closely linked to contract law: parties often stipulate in contracts that they will arbitrate, rather than litigate, when disputes arise. For example, unions and employers almost always put an arbitration clause in their formal negotiations, known as collective bargaining agreements. By doing so, they agree to arbitrate any future employee grievances over wages, hours, working conditions, or job security—in essence, they agree not to sue if disagreements occur. Similarly, a purchaser and a provider of services who disagree over the result of a business deal may submit the problem to an arbitrator instead of a court. Mandatory arbitration is a more recent phenomenon. States such as Minnesota, New York, and New Jersey have enacted statutes that force disputes over automobile insurance claims into this forum. In addition, courts sometimes order disputants into arbitration.
In theory, arbitration has many advantages over litigation. Efficiency is perhaps the greatest. Proponents say arbitration is easier, cheaper, and faster. Proponents also point to the greater flexibility with which parties in arbitration can fashion the terms and rules of the process. Furthermore, although arbitrators can be lawyers, they do not need to be. They are often selected for their expertise in a particular area of business, and may be drawn from private practice or from organizations such as the American Arbitration Association (AAA), a national non-profit group founded in 1926. Significantly, arbitrators are freer than judges to make decisions, because they do not have to abide by the principle of stare decisis (the policy of courts to follow principles established by legal precedent) and do not have to give reasons to support their awards (although they are expected to adhere to the Code of Ethics for Arbitrators in Commercial Disputes, established in 1977 by the AAA and the american bar association).
These theoretical advantages do not always hold up in practice. Even when efficiency is achieved, some critics argue, the price is a lower quality of justice, and it can be made worse by the difficulty of appealing an award. The charge is frequently made that arbitration only results in "splitting the baby"—dividing awards evenly among the parties. The AAA roundly rejects this claim. Yet even arbitrators agree that as arbitration has become increasingly formal, it sometimes resembles litigation in its complexity. This may not be an inherent problem with the process as much as a result of flawed use of it. Parties may undermine arbitration by acting as lawyers do in a lawsuit: excessively demanding discovery (evidence from the other side), calling witnesses, and filing motions.
Ultimately, the decision to use arbitration cannot be made lightly. Most arbitration is considered binding: parties who agree to arbitration are bound to that agreement and also bound to satisfy any award determined by the arbitrator. Courts in most jurisdictions enforce awards. Moreover, they allow little or no option for appeal, expecting parties who arbitrate to assume the risks of the process. In addition, arbitration is subject to the legal doctrines of res judicata and collateral estoppel, which together strictly curtail the option of bringing suits based on issues that were or could have been raised initially.
Res judicata means that a final judgment on the merits is conclusive as to the rights of the parties and their privies, and, as to them, operates as an absolute bar to a subsequent action involving the same claim, demand, or cause of action. Collateral estoppel means that when an issue of ultimate fact has been determined by a valid judgment, that issue cannot be relitigated between the same parties in future litigation. Thus, often the end is truly in sight at the conclusion of an arbitration hearing and the granting of an award.
The FAA gives only four grounds on which a court may vacate, or overturn, an award: (1) where the award is the result of corruption, fraud, or undue means; (2) where the arbitrators were evidently partial or corrupt; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing or hear pertinent evidence, or where their misbehavior prejudiced the rights of any party; and (4) where the arbitrators exceeded their powers or imperfectly executed them so that a mutual, final, and definite award was not made. In the 1953 case Wilkov. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168, the U.S. Supreme Court suggested, in passing, that an award may be set aside if it is in "mani-fest disregard of the law," and federal courts have sometimes followed this principle. Public policy can also be grounds for vacating, but this recourse is severely limited to well-defined policy based on legal precedent, a rule emphasized by the Supreme Court in the 1987 case United Paperworkers International Union v. Misco, 484U.S. 29, 108 S. Ct. 364, 98 L. Ed. 2d 286.
The growth of arbitration is taken as a healthy sign by many legal commentators. It eases the load on a constantly overworked judicial system, while providing disputants with a relatively informal, inexpensive means to solve their problems. One major boost to arbitration came from the U.S. Supreme Court, which held in 1991 that age discrimination claims in employment are arbitrable (Gilmer v. Inter-state/Johnson Lane Corp., 500 U.S. 20, 111 S. Ct. 1647, 114 L. Ed. 2d 26). Writing for the majority, Justice byron r. white concluded that arbitration is as effective as a trial for resolving employment disputes. Gilmer led several major employers to treat all employment claims through binding arbitration, sometimes as a condition of employment.
Arbitration clauses have become a standard feature of many employment contracts. This has led to conflicts concerning the applicability of these clauses when an employee seeks to sue an employer for a civil rights violation under Title VII of the Civil Rights Act of 1964, as amended by the civil rights act of 1991. A provision of this law addressed, for the first time, the arbitration of Title VII claims. Section 118 of the act states that the parties could, "where appropriate and to the extent authorized by law," choose to pursue alternative dispute resolution, including arbitration, to resolve their Title VII disputes. Since its enactment, the federal courts have been required to determine what this clause means in practice. For example, in the securities industry disputes arose over whether employers could require their employees to waive their right to bring a Title VII claim in court. The circuit courts of appeal have uniformly ruled that Congress did not mean to preclude compulsory arbitration of Title VII claims.
The equal employment opportunity commission (EEOC) has contended that employment arbitration clauses do not prohibit the EEOC from filing an action against an employer for a civil rights violation. The Supreme Court agreed in Equal Employment Opportunity Commission v. Waffle House, Inc., 534 U.S. 279, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002), holding that the EEOC could seek damages on behalf of an employee. The commission could also seek injunctive relief to change a company's discriminatory methods. In so ruling, the Court resolved an issue that had divided the circuit courts of appeal.
The employee in question was fired from his job at the Waffle House after he suffered a seizure. He filed a claim with the EEOC, arguing that his rights under Title I of the Americans with Disabilities Act (ADA) had been violated. Under this act, the EEOC has the authority to bring its own enforcement actions against employers and to seek reinstatement, backpay, and compensatory and punitive damages on behalf of an employee. Moreover, the ADA makes no exception for arbitration agreements, nor does it even mention arbitration. Therefore, the EEOC, which had not signed an arbitration agreement with the employer, was free to pursue its claims in court. The Court also concluded that the general policies surrounding the ADA, and the EEOC's enforcement arm, justified the pursuit by the EEOC of victim-specific relief. It stated that punitive damages "may often have a greater impact on the behavior of other employers than the threat of an injunction."
The Supreme Court also has validated the enforceability of arbitration awards relating to collective bargaining agreements. In Eastern Associated Coal Corporation v. United Mine Workers of American, District 17, 531 U.S. 57, 121S.Ct. 462, 148 L.Ed.2d 354 (2000), the issue involved a labor arbitrator who ordered an employer to reinstate an employee who had twice tested positive for marijuana use. The employer filed a lawsuit in federal court seeking to have the arbitrator's decision vacated, arguing that the award went against a public policy against the operation of dangerous machinery by workers who test positive for drugs.
The Court unanimously agreed that the employee should be reinstated. The Court made it clear that the question was not whether the employee's drug use itself violated public policy, but whether the agreement to reinstate him did so. However, the Court also pointed out that the public policy exception is a narrow one. Based on these principles, the Court ruled that the reinstatement did not violate public policy, as the award did not condone drug use or its impact on public safety. In addition, the arbitrator placed conditions on the employee's reinstatement, which included suspension of work for three months without pay, participation in a substance abuse program, and continued random drug testing. The fact that the employee was a recidivist did not tip the balance in favor of discharge.
Crowley, Thomas. 1994. "The Art of Arbitration Advocacy." Hawaii Bar Journal (September).
Culiner, Helen. 1994. "Practical Guidelines for Lawyers Representing Clients in Arbitration Proceedings Today." Dispute Resolution Journal (September).
Deye, James, and Lesly Britton. 1994. "Arbitration by the American Arbitration Association." North Dakota Law Review (spring).
The submission of a dispute to an unbiased third person designated by the parties to the controversy, who agree in advance to comply with the award—a decision to be issued after a hearing at which both parties have an opportunity to be heard.
Hall Street Associates, L.L.C. v. Mattel, Inc.
The use of arbitration has increased in part because state and federal courts have abandoned their hostility to this form of dispute resolution. The Federal Arbitration Act, (FAA), 19 U.S.C.§§ 1 et seq., has encouraged the use of arbitration by providing expedited judicial review to confirm, vacate, or modify arbitration awards. The act also greatly restricts the grounds that a court can use to vacate or modify an award, limiting these to address egregious departures from the parties' agreed-upon arbitration. The U.S. Supreme Court, in Hall Street Associates, L.L.C. v. Mattel, Inc.,—U.S.—, 128 S. Ct. 1396, 170 L. Ed. 2d 254 (2008), ruled that the grounds for modifying, vacating, or correcting an arbitration award contained in the FAA are the exclusive grounds for using expedited judicial review.
Hall Street Associates L.L.C. leased property in Oregon to the Mattel, Inc. toy company for many years. Mattel used the property as a manufacturing site. The lease provided that Mattel would pay Hall Street for any costs resulting from the failure of Mattel or its predecessor tenants to follow environmental laws while using the property. In 1998 tests on the property's well water revealed high levels of a toxic chemical that was the residue of manufacturing discharges by Mattel's predecessor between 1951 and 1980. After more pollutants were discovered in well water by Oregon's Department of Environmental Quality (DEQ), Mattel and one of its predecessors signed a consent order with the DEQ, agreeing to clean up the site.
Mattel gave notice of intent to terminate its lease in 2001. Hall Street filed suit in federal court, claiming that Mattel did not have the right to vacate on the date it gave and that Mattel was required to pay Hall Street for the costs of cleaning up the pollutants. A bench trial was conducted (a judge rather than a jury acts as fact-finder) and Mattel prevailed as to the right to terminate the lease. As to Hall Street's demand for clean-up money, the parties failed to settle the claim through mediation . It was then agreed that the parties would arbitrate this issue. The district court was in favor of this process and it approved the arbitration agreement the two companies drew up. The court entered the agreement as an order, with one paragraph permitting the court to vacate or modify the arbitration award if it found the arbitrator's findings of fact were not supported by substantial evidence or if the arbitrator's conclusions of law were erroneous.
The arbitrator ruled in Mattel's favor, finding that the lease obligation to follow all applicable environmental laws did not require compliance with Oregon's Drinking Water Quality Act. The arbitrator said this act dealt with human health contamination, not environmental contamination. Hall Street filed a motion with the district court, asking it to vacate the decision because the arbitrator committed legal error by failing to find the water act was environmental in nature. The court agreed, vacated the award, and remanded the case to the arbitrator. In the order the court noted that the standard of legal review was the one chosen by the parties. On remand the arbitrator ruled for Hall Street. This time the court upheld the ruling and modified the arbitrator's calculation of interest. Both parties appealed to the Ninth Circuit Court of Appeals, with Mattel now claiming that the application of the standard of review contained in the agreement was invalid and unenforceable. The appeals court agreed, holding that the award could only be reviewed using the grounds contained in the FAA.
The Supreme Court, in a 6–3 decision, upheld the Ninth Circuit interpretation of the FAA. Justice DAVID SOUTER, writing for the Court, noted that the circuit courts of appeals were split over the exclusiveness of the statutory grounds for a court's review of an arbitration award. Some courts thought them exclusive, while others saw them as threshold provisions that could be expanded by agreement of the parties. Justice Souter concluded that the FAA provisions were the exclusive set of categories, which included corruption, fraud , evident partiality, misconduct, misbehavior, evident material mistake, and several other serious issues. There was no comparison between fraud and a mistake of law . The FAA provisions dealt with serious matters that went to the integrity of the arbitration process. The provisions were elements of a “national policy favoring arbitration with just limited review needed to maintain arbitration's essential virtue of resolving disputes straightaway.” Any other interpretation of the statute would pave the way for full-scale, time-consuming judicial review. Therefore, parties to arbitration under the FAA may not change the scope of judicial review.
Preston v. Ferrer
The Supreme Court in 2008 ruled against the star of the syndicated television show “Judge Alex” by holding that his case should have been decided by an arbitrator. The case presented an issue of whether a California state law could require the parties to bring the case before the state's labor commission before requesting arbitration. In Preston v. Ferrer, 522 U.S.—(2008) (No. 06-1463), the Court in an 8–1 vote determined that the Federal Arbitration Act preempted the state law.
Alex E. Ferrer is a former state judge from Florida. He was originally born in Havana, Cuba, but his family migrated to the United States when he was a young child. While serving as a police officer, he earned a law degree from the University of Miami, and he later served as an administrative judge in Miami. In 2005, he became the star of a nationally syndicated television show named “Judge Alex.”
In March 2002, Ferrer entered into a management agreement with Arnold Preston, an attorney who represents clients in the television and motion picture industries. The parties entered into a contract that included a standard clause, which required arbitration for “any dispute … relating to the terms of [the contract] or the breach, validity, or legality thereof … in accordance with the rules” of the American Arbitration Association.
The Federal Arbitration Act, 9 U.S.C.§§ 1 et seq. establishes a national policy that favors arbitration proceedings when commercial contracts call for this form of dispute resolution. In addition to providing a procedural framework for federal courts , it requires that both state and federal courts apply federal substantive law to the resolution of arbitration disputes. The Court in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006) ruled that when parties agree to arbitrate all of their disputes arising out of the validity of the contract, these questions should be resolved by the arbitrator instead of a state or a federal court.
In 2005, Preston sought to recover fees under his agreement with Ferrer and demanded arbitration. Ferrer responded with a petition to the California Labor Commission where Ferrer argued that the contract was invalid and unenforceable under the California Talent Agencies Act, Cal. Lab. Code Ann.§§ 1700 (West 2003& Supp. 2008). According to Ferrer, Preston had acted as a talent agent without a license as required by California law, and thus the contract between Preston and Ferrer was entirely void.
A California Labor Commissioner hearing officer heard the case in November 2005 and determined that Ferrer had stated a “colorable basis” for the exercise of the Labor Commissioner's exercise of jurisdiction. However, the officer decided that the Labor Commissioner could not stay the arbitration. Ferrer subsequently brought an action in the Los Angeles Superior Court, where he sought a ruling that the action was not subject to arbitration and also requested an injunction that would prevent Preston from moving to compel arbitration.
The Superior Court in December 2005 determined that the Labor Commissioner was the proper decision-maker in the case. Thus, the court denied Preston's motion to compel arbitration. Preston appealed the decision to the California Court of Appeals. While the appeal was pending, the Supreme Court decided Buckeye Check Cashing, concluding that an arbitrator, rather than a court, should decide whether a contract is valid. In Preston's appeal, however, the state court determined that Buckeye Check Cashing did not apply because the case did not address an instance where an administrative body had exclusive jurisdiction over a disputed issue. The California Court of Appeals ruled that the state statute gave the Labor Commissioner “exclusive original jurisdiction” over the case. Preston v. Ferrer, 145 Cal. App. 4th, 51 Cal. Rptr. 3d 628 (Ct. App. 2006).
After the California Supreme Court declined to review the case, Preston sought to appeal the decision to the U.S. Supreme Court. The Court granted certiorari in September 2007. In his briefs to the Court, Preston argued that a series of cases, including Buckeye Check Cashing and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S. Ct. 1647, 114 L. Ed. 2d 26 (1991), the Court clearly established that the arbitrator is the first decision-maker who should resolve a question of the validity of the contract. Ferrer argued that the prior cases were distinguishable because they did not involve a state law that required exhaustion of administrative remedies prior to bringing a case before an arbitrator.
In an 8–1 decision, the Court sided with Preston and reversed the California appellate court's decision. An opinion by Ruth Bader Ginsburg determined that the Federal Arbitration Act and the cases interpreting it had established that contracts containing arbitration clauses should be interpreted by arbitrators not by administrative bodies, no matter what the California law said. In so ruling the Court disagreed with Ferrer that the case was at all distinguishable from a long line of prior Supreme Court precedents. “[W]e disapprove the distinction between judicial and administrative proceedings drawn by Ferrer and adopted by the appeals court,” wrote Ginsburg. “When parties agree to arbitrate all questions arising under a contract, the FAA supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative.”
Justice Clarence Thomas, in a lone dissent, argued that the Federal Arbitration Act does not apply to state court proceedings. He also dissented in several other decisions, including Buckeye Check Cashing, by making the same argument.
The submission of a dispute to an unbiased third person designated by the parties to the controversy, who agree in advance to comply with the award—a decision to be issued after a hearing at which both parties have an opportunity to be heard.
Buckeye Check Cashing, Inc. v. Cardegna
Commercial lenders, like many other businesses, typically require borrowers to sign an agreement that includes a provision mandating arbitration if there is a dispute. The question has arisen whether an unhappy borrower may go to court and seek to void the entire contract or whether the legality of the contract must be submitted to the arbitrator for resolution. The U.S. Supreme Court, in Buckeye Check Cashing, Inc. v. Cardegna, __U.S.__, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006), ruled that in a state court proceeding, the Federal Arbitration Act (FAA) mandates that the arbitrator consider whether the contract is void for illegality.
John Cardegna and another Florida plaintiff entered into deferred-payment transactions with Buckeye Check Cashing. Buckeye operates what is known as a "fast money service." Cardegna borrowed $337 from Buckeye, which required him to write a check for the sum of the borrowed money plus a processing fee. The check would be cashed after Cardegna's next payday, giving him the opportunity to have the money on hand. Cardegna kept renewing his loan each time it came due. By the time he filed suit, Cardegna owed Buckeye around $1000. Cardegna's state lawsuit alleged that the processing fee amounted to criminal usury and that the lending agreement he signed was criminal on its face and should be voided.
Buckeye filed a motion to compel arbitration, submitting a copy of the lending agreement to the court that contained two pertinent provisions. The first provision stated that Cardegna agreed to submit to binding arbitration if "a dispute of any kind arises out of this Agreement." The second provision stated that if there was a dispute about the "validity, enforceability, or scope of this Arbitration Provision or the entire Agreement," the parties agreed to settle it through arbitration. This section also provided that the arbitration agreement was governed by the FAA. The Florida trial court denied Buckeye's motion, finding that a court of law rather than an arbitrator should determine whether the contract was illegal and void. The Florida Court of Appeals reversed this decision, ruling that because Cardegna had not challenged the arbitration provision itself, claiming instead that the entire contract was void, the agreement to arbitrate was enforceable. The arbitrator would decide the legality of the contract. The Florida Supreme Court reversed the appeals court, concluding that to allow the arbitration to go forward in an allegedly unlawful contract "could breathe life into a contract that not only violates state law, but is also criminal in nature."
The U.S. Supreme Court, in a 7-1 decision (newly confirmed Justice Samuel Alito did not participate in the case), overturned the Florida Supreme Court ruling. Justice Antonin Scalia, writing for the majority, noted that Congress had passed the FAA to "overcome judicial resistance to arbitration." The act placed arbitration agreements on equal footing with other contracts. Arbitration agreements have been challenged in two ways. The first challenges the validity of the agreement to arbitrate, while the second challenges the contract as a whole. Attacks on the contract are based either on a claim that affects the entire agreement or on a claim that the illegality of one contract provision makes the entire contract invalid. In the present case the entire contract was challenged as invalid because of the usurious finance charge.
Justice Scalia cited an earlier case, Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), as precedent. That case involved a federal lawsuit claiming that a contract was induced by fraud and whether a federal judge or an arbitrator should resolve the issue. The Court held that if the claim is fraud in the inducement of the arbitration provision itself, then the federal court must handle the matter. However, the FAA did not permit the federal courts to consider claims of fraud in the inducement of the contract generally. In addition, an arbitration provision was severable from other provisions of a contract, meaning that it could remain in effect even if other provisions were ruled invalid. In a 1984 case the Court went further and stated that the FAA created a body of law that applies to both federal and state courts, rejecting the possibility of a state court barring the enforcement of FAA provisions. Based on these rulings, Justice Scalia found that Cardegna's challenge of the entire agreement meant that an arbitrator would have to consider this claim.
The Court rejected Cardegna's argument that the severability rule did not apply to state court cases because the FAA provisions involved in Prima Paint applied only to federal courts. Justice Scalia interpreted that decision to be based on another section of the act that states that arbitration agreements must be treated like all other contracts, whether in state or federal court. Prima Paint's holding relied on "Congress' broad power to fashion substantive rules under the Commerce Clause." Therefore, the FAA was not limited only to federal court jurisdiction. Whether a "challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator."
Justice Clarence Thomas, in a dissenting opinion, contended that the FAA does not apply to state court proceedings. Therefore, the FAA could not "be the basis for displacing a state law that prohibits enforcement of an arbitration clause contained in a contract that is unenforceable under state law."
Arbitration is the process by which two parties agree to submit a dispute they cannot settle on their own to a third party, or arbitrator, whose decision is final and binding on both sides. Disputing parties resort to arbitration when they have reached a point where the only alternative is a lawsuit or a strike. In some cases arbitration is required by law. Arbitration is common in disputes over construction contracts, landlord-tenant contracts, and even salary disagreements in professional sports. After evaluating the dispute, the arbitrator either sides with one of the parties or tries to find a solution that is fair to both. He may be appointed by the two parties or assigned by a court. The arbitrator may be a respected individual or panel of individuals or a professional arbitrator hired through organizations like the American Arbitration Association.
Arbitration proceedings differ from lawsuits. They are faster and cheaper, and arbitrators have greater flexibility than law courts because they do not have to assign "blame" to one of the parties. Arbitration proceedings are ideally suited to complex disputes where the arbitrator has specialized expertise in the subject matter of the dispute, and they enable the disagreeing parties to maintain greater privacy over the arbitration process.
Commercial or contract arbitration arose in medieval Europe to settle disputes when the law was no help because the disputing merchants lived in different political or legal systems. By the nineteenth century the United States had developed a voluntary arbitration system in which workers and owners freely submitted their labor disputes to an "umpire" for resolution. In 1926 the American Arbitration Association was established to create a trained pool of professional arbitrators. Nine years later, the National Labor Relations Act was passed, making it easier for workers to use arbitration to bargain collectively for better labor agreements. The need for quick resolution of labor disputes during World War II (1939–1945) increased the number of arbitrated labor disputes. The passage of the Arbitration Acts of 1947, 1970, and 1990 strengthened the process of arbitrating commercial disputes, made the process more uniform, and established procedures for resolving disputes with foreign companies. In 1960 the landmark "Steelworkers' Trilogy" Supreme Court case limited the role of the courts in overturning arbitration cases, paving the way for today's independent, legally binding arbitration decisions.
See also: Collective Bargaining, Strike
Arbitration is a process in which disputing parties abandon their right to litigate or appeal to the judicial court and instead put their case before an impartial third party who renders an opinion or recommendation. If the arbitration is nonbinding, the parties may choose to accept it or not. If it is binding, the parties must abide by the decision, which has the force of law and can be enforced. Parties may voluntarily submit to arbitration rather than incur the costs of litigation. Courts may also force parties to go to arbitration. Examples of cases that have gone to arbitration concern the location of gas pipelines and liability for paying for pollution cleanup.
see also Consensus Building; Enforcement; Litigation; Mediation; Public Policy Decision Making; Regulatory Negotiation.
u.s. institute for environmental conflict resolution web site. available from http://www.ecr.gov.
Susan L. Senecah