Arbitration versus Court- You have Options!

Many people, especially in real estate or other commercial settings, sign agreements agreeing to arbitration without having an understanding of the implications and what that means. The Constitution guarantees you the right to a trial by a jury of your peers. This is fairly unique to the United States at least for non-criminal matters. The idea of a trial by jury is to have cases decided by cross section of the community and to allow community norms and values to play a part in deciding cases. However, when you agree to arbitration, you are essentially waiving your right to a trial by jury, and instead, agreeing to have your dispute decided by an arbitrator or a dispute resolution company which could be, but does not always have to be a retired judge, attorney or referee. Many feel there are two important benefits to consider.

1. Lower cost. Although arbitration is generally considered to be less expensive, that may not always be the case since in an arbitration, the costs of the proceedings and arbitrator are usually paid by the parties, whereas in court, the taxpayers pay most of the salaries of the court and staff.
2. Faster speed. One important distinction to keep in mind is the informality of the arbitration process. On the one hand, arbitrations can proceed much faster than most court proceedings since there are less procedural requirements and less chance for court congestion. Certain procedures that take weeks or months in court might only take a few days or a week in arbitration.

On the other hand, others feel there are two important drawbacks and sometimes it is best to file in court and use the typical litigation process.

1. Procedures for fairness and equity. Many of the court procedures and rules have evolved over hundreds of years and are specifically designed to ensure fairness in the litigation process, full disclosure of information about the strengths and weaknesses of each party’s case, and notice and opportunity to present your case.
2. Opportunity for Appeal. Perhaps most importantly, there are processes in court to help to ensure that if an error is made in the process, there is a method for having the case reviewed by a different court, typically an appeal. By contrast, in arbitration, the decision of the arbitrator is generally final and there is usually no right to an appeal, even if the arbitrator does not follow the law. For that reason, who you pick as an arbitrator can be a crucial decision since the arbitrator you choose will generally have the final say and will rarely be reviewed by the Courts.

Choose your Arbitrator carefully. The choice of an arbitrator or dispute resolution company is entirely up to the agreement of the parties and so if you are entering into an agreement that contains an arbitration clause, it behooves you to understand who would be the arbitrator or dispute resolution company that would decide any disputes and to research their rules, background and policies. Many critics believe that large awards are less common in arbitration and that arbitrators tend to go with what they think is more “fair” rather than proceed according to the letter of the law. Regardless of whether you favor having your case decided by an arbitrator or by a jury, there are important pros and cons to each forum which you should be aware of when deciding whether to have your agreement or dispute submitted to arbitration. Lee Chen is an associate attorney at the Irvine, California office of (“KKOS Lawyers”). Lee’s practice areas include advising clients on the formation of business entities, partnerships, and general tax planning relating to business entity formations. Lee also provides advice on structuring real estate investment deals and asset protection issues arising from investments in real estate. He also regularly advises and assists clients in IRS matters including audits, collections, installment agreements and offers in compromise. You can reach him at 888-801-0010 or our office.