Submitted by: Charles F. Forer, Member, Eckert Seamans Cherin & Mellott, LLC, – Philadelphia Office
Arbitration disputes are never far from the front pages. We read about arbitration awards involving Tom Brady’s footballs, salary disputes between Major League baseball players and their teams, and disputes between Brazil and its bondholders. We also read about attacks on arbitration – from disgruntled consumers who must arbitrate claims arising out of products and services they purchase on the Internet, from employees who cannot take their discrimination claims to court, and from investors who must assert their fraud and churning claims against brokers and their firms in arbitration.
If handled correctly, arbitration allows disputing parties to reduce costs, to expedite resolution of their disputes, and to choose their own decisionmaker. Plus, they can keep the dispute out of the public eye. They even can choose their own arbitration schedule. It is not surprising that lawyers talk about “custom designing” the dispute-resolution process to fit the unique needs, requirements, and budgets of their clients.
If handled improperly, however, arbitration can be a dud. Parties can spend years fighting about the meaning of their arbitration agreement. These endless fights are exhausting. Often the parties find themselves buried under stacks of motions, briefs, and bills. Here is the sobering thing: winning these fights merely gets the winner to the starting line to begin fighting the original dispute – if the winner can remember what the original dispute was all about and still has the bucks to do something about it.
These arbitration fiascos often happen for one reason: the arbitration agreement does not say what the parties wanted it to say. As the United States Supreme Court has said again and again, “[a]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes – but only those disputes – that the parties have agreed to submit to arbitration.”
Precision counts. A court will not extend an arbitration provision beyond its express terms. You want to arbitrate claims arising out of the contract? Say so. You want to arbitrate claims arising out of the relationship between the parties? Say it – a court will not compel arbitration if the clause does not refer to the type of claim the party seeks to arbitrate. You want to keep the process economical? Insert provisions that do just that.
When they enter into an arbitration agreement, the parties often are in good moods. They are working together to figure out a mutually beneficial way to avoid costs and aggravations down the road. But do you really think the parties will be in similarly constructive moods after they have a dispute? No way. One party will benefit from delay and inefficiency; that party will not be in any mood to work things out. An “antagonism at all costs” approach replaces the “mutually beneficial” mood of former times.
Do not think you can bury your head in the sand and mutter, “no arbitration agreements on my watch.” Reason: they are everywhere. In form contracts. In e-commerce contracts on the Web. And perhaps most importantly, in contracts between businesses where one side wants to take advantage of all the benefits arbitration offers.
So a word to anyone who enters into or reviews contracts: make sure the arbitration provision on page 17 of the ten-point font contract on your desk or screen says what you want it to sa