As my partners know, I am not a fan of arbitrating disputes. The reasons are that generally the winners don’t win 100%, the losers don’t lose 100%, the decision is often a compromise, and if the case is complicated the period of time over which the arbitration is conducted can be onerous. However, arbitration cannot be forced upon a person. Arbitration occurs by reason of a contract entered into between two parties which contains an arbitration clause.
Years ago the United States Supreme Court ruled that the securities brokerage community was permitted to require mandatory arbitration in all of its contracts and agreements with its customers. In this, the Court ruled that the brokerage firm requirement to arbitrate did not violate any constitutional or statutory privileges. No brokerage firm will deal with any investor these days unless he or she agrees to compulsory arbitration. The reasons are obvious – there is no jury in an arbitration, little likelihood of punitive damages, and generally the forum is more beneficial to the broker than it is to the customer.
There are two types of arbitration, binding and non-binding. In binding arbitration, the decision of the arbitrators is final, binding and not appealable (absent, generally, fraud or misconduct by an arbitrator). In non-binding arbitration, if one party does not agree with the decision, that party is entitled to take the matter to court and in some instances appeal to a court.
In that the obligation to arbitrate is a matter of contract and as indicated cannot be imposed upon you unless you agree, take a good look at every contract that you sign. Whether it is in a business setting, automobile or equipment lease, life, health, and automobile insurance policies, the borrowing of money, obtaining a credit card, building a house, buying stocks or bonds (just remember, that brokers will not negotiate the inclusion of an arbitration clause), and any other written contract which is signed, be on the look out and carefully examine the fine print. If you find an arbitration clause and agree with this thinking, delete it, negotiate it, limit it, or when all else fails, sign the contract with a clear knowledge of what you are signing.
Generally we feel our clients are winners, and when there is a dispute winners are entitled to win. When faced with an arbitration clause, I would prefer to litigate before a judge and a jury. If you are interested, check out the American Arbitration Association’s website, www.adr.org.
— Mike Beausang