ARBITRATION THEN AND NOW
By Sam K. Abdulaziz Contracts which include mandatory arbitration provisions were almost always uniformly upheld and most likely, the award of the arbitrator was enforced. That is not as true as it was before. Over the years, numerous appellate decisions stated how arbitration is favored and the decision of the arbitrator should be enforced. It has been held that the arbitrator could make a mistake in the law, a mistake in the facts, and yet the decision of the Arbitrator should be upheld. Appellate decisions have even stated that the word "arbitrator" comes from the word "arbitrary." Therefore, even an arbitrary decision would be binding. The rationale was that the parties chose arbitration and the arbitrator. Therefore, the choice of the parties should be binding. About the only way the decisions of the arbitrator were overturned was when there was fraud on the part of the arbitrator or when the arbitrator exceeded his or her power. A decision goes beyond the scope of the arbitrator's power, if for example, an arbitrator rules on something that is not part of the arbitration agreement. Arbitration was swift, less expensive than litigation, and almost always final. That is not the case any longer. Like everything else in the United States, some people take advantage of a good thing and turn it into a bad thing. An arbitration provision is nothing more than a contractual provision. It is usually part of a contract. It typically states that disputes arising out of the contract will be settled by arbitration. The provision will also usually set out the rules of how the arbitration is to be conducted. Soon, clever attorneys started writing arbitration provisions that were more favorable for the attorney's clients. This is not always a bad thing. Attorneys are supposed to protect their clients. Indeed, just the choice of arbitration over litigation should be based on whether it is more favorable to you. Unfortunately, some contracts include written arbitration provisions that are so one-sided as to be unenforceable. These provisions are called unconscionable. Further, these unconscionable provisions are found in contracts of adhesion, also known as a "take it or leave it agreement," where a party has no opportunity to negotiate the terms of the agreement. Just like any other contract, if the agreement to arbitrate is in a contract of adhesion and if the terms are unconscionable, then the court will not enforce the agreement to arbitrate nor any award that might arise from the arbitration, just as the court would not enforce a contract that is similarly objectionable. This is appropriate. The problem is that we now have less certainty about arbitration provisions and the enforceability of an arbitration award. How "unconscionable" does an agreement have to be to become unenforceable? As an example, how the cost of the arbitration should be shared could make the provision unconscionable. This is especially true in consumer disputes and employment arbitration. With uncertainty comes additional attorneys' fees and costs and appeals. The two sides of the equation are clear. On one side, the agreement will definitely be upheld. On the other side, it will not. The middle is the problem. It is no wonder that we see more and more arbitration cases appealed.
Author: Sam K. Abdulaziz
Phone: 818-760-2000
Website: http://www.aglaw.net
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