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Arbitration – always look a gift horse in the mouth

Posted on: July 12th, 2018
by David Ganje

Mandatory arbitration is a court of last resort. When one arbitrates under mandatory arbitration there is no appeal, or even a right of reconsideration of the matter by the arbitrator if something went wrong. One’s legal rights to challenge a final arbitration decision are very limited. The arbitrator’s decision is almost absolute.

I know. I have sat as an arbitrator and have represented parties in arbitration.

Arbitration is defined as an alternative to litigation in which the parties are required to put their dispute before an arbitrator. The arbitrator, for good or ill, and without the benefit of a black robe, makes the final decision on the dispute. If one’s agreement contains a mandatory arbitration clause, you can’t go to court. (There are minor exceptions, but we will save that for another sermon).

Mandatory arbitration clauses can be found in easements, real estate contracts, water rights agreements, some mineral rights contracts, business agreements, and are often found in a public contract, that is, a contract with a government body or agency. An arbitration clause is sometimes buried in the agreement’s terms particularly in consumer agreements. Consumer agreements containing arbitration clauses, as described by an old labor leader, are akin to negotiations between a lion and a lamb in which the lamb wakes up the next morning in the stomach of the lion.

I find it commonplace for parties, and their attorneys, not to seriously consider the issue of arbitration when negotiating the language to be placed in an agreement. Big mistake. Never approach a goat from the front. Never approach a horse from the rear. Never approach an arbitration clause from any angle unless you and your well-seasoned counsel, have weighed the pros and cons while in a sober state of mind. Arbitration is a shortcut to justice, but there are many pitfalls, cliffs, dark places and precipices along the way.

South Dakota statutory law enforces and encourages arbitration clauses. And regarding the legitimacy of arbitration the state Supreme Court stated as recently as this year, “The plain language of [state law], being clear, certain and unambiguous, does not provide for a right of appeal from an order compelling arbitration.” The South Dakota Supreme Court some time ago gave its official blessing to arbitration as a dispute resolution process: “This Court has consistently favored the resolution of disputes by arbitration.”

Arbitration is faster and less expensive than litigation. These are its two most compelling attractions. But one rolls the dice in arbitration in that one can never be sure of the wisdom, fairness and competence of the sole judge of the affair – the arbitrator. In some arbitration clauses the parties have a right to agree upon a particular arbitrator. Arbitration itself is a private process meaning it is not a public event. This can be advantage in several situations.

So what are problems with arbitration? I have already painted a pretty colored picture in this piece, but will here elaborate a bit more.

No appeals are allowed. In small-dollar conflicts the costs of arbitration are not always justified. The rules of evidence in arbitration are a bit loose and that can be problematic. A pre-hearing exchange of evidence between the disputing parties is not as well managed as it is in litigation. If an arbitrator does not carefully follow the relevant law dealing with the problem, the decision of that arbitrator will still stand as a final decision.

Judges are a bit different. A judge is constantly looking over his or her shoulder. A judge is, or at least should be, always considering the consequences of a decision from the point of view of another court — the appellate court.