What You Should Know if You Choose Arbitration for Your Small Claims Suit

Arbitration means submitting the small claims dispute to a disinterested third party who conducts a hearing and renders a decision that may or not be binding. The two types of arbitration are

  • Arbitration that’s offered by the court system instead of by a judge.

  • Arbitration required by the law or by wording in a contract to resolve a dispute.

Arbitration is often used in small claims court to try to settle a case before it goes to court. Generally both sides have to agree to arbitration if it’s offered as an alternative to a trial.

Some contracts contain an arbitration clause, so you may have agreed to use arbitration by a recognized arbitration service when you signed a contact with the defendant. This type of arbitration is often more expensive than the small claims process.

If you use independent arbitration outside of the court system, the finding of the arbitrator is called an award or a decision.

If you want to challenge the award of an independent arbitrator, you may have to bring a civil action to either enforce the award if you won or vacate the arbitration ruling if you lost.

Arbitration through the court system

In many states, arbitrators are lawyers who volunteer their time to help in small claims court. The arbitrator conducts a trial, referred to as a hearing.

To use arbitration provided in the court system, both sides must agree to participate. If they don’t a judge decides the case.

One advantage of using arbitration is that the rules of evidence are even more relaxed than in a small claims trial before a judge.

One advantage of using arbitration is that your case will probably be heard the day or night it’s scheduled, because there are usually many arbitrators present to assist but only one judge. So if you’re in a hurry, the arbitrator is the quicker avenue.

Arbitration by contract

Numerous private entities provide arbitration services. These companies work primarily in business disputes. You and your opponent may voluntarily seek out an arbitration company and submit the dispute to be decided under the terms and procedures of that company. In some cases, having signed a contract commits you to settle any dispute through arbitration.

You can have the case submitted to a single arbitrator or a panel of arbitrators, usually made up of an odd number of people to avoid stalemates.

The two types of contractual arbitration are:

  • Binding arbitration means that you agree in advance to accept the ruling of the arbitrator and not go to court.

  • Non-binding arbitration allows the losing side to go to court and have a trial on the very same issues that were before the arbitrator.

    If an arbitration decision goes against you, you may opt for a trial afterward, despite the substantial costs involved. You may feel that you know why you lost and be confident that you can convince a judge that your position is correct and the arbitrator is wrong. But going to trial sort of defeats the idea of arbitration — to keep out of the court system.

If the arbitrator awards you money and the losing party refuses to pay, in most states, the winning party can go to court and have the arbitration award upheld as if it were a court order by bringing a new action in court to convert the arbitration award into an enforceable judgment.

Because you agreed to the procedure, it’s very difficult to convince a court to reverse an arbitration award even if there were mistakes of law or fact by the arbitrator.

Arbitration allowed by statute

Each state has certain laws that give people the right to arbitrate disputes rather than go to court. A law in your state may allow you to file a complaint with the state agency that regulates the business you plan to sue, for example. Instead of going to court, you have a hearing with a regulatory agency.

A common example of statutory arbitration is with lemon laws, which give new and used-car buyers recourse in the event the cars they buy are defective. In many states, lemon laws govern the sale of motor vehicles and provide a forum for the resolution of disputes without the use of the courts.

Arbitration clauses

You may not know it, but you may have agreed to have certain disputes resolved by arbitration when you signed a contract.

Arbitration clauses are common in consumer credit agreements and Internet purchase contracts. If the contract you signed has an arbitration clause, you’ll end up in arbitration rather than in the courtroom if you have a dispute with whomever you signed the contract with.

If you start your small claims action and the defendant produces a contract showing that you agreed to private arbitration to resolve all disputes, almost all courts honor such an agreement because you accepted the terms of the contract containing that language.

Only if you can somehow show that the arbitration process is really unfair or would violate some of your constitutional rights would a court even consider voiding the arbitration clause and letting you stay in small claims court.

Some of the arbitration forums selected by the businesses seeking to enforce the clause are really inconvenient. For example, the arbitration may take place in another state or have fees that are far in excess of those of the small claims court.

Some courts find that such clauses violate the plaintiff’s rights because they discourage the unrepresented consumer from participating in the process, leading to the business winning many claims on default — which, of course, is the business’s intent all along. If you agreed to submit your disputes to private arbitration, and you don’t participate, the defendant can still submit his side to the arbitrator, resulting in an award against you.

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