Who Benefits From Mandatory Arbitration Clauses?

{3:15 minutes to read} 

Arbitration is a form of alternative dispute resolution that can take the place of traditional litigation. Arbitration is very different than traditional litigation in court, and the process has various advantages and disadvantages.

A party can only be required to submit a dispute to arbitration if all of the parties have agreed to do so – either in advance, such as in a written agreement between them, or after the dispute arises. Arbitration can provide consenting parties with an effective and desirable alternative to litigation. On the other hand, arbitration can also result in the loss of rights and safeguards to parties, many of whom would not knowingly consent to the loss of such rights and safeguards if they had a choice.

To consenting parties who willingly and knowingly agreed to arbitrate disputes, advantages of arbitration include speed and cost containment. Typically in arbitration, both discovery and motion practice can be limited, thereby curtailing, or at least cutting down, on the time it takes to litigate a case and some of the most significant costs. On the other hand, when a party goes to arbitration he loses his right to a jury trial and his right to appeal. While a losing party can go to court to seek to vacate an arbitration award, courts show great deference to arbitration; the grounds upon which a court may set aside an arbitration award, both under the Federal Arbitration Act and New York law, are narrow. In addition, the limited discovery may prevent him from obtaining information necessary to make his case. And, as discussed at length in the first of a three part series on arbitration in the New York Times, parties are often required to sign arbitration clauses that bar people from joining in class actions (“Arbitration Everywhere, Stacking the Deck of Justice,” November 18, 2015).

The decision of whether or not to go to arbitration is an important one and should be made by a client in consultation with his attorney – if the choice between arbitration and traditional litigation exists.  And therein lies the rub!

Stay tuned for part two!


Under the Federal Arbitration Act (9 U.S.C. §10 (a)), a court, on motion, may vacate an arbitration award “(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators…; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

Under New York law (CPLR 7511 (b) (1)), an arbitration award shall be vacated “…if the court finds the rights of [a] party were prejudiced by: (i) corruption, fraud or misconduct in procuring the award; or (ii) partiality of an arbitrator appointed as a neutral; except where the award was by confession; or (iii) an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made; or (iv) failure to follow the procedure of this article, unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection.”

Reference to the New York Times articles is not intended to endorse the conclusion or opinions expressed in them. Part I of the series, however, provides examples of the types and impact of class action bans that parties are increasingly being required to sign, as well as the justifications advanced by businesses for including the bans.  

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