Arbitration has been a part of conflict resolution since King Solomon settled the dispute between two women both claiming to be the mother of the same child. George Washington refers to arbitration in his will. In Texas, the first formal reference to Arbitrated Dispute Resolution, ADR, was in 1845, Article 7, Section 15 of the Texas Constitution, priorities still reflected in Texas courtrooms today. Crowded courts, along with the time and expense of formal court proceedings, have led people to turn to other options, such as mediation and arbitration to help resolve disputes. Designed to allow guidance from an objective third party, arbitration often leads to resolution more quickly and with less expense than typical courtroom proceedings.
Definition of Arbitration
When a dispute arises that parties cannot resolve on their own, arbitration may be a helpful process for them. In arbitration, either one person or a panel of three people, called arbitrators, conduct a hearing during which each party presents its concerns. Arbitrators can be voluntary or paid. Frequently, professional arbitrators are provided by an impartial arbitration service which determines the rules and sets fees for the arbitration process. These arbitrators themselves function similarly to how a judge might function in a courtroom, hearing opening and closing arguments and testimony from witnesses and other experts. From the information presented, the arbitrators weigh evidence and make a decision in the form of an award which, according to the Texas Arbitration Act, is usually enforceable in court.
Qualities of a Good Arbitrator
George Washington described the ideal arbitrator as “impartial and intelligent…known for probity and good understanding.” An arbitrator must be objective, impartial not only to the conflict but also to the parties involved. In fact, if an arbitrator is directly involved in the conflict or is partial to one of the parties, the process may no longer qualify as arbitration. Manes v. Dallas Baptist College, 638 S.W.2d 143, 6 Ed. Law Rep. 417 (Tex. App.—Dallas 1982), writ refused n.r.e., (Dec. 15, 1982). An expert in a topic is not equivalent to an arbitrator since offering an expert opinion is different from arbitration. A mediator also differs from an arbitrator; Although both work with disputing parties to provide a resolution, the mediator moves between parties during the mediation process, discussing workable solutions ultimately reflected in a mediated settlement agreement. An arbitrator hears from each party but does not meet separately with each party to facilitate a suitable compromise.
The Arbitration Process
The arbitration process begins with an arbitration agreement, meaning that each party must agree to the arbitration process and adhere to its rules. Contracts often include an arbitration clause which outlines the rules and expectations of arbitration and commits the party to resolving disputes by arbitration. This arbitration clause is usually located in the last few paragraphs of the contract.
An arbitration clause usually identifies the organization that will provide arbitrators and set rules for the procedure. Using such a provider helps the arbitrator maintain impartiality by eliminating the need to interact with the parties about logistical concerns such as a time and place for hearings. The provider usually contacts the parties to set up a pre-hearing conference to discuss when and where to meet as well as other issues relevant to the hearing itself. The hearing is not public. Each party presents its case to the arbitrator or panel of arbitrators. After each side presents its case, the arbitrator makes an award, following the arbitration rules and agreements the parties accepted. The party who prevails in the dispute may choose to have the court confirm the award, making it enforceable.
Laws Governing Arbitration
Both federal and state laws regulate the arbitration process. Determining which has jurisdiction depends on the circumstances of the arbitration. In general, the Federal Arbitration Act applies to all arbitrations. However, in the case of GeoSurveys, inc. v. State Nation Bank, the court determined that arbitration should align with the statute as defined in the arbitration agreement. GeoSurveys, Inc. v. State Nat. Bank, 143 S.W.3d 220 (Tex. App.—Eastland 2004). If, for example, the arbitration agreement specifically states that the Texas Arbitration Act applies, then the TAA will supersede the FAA. Cooper v. WestEnd Capital Management, L.L.C., 832 F.3d 534 (5th Cir. 2016). Federal courts may compel arbitration under the FAA in certain situations, however, such as if a jury trial in civil cases is required, if the dispute involves interstate commerce, or if state law compromises enforceability of the agreement. In re D. Wilson Const. Co., 196 S.W.3d 774, 211 Ed. Law Rep. 519 (Tex. 2006), Vaden v. Discover Bank, 556 U.S. 49, 129 S. Ct. 1262, 173 L. Ed. 2d 206 (2009).
Arbitration offers many advantages over court proceedings, privacy, efficiency, and de-escalation of conflict, to name just a few. However, it does have disadvantages, as well, complicating the decision about whether or not to arbitrate. A lawyer familiar with arbitration and litigation will help navigate the rules, policies, and procedures of both the FAA and the TAA and reach the best possible outcome for everyone involved.
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