Posts Tagged ‘Arbitration Fairness Act’

Arbitration is Stronger in 5th Circuit, but is there a Dark Side?

On March 17, 2009 Author By Scott Wolfe Jr        

Does Arbitration Have Warts?

Over the past twenty years, Alternative Dispute Resolution processes like arbitration have become mainstream in the American legal system.

Once considered a creative solution to the expensive and unpredictable legal system, it appears that these ADR procedures may themselves have warts.

The question of whether the “vanishing trial” phenomenon is a good or bad thing is not necessarily a new question…but the latter description does seem to be gaining some steam.

Take for example an interview in this month’s ABA Journal with “Lion of the Bar” Joe Jamail, who had this to say about arbitration and mediation:

Do you know what the root of mediation is?  Mediocrity!  The move to replace jury trials with mediation and arbitration is actually an effort by elitist in our society to control how disputes are decided.

Mr. Jamail isn’t the only one with this opinion of ADR.  In 2007, the Arbitration Fairness Act was introduced to the U.S. Senate and, according to the Wall Street Journal, would effectively do away with mandatory arbitration agreements used widely in many industries.

This legislation and opinion isn’t unprecedented – take, for example, the Brazilian Arbitration Act and its disfavor for arbitration agreements in “contracts of adhesion.” These opinions, of course, notwithstanding the recent study that found arbitration to be mildly favorable to consumers.

Also, remember that one of the most significant changes to the AIA contracts documents in its 2007 edition was to the dispute resolution articles, now allowing parties the option of selecting ADR.

Arbitration Agreements Grow Stronger in 5th Circuit

Despite the rising controversy over whether arbitration and ADR are positive or negative alternatives to traditional litigation, the U.S. Fifth Circuit Court of Appeals published two important opinions this past month regarding agreements to arbitrate.

First, in Agere Systems, Inc. v. Samsung Electronics Co., Ltd, the 5th Circuit held that the question of arbitrability should be decided by an arbitatror, and not the court.

Second, just last week in Citigroup Global Markets, Inc. v. Bacon (appeal from S.D. Tex), the 5th Circuit reserved a district court decision vacating an arbitrator’s award for “manifestly disregarding the law,” stating that the manifest disregard of law by an arbitrator is not a reason to vacate an award.

Law.com published an article about this important ADR opinion, either underlining or exaggerating the ruling by stating:

Abandon all hope, ye who seek to overturn an arbitration award, because the 5th U.S. Circuit Court of Appeals has ruled that manifest disregard of the law by arbitrators is no longer a ground for vacatur under the Federal Arbitration Act.

The 5th Circuit’s March 5 decision in Citigroup Global Markets Inc. v. Bacon will make parties think twice — or three times — before agreeing to submit to arbitration to settle their cases.

What Does It All Mean?

This much appears clear: (a) The role of ADR is growing; (b) the debate of its value rages; and (c) arbitration agreements are stronger than ever.

At the Construction Law Monitor, we have discussed ADR options and their pros and cons. When a dispute arises, it can be costly, lengthly and/or devastating to your company. It’s important for all businesses to consider the dispute resolution options out there.

Whether arbitration is the best option for your business or construction project should not be a foregone conclusion.

Like litigation, arbitration and ADR has its fair share of warts, and with the most recent rulings from the 5th Circuit, those considering arbitration ought be cautious in case the nay-sayers turn out to be right.

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Arbitration: Looking Like a Good Thing for Consumers

On March 11, 2009 Author By Wolfe Guest        

Arbitration is looking better and better everyday to consumers. Though it may not seem to have a major impact on the construction industry yet – arbitration agreements are commonplace in your agreements.

It doesn’t matter whether you are a general contractor, subcontractor, supplier, renter, or consumer – the fact is you will likely run into a binding arbitration clause that will require you to bring your claims for product liability, design liability, delivery or installation before a private neutral.

But is this good for you as claimant, or is this one big bad frightening risk of loss?

Recent legislation has been proposed by the federal legislature which would seek to limit arbitration “coercion.” The bill is entitled the Arbitration Fairness Act and has been presented by Congressmen Durbin and Feingold.

The bill’s supporters believe that U.S. consumers have been harmed by being forced to appear before hand-selected arbitration forums caused when vendors place binding clauses in their sales contracts, slips and invoices.The general belief, as put forth by Mr. Nathan Koppel of the Wall Street Journal’s Law Blog, is that arbitration outfits tend to side with corporate defendants in order to shore up continual and future use of their venues.

But a new study by Northwestern Law School suggests that consumers generally come out on top and that their claims are heard in under seven months, far shorter than a state or federal court disposition, which may take up to two years. The study included an examination of a relatively small sample of over 300 cases, and it is uncertain how cases were selected.

The study does show that there is not such a wide discrepancy in rulings, as was once thought to be. You can read about the study on their website, and follow updates of commenting correspondents.

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