Arbitration can be an alternative to trial litigation, especially in construction disputes.  Our attorneys can guide you through the arbitration process, as well as draft contracts to include arbitration clauses.  Each arbitration clause should be individually tailored to fit the client’s specific needs.

Here are some key highlights of Arbitration:

• Arbitration is a type of Alternative Dispute Resolution – an alternative process to settle a claim, as opposed to the traditional court process.
• The American Arbitration Association (AAA) governs most arbitration disputes in the United States.
• There are many different committees in the AAA that handle a large variety of cases including employment issues, government agencies, patent law, consumer disputes, etc.
• The AAA has a section titled the National Construction Dispute Resolution Committee (NCDRC).
• Over the past 30 years, the use of arbitration has become the preferred dispute resolution in the construction industry.  

In North Carolina, arbitration clauses in a contract are enforceable under North Carolina General Statute §1-569.6(a). However, there are times when arbitration is commenced without the parties having an arbitration clause in the contract. For example, cases filed in Mecklenburg County District Court, the court can require non-binding arbitration through a court order. This non-binding form of arbitration offers parties a chance to settle a claim before the actual commencement of a trial.

Benefits of Arbitration

Arbitration can have many benefits over litigation. On average, it can be less expensive and less time consuming than litigation. Arbitration can also be beneficial because instead of having a judge or a jury that does not understand the complex construction issues at play, arbitration is made up of one or more arbitrators who have training or expertise in the area. Generally, the awards granted in arbitration are binding and enforceable in court.

Another benefit of arbitration is the process itself. Since it is something that the parties contract for, the procedures can be modified by mutual agreement, which allows more flexibility than traditional court.  Arbitration clauses allow parties to contract for the criteria for selecting arbitrators.  Arbitration can be confidential, which can be a big benefit to a company seeking to remain out of public scrutiny. Since the parties contract for arbitration, they can specify the governing laws, discovery rules, statute of limitations, scope of the award, etc. The control that the parties have during the contracting phase is abundant which allows parties to know what to expect should a dispute arise. Unless the contract specifies who is responsible for arbitration costs, the parties are jointly responsible and subject to readjustment in the final award issued.

Types of “Tracks” in Arbitration

Arbitration disputes are categorized into three different tracks. The type of track vary depending on what committee of arbitration you are in, for example construction, consumer, employment, etc.  Listed below is a general break down, however the information listed may be different for each arbitration committee.  Each track has certain specific rules that may apply as well as timelines associated with it.  For example, “fast track” cases generally are resolved through arbitration more quickly than “large track” cases.  The nature and complexity that is generally associated with each type will determine how quickly the dispute gets resolved. The process for arbitrator selection can vary slightly for each track.

Fast Track– This is the default track for cases involving less than $75,000 and only involves two parties. A hearing for this type can take place via telephone to help minimize expenses, or in person. These cases are usually decided much faster, generally within 2 months. Cases that involve less than $10,000 will be determined based on document submission to the AAA unless a party requests a hearing.

Regular Track– This is the default track for cases involving claims between $75,000-$500,000. This type has a hearing component unless the parties agree not to have one. Usually, to select an arbitrator, the AAA will submit a list of five qualified individuals for the parties to select from or to make objections to.

Large, Complex Track– This track is available for cases where the claim is greater than $500,000. There are other specific rules for these types of cases in arbitration and they include more rigorous qualification standards for arbitrators and a specialized AAA administrative team assigned to the case. The selection process for the arbitrator(s) starts with the AAA submitting a list of ten qualified individuals for the parties to select from. Each party has time to make objections to any names listed.  If the parties are unhappy or unable to reach a decision the AAA has the authority to appoint the arbitrator(s).

Process

1. The arbitration process is triggered by a provision for arbitration in the contract. This, however, is not the only way to begin arbitration. Other methods include, if both parties later agree to arbitration to settle the dispute or the court orders arbitration.

2. A demand for arbitration is filed. This is a submission form to the AAA and to the opposing party, which outlines the claim and relief sought.  There is a filing fee which must be paid to AAA at the time arbitration is filed. The filing fee changes based on the amount in dispute, but can range from about $800 to $65,500 (for extremely large cases over 10 million).  This fee does not include costs of the arbitrators, hearing room rental, or other expenses.  The opposing party has between seven to fourteen days to file an answer to the claim and any counterclaims they wish to bring depending on which “track” their case falls under.

3. Once arbitration has been selected as the forum to hear the dispute based on the filing a demand, next the parties have to select the arbitrators. Unless specified otherwise, only one arbitrator will be appointed, however the parties can request more but the ultimate decision of the number of arbitrators is up the AAA. The initial filing fee for three or more arbitrators is $2,000. The parties can select anyone to be arbitrators. Sometimes the provision in the contract will determine who will be the arbitrator, but if that is left undetermined, then the parties are free to decide on their own. It is general practice for parties to select qualified persons or experts with training from the AAA. However, for disputes involving international trade, it is common for parties to select arbitrators from the International Chamber of Commerce.

4. Mediation may be the next step, depending on the wishes of the parties. This is not always required, but most parties consider mediation a viable option to first explore before arbitration begins. In mediation, parties negotiate with a neutral third party to attempt to reach a settlement on their own.  If a settlement is reached in mediation it is generally binding.  It is very common for Superior Courts in North Carolina to require mediation first and this is governed under N.C.G.S. § 7a-38.1.  During mediation parties have the right to have an attorney present.  A benefit to mediation includes an agreement that is within the party’s control, and not leaving it to panel of arbitrators to decide.  Mediation is also generally less expensive than trial and arbitration because of the time involved in trial and arbitration preparation tends to be greater than time involved in preparation for mediation.  Mediation through the AAA costs $250 plus any mediator time and charges incurred.  There is a four hour minimum on both room rental and mediator time.  This price does not include the rental of the actual mediation space, which varies from location to location.  Mediation does not stay (interfere with) the arbitration proceeding but if mediation is successful, arbitration is not needed.

5. If mediation is not successful the arbitration process continues. This will include discovery, or the exchange of information between the parties, as well as a preliminary hearing.

6. The AAA must give all parties at least a seven day notice to the hearing. Next, an arbitration hearing is conducted before a panel of arbitrators, unless it is a fast track case to be determined on the documents.  During this hearing both parties have the right to be represented by an attorney.  Each side will have the opportunity to present their evidence in order to help the arbitrators reach the decision. The arbitrators will then, upon conclusion of the party’s evidence, reach a decision.

7. Conclusion of the dispute occurs when an agreement is reached, either through mediation, or a decision is made by the arbitrators. The decision is mailed to the parties involved.  The award will generally be enforced by the court; however a decision from arbitration can be appealed.  Things that can be appealed during or at the conclusion of the arbitration process include:
   • an order denying an application to compel arbitration
   • an order granting an application to stay arbitration
   • an order confirming or denying confirmation of an award
   • an order modifying or correcting an award
   • an order vacating an award without directing a rehearing
   • a final judgement

Waiver

Generally, the court will find in favor for arbitration if such a clause exists in the contract. There is strong public policy for allowing parties to a contract to freely negotiate and contract with each other.  However, there are certain times when the court will find that one party did waive their right to arbitration.

The circumstances surrounding the dispute are closely scrutinized to determine if waiver has occurred.  Some things that the courts will consider, to determine if waiver has occurred, is the amount of litigation that has already occurred prior to the request for arbitration; the more litigation the more likely the court is to determine that waiver occurred.  Another factor is the prejudice that has occurred to the party due to the requesting parties delay in seeking the arbitration remedy.  If waiver of arbitration has occurred, the parties still have a remedy available to present their claim; it will just be in traditional court or mediation.

Conclusion

It is up to the parties to pay for arbitration costs on their own. The award can stipulate who pays, or the parties can contract for the cost of arbitration in the contract provision. Arbitration can be a faster, less expensive way to solve a dispute for many parties. Here, at the Tran Law Firm, we look forward to helping you through the arbitration process, from contract drafting to final resolution.

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