If you’ve ever agreed to the “terms and conditions” of any commercial relationship in which you are a party (and just about everyone has done this numerous times), it’s highly likely that you agreed to be bound by a clause dictating a particular method for how disputes would be resolved. If you read the actual language contained in the document that you agreed to be bound by, you would likely have found that the preferred method for resolving any disputes is arbitration. Your agreement thereby prohibited you from seeking any sort of redress for your claims in a court of law and also prohibited you from participating in a class action against the company with whom you were working. Because these clauses are so prevalent, I thought it would be beneficial to take a look at them and go over what they are and how they work.
For the past several months, I’ve been writing a series of articles on the overall topic of asset protection. Rather than delving into the traditional use of legal entities and particular protection strategies, I’ve focused these articles on how to protect assets before they ever arise through the use of alternative dispute resolution approaches. Many lawsuits arise as a result of customers and/or clients who are dissatisfied with a company in how they provided or failed to provide a product or service. Generally, they are unhappy with how their customer service issues surrounding their dissatisfaction was handled (or not handled) by
the company. While improving customer service is always important in seeking to avoid these lawsuits, the one thing that we can always count on is that you will never be able to please everyone and people often get upset. That’s why we’ve got to have a plan for how to address the prospect of disputes.
To reiterate how I’ve been approaching asset protection through these articles, the following areas are all good approaches to effectively managing and mitigating conflict:
- Communication
- Documentation
- Negotiation
- Mediation
- Arbitration
- Litigation
This month’s focus is on the use of arbitration as a means of protecting assets.
To begin, we’ve got to take a look at arbitration in general. To do that, a brief glimpse of the definition should prove helpful. According to JAMS (www.jamsadr.com), one of the leading providers of alternative dispute resolution services, Arbitration is the most traditional form of private dispute resolution. Arbitration is a binding procedure. It is often “administered” by a private organization that maintains lists of available arbitrators and provides rules under which the arbitration will be conducted. Such organizations can also manage the arbitration in whole or in part. Parties often select arbitrators on the basis of substantive expertise.
Arbitration is adjudicatory, as opposed to advisory, because of the fact that the arbitrator (usually a retired judge or attorney) renders a decision at the end of an arbitration hearing, and that decision is final and binding, subject only to a very limited court review. Arbitration is sometimes referred to as “non-binding” if the parties agree to make it so, but that is really a misnomer. Think of arbitration as a binding, adjudicatory process.
Some key takeaways from the above-listed definition of arbitration are:
- This is a process handled outside of the traditional court system;
- It is a binding procedure;
- It is administered by a qualified legal professional generally with expertise in the particular subject matter at the heart of the dispute; and
- It is meant to be final at the conclusion of the hearing.
As you can imagine, this process is tremendously expedited in comparison to litigation as a means of resolving disputes. Rather than engaging in a long, drawn out, costly process in which the clock is ticking and the legal fees are growing, arbitration offers much quicker resolution. When comparing it to the process of mediation covered in last month’s article, it’s important to note that mediation is usually not binding and may often end without any sort of resolution. Arbitration is more formal and more closely resembles the court system since the arbitrator effectively exercises the role of a judge and his or her decision must be followed.
Another thing to keep in mind when it comes to arbitration is that there are specific rules that apply to specific situations. In particular, arbitration clauses contained in contracts and/or legal documents such as terms and conditions will often reference which rules apply. These may be the rules outlined by organization such as JAMS (mentioned earlier) or the American Arbitration Association. Each of these organizations has multiple sets of rules for particular industries as well as those intended to “expedite” or “streamline” the process. Choosing the applicable rules to follow is an important consideration when choosing how to state an arbitration clause in one’s documentation.
As I stated in last month’s article, I firmly believe that every on- line (or offline) marketer needs to have a clearly stated dispute resolution policy as part of their documentation. Whether this is a mediation clause, an arbitration clause, or even a blending of the two is up to you. Personally, I like to follow the approach that I’ve been following through these articles which is to begin with negotiation and if that doesn’t work, try mediation. If the mediation is unsuccessful, then take things to arbitration. The objective of this approach is to avoid litigation as much as possible.
In next month’s article, we’ll be taking a look at litigation and I’ll provide you with some of the reasoning behind my resis- tance to it. However, I will also address some of the reasons why some companies and/or individuals choose to utilize it as a stra- tegic move.
If you’d like to learn more about arbitration or other forms of alternative dispute resolution, the JAMS website (www.jamsadr. com) and the American Arbitration Association website (www. adr.org) are two outstanding resources. While some of the information can be a bit technical and get into the use of legalese, there is an abundance of information that I’m sure you will find useful.
As always, I want you to know that I’m happy to talk with you about how you can implement a plan for your business to protect your assets. In my law practice and educational training programs, I provide assistance with strategies that will help you to do so. Rather than simply taking one’s chances with costly litigation, I always focus on mitigating the challenges through alternative dispute resolution strategies as well. Through the programs and services that my company and I provide, clients and students can learn and implement important strategies for covering their assets. To learn more, visit my website at www. jjchilders.com.
