Arbitration of real-estate transaction.

Full Question:

Entered into contract to purchase vacant lot from Wachovia bank for $10,000. Contract calls for binding arbitration. Bank now refuses to sell lot to us since it costs bank approx $18,000. to clear title and close escrow. American Arbitration Association says we need to petition court for appointment of arbitrator, since no one was specifically named as arbitrator. What form do I use?
05/28/2009   |   Category: Arbitration and Me...   |   State: California   |   #16812


As a general rule, one should read the agreement carefully to learn the procedure stated in the agreement for appointing an arbiter.

Arbitration: Law & Legal Definition.
Arbitration is an alternative means of setttling a dispute by impartial persons without proceeding to a court trial. It is sometimes preferred as a means of settling a matter in ordert to avoid the expense, delay, and acrimony of litigation. There is no discovery and there are simplified rules of evidence in arbitration. The arbitrator or arbitrators are selected directly by the parties or are chosen in accordance with the terms of a contract in which the parties have agreed to use a court-ordered arbitrator or an arbitrator from the American Arbitration Association. If there is no contract, usually each party chooses an arbitrator and the two arbitrators select a third to comprise the panel. When parties submit to arbitration, they agree to be bound by and comply with the arbitrators' decision. The arbitrators' decision is given after an informal proceeding where each side presents evidence and witnesses. Arbitration hearings usually last only a few hours and the opinions are not public record. Arbitration has long been used in labor, construction, and securities regulation, but is now gaining popularity in other business disputes.

Title 9 of the U.S. Code establishes Federal law supporting arbitration. It is based on Congress's plenary power over interstate commerce. Where it applies its terms prevail over state law. There are, however, numerous state laws on ADR. The majority of states have adopted the Uniform Arbitration Act as state law. Thus, the arbitration agreement and decision of the arbiter may be enforceable under state and federal law. In 1970, the United States joined the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Some arbitration proceedings are mandatory, such as many labor disputes. Other arbitration proceedings are incorporated into contracts in the event of a dispute. Couples who sign cohabitation agreements or divorce agreements often include a clause agreeing to go to arbitration if any dispute should arise, thereby avoiding the delay, expense, bitterness and formality of litigation. Companies may seek arbitration of disputes for public relation reasons, so as to avoid the negative publicity of a trial.

Arbitration: US Legal Law Digest.

Arbitration refers to one of several methods, collectively referred to as "alternative dispute resolution" (ADR), for resolving legal disputes other than through a formal court system. Arbitration is very similar to a trial in court, except that the claims and defenses are presented to a privately-retained neutral party ("arbitrator" or "arbiter") rather than a judge or jury. After listening to summary arguments and considering all the evidence presented in a dispute, an arbitrator renders a decision tantamount to a court decision or judgment.

Since it is intended to substitute for a trial, formal arbitration is generally as binding as a court adjudication. Therefore, like it or not, a decision of an arbitrator may be appealed only under very narrow circumstances and criteria. (In fact, the arbitration agreement may designate that the decision is final and binding and cannot be appealed.) However, some forms of arbitration may be expressly designated as "non-binding." In those circumstances, one may accept or reject the arbitration decision and continue with litigation in the courts.

Arbitration has become a preferred alternative favored by both courts and parties for resolving disputes. All 50 states acknowledge some form of arbitration for the resolution of certain disputes. A majority of states (48 as of 2002, excepting Georgia and Mississippi) have adopted the Uniform Arbitration Act (UAA) and/or its revised version, published in 2000, or substantially similar legislation. Washington, D. C. and Puerto Rico also have adopted versions of the Act.

The use of arbitration has greatly expanded in recent years, because of the fast resolution of disputes, and the relative consistency and near-uniformity in procedural requirements (thanks to the UAA). The arbitration process also affords the parties a degree of privacy for sensitive or personal matters. Health care providers and insurance companies almost universally favor arbitrations because of the opportunity to avoid the publicity of court trials and jury verdicts.

Contractual versus Compulsory Arbitration.
Voluntary arbitration refers to an agreement entered into by two or more parties who choose to arbitrate a matter rather than litigate the matter in court. The agreement is a binding contract, and if a dispute later develops, one cannot choose to ignore the arbitration agreement and file suit instead.

But arbitration is not "compulsory." It simply means that persons have voluntarily agreed in advance to arbitrate any future disputes and cannot back out of that agreement once a dispute arises. Failure to abide with "contractual arbitration" as agreed constitutes a breach of the agreement. If an individual has entered into such an agreement and later decides to file suit instead of arbitrating the dispute, the other person or party may take that individual to court to compel arbitration.

One of the most common circumstances where this situation arises is in the health care and insurance industries. When individuals enter a hospital for treatment or care, or fill out "new patient" forms for a physician, they may be asked to sign a document in which they agree to arbitrate any dispute which may arise. If they later attempt to sue the doctor or hospital for malpractice or a billing dispute, the agreement they signed will be presented to the court and their lawsuit will be dismissed and/or the court will order them to arbitrate the matter. The real danger in having their case dismissed is that the time limit for filing a dispute in arbitration may have expired while they were attempting to file a lawsuit in court (in some jurisdictions, a court may "stop the clock" to provide them with enough time to dismiss their court case and file it in arbitration). The lesson to learn is that they should carefully read all documents their health care provider may present to them prior to treatment or care, and they need to be always be certain to retain a copy for their records.

In many states, laws prohibit health care providers from refusing to treat individuals if they will not sign a voluntary arbitration agreement. On the other hand, only in rare circumstances will a court permit them to "set aside" a signed agreement to arbitrate and allow them to file suit instead. Usually, they will have to prove to the court that they did not sign the arbitration agreement "voluntarily." For example, there is some legal precedent for allowing agreements with health care providers to be set aside (making them "voidable") when evidence shows that they were signed while under extreme duress or in pain, semi-conscious, etc. In even more rare circumstances, a court may find an agreement to arbitrate "unconscionable" as against public policy and determine it to be null and void.

It is common practice for insurance policies (e.g., automobile, home, health, etc.) to contain language that commits an insured to the use of arbitration in the event of a dispute with the insurer. Many insureds do not realize that such language is contained in the lengthy policy language at the time they apply for insurance coverage. It often remains unknown and unrealized until a dispute arises and the insured attempts to sue his or her insurance provider. In most insurance policies, the agreement to arbitrate is not a separate document, but rather a statement contained in the policy, such as, "You agree to arbitrate any dispute relating to …" Individuals who sign the application for insurance coverage and have a policy issued to them have agreed to those terms.

On the other hand, "compulsory arbitration" is generally the result of express statute or regulation that mandates the arbitration of certain matters. The most common of these is the mandatory arbitration of labor disputes. If individuals are members of a union, the bargaining agreement for their bargaining unit will most likely contain provisions for the arbitration of all disputes.

One of the most compelling reasons for mandating the arbitration of certain matters is that such matters tend to be very complex, specialized, or too time-consuming for a general jury trial. For example, a dispute over a provision in the Internal Revenue Code may be technically complicated. Instead of a jury trial, arbitration will provide the opportunity for appointment of a neutral arbitrator or panel of arbiters who may be knowledgeable and experienced in tax matters and can more readily understand the arguments presented. The "State Provisions" Section below summarizes key areas where states have mandated compulsory arbitration of certain matters.

If the subject matter of a particular dispute falls within the scope of subjects that the parties agreed in advance to arbitrate, then the particular dispute is "arbitrable." However, many disputes involve multiple issues, not all of which were contemplated when the arbitration agreement was executed. For example, a claim may state an arbitrable issue of wrongful discharge from employment. But the defense may raise an issue of untimely filing of the claim or some other procedural error or fatal flaw on the part of the complainant. Who decides that?

Most federal and state appellate court decisions have concluded that the only proper inquiry that a court should make, on a motion to compel arbitration, is (1) whether there exists a valid agreement to arbitrate between the parties, and (2) whether the agreement covers the dispute at hand. All other issues, particularly defenses such as untimeliness, collateral estoppel, res judicata, etc., should properly be decided by the arbitrator.

If such an event should occur (the raising of an issue not related to the subject matter of the dispute at hand), the arbitrator may render one decision covering all or may be forced to render a separate opinion on the "arbitrability" of the separate claim or defense, without ever reaching the main issue of the dispute. Still, sometimes the arbitrability of the main issue is, in itself, the actual dispute, as often occurs in labor contracts.

Who Are the Arbitrators?
The majority of arbitration agreements contain provisions governing the selection and appointment of an arbitrator or arbitration panel. Private arbitration contracts may designate any person or any method for choosing a person or persons as arbitrators. If an arbitration panel is elected (usually comprised of three persons), each party may nominate or appoint one arbitrator, and both sides will decide on a "neutral" third person. Or, the parties will each select one arbitrator, and the two arbitrators will then select a third "neutral." Alternatively, three "neutrals" may be selected by having each party alternately strike names on one list until only three names remain. In single-arbitrator arbitrations, an external source of available arbitrators is often consulted.

The American Arbitration Association (AAA) is the largest full-service ADR provider in the United States. It maintains a National Roster of Arbitrators and Mediators (containing nearly 17,000 names and resumes as of 2002). The persons named on the Roster have been nominated by leaders in their industry or profession. The AAA has strict criteria for its Roster members, and those selected are generally recognized for their standing and expertise in their fields, their integrity, and their dispute resolution skills. Many are attorneys, but being one is not a requirement. Many arbitration agreements expressly designate the use of AAA as the preferred source for arbitrators.

Under the Federal Arbitration Agreement (FAA) (see below), if an arbitration agreement does not contain a provision for the naming or appointing of an arbitrator, "the court shall designate and appoint an arbitrator …" (9 USC Section 5).

The Arbitration Process.
The arbitration process generally begins with the filing of a request for arbitration. This action may be performed by direct application to the forum designated in the private arbitration agreement or by court order. Parties who simply wish to arbitrate a matter should contact a local entity that offers arbitration services. Often, a local circuit or district court may have information or services available. There are several national organizations that also offer local arbitrations or supply lists of arbitrators (see listings below).

The chosen forum will most likely furnish the parties with a copy of rules and procedures. Attorneys may or may not represent the parties. Generally, an arbitration hearing parallels a court trial, in that there is the taking of testimony from witnesses and the introduction of evidence. However, many arbitrations are conducted on the basis of "summary briefs" from each party, which outline the issues and the arguments in document form. Arbitration decisions are always in written form. A decision may or may not be appealable, depending on the forum and the agreement of the parties.

The Uniform Arbitration Act (UAA).
The Uniform Arbitration Act, promulgated in 1955, has been overwhelmingly adopted by state legislatures and federal district courts for alternate dispute resolution. Its popularity derives from the advantages of uniformity and thoroughness, and in 2000, the National Conference of Commissioners on Uniform State Laws approved and recommended a revised version of the UAA for enactment in all the states. The UAA provides a structured procedure to be followed in all arbitrations, and, most importantly, includes details addressing matters that are often overlooked in privately drafted arbitration agreements. The revised UAA includes provisions not addressed in the original UAA, but deemed important as a result of the increased use of arbitration. Some of the new provisions address matters such as (1) who decides the arbitrability of a dispute and by what criteria; (2) whether arbitrators have the discretion to order discovery, issue protective orders, decide motions for summary judgment, etc.; and (3) to what extent arbitrators and arbitration organizations are immune from civil lawsuits.

Arbitration Organizations:

The American Arbitration Association (AAA)
335 Madison Avenue, Tenth Floor
New York, NY 10017-4605 USA
Phone: (212) 716-5800
Fax: (212) 716-5905

The American Bar Association (ADR Section)
740 15th Street, NW
Washington, DC 20005 USA
Phone: (202) 992-1000

Both US Legal and the American Arbitration Association have forms for appointing arbiters.

Please see the American Arbitration Association information at the following links: