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Does that contract Arbitration Clause mean what you think it does?

Attorneys often recommend arbitration clauses in contracts as a means to resolve disputes arising out of the contract. It is often recommended as a less expensive, private, and less tedious alternative to litigation. However, there is no one size fits all arbitration clause, and if not drafted properly, they can cause more harm than good.  Here are some points to review before you sign away your organization’s litigation rights:

  • Who is your Arbitrator? Did the parties come to an agreement as to how many Arbitrators there will be? Do you need one or three?  What qualifications should they have? If the contract matter is specialized, you may want to consider an arbitrator with qualifications in that subject matter.
  • Which rules will you follow? AAA rules? Federal Rules of Civil Procedure? Will there be discovery, depositions, when will it take place? These factors are important considerations in the event a contract dispute results and you have to actually use your arbitration clause.
  • Watch out for timelines! You want a quick result but don’t want a trial by fire situation.  Be sure the time frame in which the arbitration is to be conducted is reasonable.
    Forum Selection Clause is important.  Do you want a specific state’s law to control the interpretation of the contract clause? Should the action to be in State or Federal Court? How the language is drafted can have unintended consequences.
  • Do you want a reasoned opinion and findings of fact? Do you want the ability to appeal?  Naturally if your party wins, you would want that to be the final binding decision. But what if you are on the opposite side of the coin? This is a risky decision that should be made thoughtfully.
  • Is there a Confidentiality Agreement? Do you want one? The answer to this is trickier than it sounds.  If your company wins the arbitration, you may want to be able to show the verdict to third parties who are repeating your opponent’s mistakes.

These issues just touch on the basics and the answer depends on the client, the opponent, and their industries.  A thorough evaluation of the drafted language should be reviewed prior to executing an agreement or you may have to deal with unintended consequences later.  For more on this issue, contact the attorneys at Dalton & Tomich, PLC.

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