The decision of a business include an arbitration provision in a contract or to sign one that includes it should be made in connection with consultation with counsel as there are significant aspects for the business to consider that are relevant and critical to its decision making process. Depending on the structure of the business, making this decision without consulting the business' attorney may even expose the manager(s) to liability for violating their duties to the business and/or its shareholders or members.
Arbitration is akin to conducting a private trial out of court. There are no judges or juries, only an arbitrator that the parties have selected. The rules, if any, are generally more relaxed than in court, but there are some drawbacks to consider. The parties can select a particular organization and its rules to govern their arbitration, however, the cost and time to arbitrate can actually exceed the cost and time of litigating in court. Also, the lack of a defined procedural structure, like those applicable to disputes in a court, can actually inhibit the efficient, impartial, and fair adjudication of claims. However, the nature of the dispute and the method by which the parties operate their business may benefit from by keeping the dispute private, limiting appeals of disputes, and reducing the chance of precedents that may impact the future operations of a business. Clearly, each situation is unique and must be carefully analyzed and considered in light of the applicable circumstances.
The most appropriate method for a business to make an educated and informed decision about whether to sign a contract that requires arbitration of all or certain disputes or to include such a provision in a contract is to fully discuss the benefits and drawbacks with qualified legal counsel. If your business believes it is best served to save that cost by making the decision alone, then consider that your business will likely spend much more later to litigate or defend the enforceability and validity of a contractual arbitration provision.
By way of guidance, if you don't already have qualified legal counsel for your business, contact your State's Bar Referral Program, such as the Florida Bar, which can be found at http://www.flabar.org. Certain States recognize and certify attorneys for their expertise and experience in particular areas of the law. For example, Florida Bar Board Certified Business Litigation attorneys are experts in business litigation and can provide competent and comprehensive advice regarding whether a particular arbitration provision is appropriate for your business and its circumstances.
This article is not meant to provide legal advice or to form an attorney-client relationship; it is meant only to provide general information about this topic. To view videos and articles about this and other business law related topics, please visit my website at http://www.davidsteinfeld.com/
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