Arbitration is a form of alternative dispute resolution that is agreed upon by the parties. Instead of bringing a case into the state or federal courts, parties may agree to select a third-party neutral to determine the outcome of their dispute. An agreement to arbitrate is often a contractual obligation. We often see this at our firm in the form of builder contracts that include an arbitration clause. The typical builder arbitration clause requires the parties to submit all disputes to arbitration regardless if it is a payment dispute, breach of contract, construction defect, fraud, CCPA, or other claims. However, parties may agree to arbitrate a dispute independent of a contract.
Arbitration is different from the court system is several ways. Arbitration can be faster and cheaper, but the arbitration decision is final. Colorado courts encourage and favor agreements to arbitrate. Lane v. Urgitus, 145 P.3d 672 (Colo. 2006). Arbitration tends to be less formal than court and can be tailored to the needs of individual cases.
First, the parties select their arbiter, the person who will decide the case. Arbiters are often other lawyers or retired judges, but the parties are not restricted to selecting an arbiter within the legal profession. Several arbitration groups exist like the Judicial Arbiter Group (JAG) and the American Arbitration Association (AAA). This means there is no jury; only the arbiter (or sometimes a panel of arbiters) decides the dispute.
Another major difference between arbitration and court is that the parties must pay for the arbiter’s time. A state or federal court judge is not a private entity and serves the public and all cases that fall within the court’s jurisdiction.
Even though the parties must pay for the arbitration, the total cost of an arbitration can be less expensive than a court case. There are generally fewer trial days and appearances with the arbiter before trial, and therefore, less attorney fees. Arbitration also reduces costs because there are no juries and attorneys present the case to the arbiter who is already familiar with the subject matter of the dispute.
A case brought in arbitration can generally be resolved quicker than cases brought before a court judge. One reason is arbiters handle less cases than judges, and therefore, have more flexibility to schedule trial. Another reason is the parties and the arbiter can decide the rules they would like to follow. For court cases, there are specific and strict rules for case deadlines and obligations of the parties. In arbitration, the parties may elect the deadlines and obligations of the parties that are best suited for their individual case. For example, AAA has different types of arbitrations with different rules. https://www.adr.org/Rules
Last, but not least, one of the most important distinctions between arbitration and the court system is that the arbiter’s decision is final and non-appealable. For example, a court decision or jury verdict can be appealed to a higher court allowing one party to argue an error occurred that rendered the outcome incorrect. Overturning an arbitration award is difficult. An arbiter’s final decision can be vacated upon a court order, including, but not limited to, the award resulted from corruption or fraud; there was misconduct by the arbiter; a party’s rights were substantially prejudiced. C.R.S. § 13-22-223.
This blog post goes over the generalities of arbitration, but each arbitration provision is different, and sometimes the arbitration provision in your contract may be unenforceable or void. If you have specific questions about arbitration or any legal matter, Johnson Law’s attorneys are available to discuss your case with you and we look forward to hearing from you.