The Pros and Cons of Binding Arbitration

Many times I have consulted with my real estate clients as to the advantages and disadvantages of binding arbitration to resolve a dispute concerning real property as opposed to resolving the dispute in a litigated case in a California court room.

There are advantages and disadvantages of the binding arbitration process of the binding arbitration and are discussed below.

Advantages of Binding Arbitration

As most people know, being in a lawsuit is expensive with respect to court costs and attorney’s fees. Typical binding arbitration to resolve a dispute is less costly in the long run than going to trial before a judge or jury because the process is quicker to resolve due to the congestion of our court system.

Binding arbitrations also can be completed without disrupting the schedules of the parties unlike trials before a judge or jury.

Arbitrations are generally private compared to court system where the parties to an arbitration dispute can keep the result confidential. Court proceedings in civil matters in this state are public.

Disadvantages of Arbitration

One cannot appeal an adverse arbitration award unless the arbitrator engaged in fraudulent conduct. In essence an arbitrator can render a decision not based upon the law or the evidence and the party receiving the short end of the decision has no recourse in the appellate court. This is the greatest disadvantage of the arbitration process.

In a binding arbitration one gives up the fundamental Constitutional Right of having his or her case before a jury.

Unless the parties have signed an arbitration clause allowing pre-arbitration discovery (depositions of parties and document production) or have agreed to discovery after the dispute has arisen.

How to Eliminate the Disadvantages of Arbitration in an Arbitration Proceeding Through a Written Arbitration Agreement

Binding arbitrations have their advantages and are recommended in the following circumstances and conditions.

1. The parties sign a written arbitration agreement clearly stating that they must agree to the selection of a qualified arbitrator for their dispute and if they cannot, a sitting judge in the court system from a list of at least five names of qualified arbitrators makes the selection.
2. The written agreement states that the selected arbitrator’s decision is subject to the standards of an appeal in the State of California as in any action tried before a judge or jury.
3. The written agreement states that the parties are entitled to all forms of pre-trial discovery under California’s Discovery Act (CCP section 2016 et. seq.) such as interrogatories, document production , and depositions (of parties and witnesses).
4. The written agreement sets a maximum “ceiling” on the dollar amount of any award against any party.
5. The written agreement clearly and states that there will be no award for any intentional torts as well as punitive damages and general damages by the arbitrator. A licensed real estate agent or broker does not want the Bureau of Real Estate to become involved in a post arbitration decision.
6. The written agreement states that the arbitration decision shall remain confidential but that any dollar amount awarded and not paid within an agreed time period would be subject to normal collection procedures in the state court system such as recording an abstract of judgment, writs of execution, levies and the like.

About the Author

B. Edward McCutchan, Jr.
Sunderland | McCutchan, LLP

Mr. McCutchan’s practice is primarily civil litigation with an emphasis in defending professionals and businesses in real estate, mortgage brokering, construction, banking and agricultural industries and all phases of dispute resolution through trial and appeal. His area of practice is also agricultural law (viticulture and wineries), trusts and estates, probate, real estate transactions, business law and elder abuse. B. Edward McCutchan, Jr. was admitted to the Bar in 1985 and is admitted and qualified to practice in all California courts and the U.S. District Court, Eastern and Northern Districts of California as well as the United States Tax Court.