This blog was part of an ongoing series of educational classes and attempts to summarize a class on Arbitration in Alabama. Nothing in this blog should be used in place of actual legal advice. Please contact an attorney or an Arbitrator with any questions regarding arbitration.
WHAT IS ALTERNATIVE DISPUTE RESOLUTION?
Alternative Dispute Resolution (ADR) refers to any method of resolving disputes except litigation. Some people have argued against “Alternative Dispute Resolution" as a name and just want it to be called “Dispute Resolution” because litigation is just another form of dispute resolution (and is not even the most common form), so to call all the other options "alternative" is a bit misleading. ADR groups all processes and techniques of conflict resolution that occur outside of any governmental judiciary together. ADR is generally faster, less public, and more flexible than litigation; notice I did not say “cheaper,” though; negotiation in any form is going to be expensive once you get third parties involved.
The most well-known ADR methods are:
- Mediation
- Arbitration
- Negotiation and transaction
People often get mediation and arbitration mixed up because they are both methods of dispute resolution involving a neutral third party, but let’s look at the difference:
Mediation: Method of non-binding dispute resolution involving a neutral third party, mediator, who tries to help the disputing parties reach a mutually agreeable solution
- This method is used more often in family law or civil litigation
Arbitration: Method of dispute resolution involving one or more neutral third parties, arbitrators, who are agreed upon by the disputing parties
- Usually enforced through the contract to avoid litigation in the future and the decision is binding
NOTE: Arbiter and Arbitrator are different – an arbiter can also make a final decision on an issue but is often a judge
Negotiation: The process of parties bargaining directly with each other (or through agents) in an attempt to reach an agreement. No neutral third parties are involved.
- As a real estate agent, you are not a neutral third party – you represent someone in the transaction
Transaction: An agreement reached between two or more parties whereby they make reciprocal concessions to prevent or end a dispute that might end up in litigation (boundary agreement, driveway agreement, etc.)
- The contract itself is not considered part of ADR
- Transactions in this case would include a boundary dispute agreement, driveway agreement, mutual release, etc.
Technically, as real estate agents, you use these forms of ADR every day within regular real estate deals, so there is no need to be afraid of the concept of arbitration.
WHAT WE ARE FOCUSING ON TODAY
- Binding Arbitration Provisions
- Use of contracts to enforce mandatory arbitration as an alternative to litigation
- Has the same effect as if a court ruled on the matter
- HAAR / Real Estate Contracts
- Arbitration is a form of Alternative Dispute Resolution (ADR), used in place of litigation in the hope of settling a dispute without the cost and time of going to court
- Litigation is a court-based process that involves a governmental decision that is binding on both parties and a process of appealing the decision to higher courts
HAAR CONTRACT ADR CLAUSE – HIGHLIGHTS
- “Purchaser and Seller agree to submit such disputes to BINDING ARBITRATION…”
- This is meant to replace the court process and will be handled “by an arbitrator recognized by the Alabama Center for Dispute Resolution and pursuant to the rules of the American Arbitration Association” (AAA)
- This can be confusing because there are many other organizations known as the AAA, including the Alabama Arbitration Act
- The Alabama Arbitration Act works hand-in-hand with the Federal Arbitration Act (FAA), which also has a confusing and commonly misunderstood acronym
- The Alabama Arbitration Act and Federal Arbitration Act create the rules for arbitration
- “or, if agreed by both parties, some other recognized body acting pursuant to the rules of American Arbitration Association”
- This could be a nationally recognized association rather than a state-level one, but it will take both parties mutually agreeing to this
- This is meant to replace the court process and will be handled “by an arbitrator recognized by the Alabama Center for Dispute Resolution and pursuant to the rules of the American Arbitration Association” (AAA)
- Fees
- By default, the person who enacts arbitration is the one who pays for the initial pre-arbitration fees, if any
- Arbitrator has complete authority over giving out any awards or binding judgments regarding payment of fees including attorney fees, filing fees, judgments, etc.
- We are held to the rules of arbitration here, but also to any splits/payments outlined in the real estate contract
- “The Arbitrator’s Award is to be final and binding and judgment upon the award rendered by the arbitration may be entered in any court having jurisdiction thereof.”
- “THIS ARBITRATION SHALL BE IN LIEU OF ANY CIVIL LITIGATION IN ANY COURT, AND IN LIEU OF ANY TRIAL BY JURY.”
- By definition, this is what arbitration is, but now it has been clearly outlined to the client in the contract
ALABAMA CENTER FOR DISPUTE RESOLUTION
Our local contract directs us to the Alabama Center for Dispute Resolution, so let’s discuss who exactly they are and what they do.
ACDR is the state office of dispute resolution and operates like a non-profit corporation. ACDR works with the courts, the Alabama State Bar, state agencies, schools, community mediation initiatives, and business to promote early and peaceful resolution of disputes. They operate under the supervision of the Alabama Supreme Court Commission on Dispute Resolution in conjunction with the Alabama State Bar Dispute Resolution Section. As of October 1996, the ACDR is funded under the Alabama Supreme Court’s budget.
The ACDR offers the following services:
- Mediation
- Arbitration
- Private Judges
- In Alabama, ADR also includes the use of private judges
- Alabama’s Private Judge Acts allow parties to hire qualified former/retired judges to hear select district and civil cases, making binding decisions
- Alabama Act 2012-266
- Enacted February 7, 2012
- This is not an option on the real estate contract side, but I still wanted everyone to know they had this option available to them if needed
REQUIREMENTS TO BECOME AN ARBITRATOR IN ALABAMA
Part 1: Registration Standards
- Be of good character
- This can be proved via background checks, various reporting, etc.
- Be one of the following:
- A licensed attorney in good standing with at least 8 years of experience in the practice of law in one of the 50 US states
- Have served as an arbitrator at least 4 times in the 3 years immediately preceding submission
- This can include a retired judge who was still doing arbitration on the side, etc.
- An arbitrator who is already approved under another jurisdiction
- Agree to abide by the American Arbitration Association Code of Ethics
HOW TO FIND AN ARBITRATOR
In the top menu bar on the ACDR website, click “Mediators/Arbitrators” and then “Find an Arbitrator”.
Once you do, you will be directed to the following page:
This page gives you the ability to search for licensed arbitrators. You do not need to put a search word in – that is for if you are looking for a specific attorney or firm you would like to use. If you don’t already have a preference, you can simply fill out the following:
- Areas of practice: ALL
- Alabama County: select the one you need
The following page will list all arbitrators who serve in that county. Please note that there are two sections to this list:
- Located in your county AND willing to serve in your county
- NOT located in your county but are willing to serve in your county
There are a lot of Birmingham attorneys who are willing to come to Madison County to assist our local area.
HIRING AN ARBITRATOR
- Arbitrators usually bill at an hourly rate and may have minimums
- $250/hr is standard
- Parties will sign a private agreement on timelines and how arbitration will operate
- Arbitration can be in-person, virtual, or even over email
- Each party is allowed to have an attorney represent them
- The attorney will also likely bill at an additional hourly rate
- Arbitration is less formal and usually shorter than a trial. Parties present their version of the facts, using witnesses and documents but without the rules of court.
IMPORTANT NOTES BEFORE HIRING AN ARBITRATOR
- Do not tell the arbitrator your whole story when trying to hire them – this will disqualify you
- Provide them with the contract and only a broad description of what the parties are disputing
- Wait to be asked for what to provide or you may disqualify the Arbitrator by accident
- You must consider the amount you’re fighting over vs. the approximate cost of arbitration
- If you have an arbitrator and a private attorney helping you, you can very easily hit the $1,000 mark
- Sellers also must consider the pros/cons of going into arbitration and having their home sale tied up in this process – depending on the market, it may be more beneficial to give earnest money back and list the home again immediately so you can sell to someone else before the arbitration process would even be wrapped up
- After arbitration:
- Awards can be submitted to the courts for a proper judgment to be issued for enforcement
- Limited opportunity to challenge/appeal the arbitration in court
- This is not the appeal process you get during court where you can appeal to a higher court – there is very little ability to challenge an arbitration ruling because it is meant to be binding
- Arbitrator can award attorney fees, filing fees, damages, etc.
- Collections
- If you have to force a party to pay after collection, this would be part of the court process
- Termination of contract
QUESTIONS
If arbitration and court will cost around the same, what is the purpose of preventing clients from just going to court instead of arbitration?
While the arbitration process isn’t cheaper, it is faster and more streamlined. It is also more private as it isn’t on the public record, it’s an arbitration record that can be submitted to the court at a later date if needed. The main benefit is the speed of arbitration as we wouldn’t have to wait on the court’s schedule, and then we can simply submit everything to the court once arbitration is finished without having to go through the discovery process and the official court process that could slow us down. Ultimately we don’t want to tie people up and lock them down in litigation – we want them free to purchase real estate and keep the market moving.
