Arbitration — the first and last stop on the railroad

Many commercial contracts have provisions mandating binding arbitration of disputes.  These contractual provisions have powerful consequences for the parties accepting them.

As a matter of due process, under our legal system, everyone has access to the Courts for resolution of disputes, unless they have waived that right, for example, by agreeing to submit disputes to a private arbitration process.

Arbitration is generally a non-governmental process for the resolution of disputes. In arbitration, a single arbitrator or panel of arbitrators acts in the role of a “judge” deciding disputes.  This is in contrast to mediation in which a third party “neutral” attempts to convince the parties to settle the dispute between or among them. A chosen arbitration process can be either “binding,” meaning that the parties are bound by the decision of the arbitrator, or non-binding, in which case the decision essentially is merely advisory.

We advise clients that arbitration is typically both the first and last stop on the railroad of dispute resolution for two main reasons:

  1. First, an arbitration clause is generally enforceable in commercial contracts.  (In consumer contracts, perhaps not so much.)  As such, the arbitration process will be mandatory for all dispute resolution.  O.R.C Section 2711.01 provides:

“A provision in any written contract…to settle by arbitration a controversy that subsequently arises out of the contract…shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract.

  1. Second, an arbitration decision is not appealable in the manner that a court judgment is appealable.  For court judgments, appeals can be based upon an error of law or even that the judgment was “against the manifest weight of evidence.”  It is not quite a “second bite at the apple,” but it can be close.       Arbitration awards, on the other hand, can only be challenged on the basis of some corruption, fraud or partiality in the arbitration process, a very difficult hurdle indeed.  Thus, regardless of how outrageous an arbitration award may be, it generally is final and very difficult to appeal. See, O.R.C Section 2711.010.

So, consider agreeing to arbitration clauses carefully. You may not be able to reconsider that decision.