Contractual Arbitration

In general, contractual arbitration includes enforcement of arbitration between the parties to an agreement, defending against arbitration clauses, participation in arbitration pursuant to an arbitration clause, and judicial proceedings to compel arbitration and subsequent awards.

Arbitrating contractual legal disputes may provide certain advantages for clients. For instance, arbitration provides faster results than traditional litigation. In general, the arbitration proceedings are shorter, and can be less costly, because the rules of evidence and procedure do not apply as stringently. Additionally, arbitration allows the parties to set the parameters of their legal dispute, determine the applicable rules, and select a neutral arbitrator who is experienced in the area of law, and thus, better qualified to understand and decide the underlying dispute.

In sum, contractual arbitration clauses are enforceable under both federal and state law. Under Title 9 U.S.C. § 2 and California Code of Civil Procedure § 1281 arbitration clauses are “valid, irrevocable, and enforceable.”

However, as a matter of law, certain contractual agreements cannot compel parties to engage in arbitration in the event that a legal dispute arises out of the contractual agreement. For instance, residential rental agreements cannot waive a tenant’s right to pursue resolution through litigation. Accordingly, such provisions are void as a matter of public policy under California Civil Code § 1953(a)(4). So, landlords cannot force tenants to arbitrate disputes. However, landlords and tenants may stipulate to resolve disputes regarding the habitability of a premise through arbitration pursuant to California Civil Code § 1942.1.

In the event that a contract properly requires the contracting parties to settle legal disputes arising out of the contract by arbitration, and a party refuses to participate in arbitration, the complying party has the option of utilizing various methods to compel arbitration. A party to a contract may file a motion to compel arbitration with the courts. Alternatively, a party may file a motion to stay litigation until arbitration has been properly completed. Furthermore, a party may include a “self–executing” arbitration clause in a contract. In this case, the arbitration clause does not require judicial enforcement. Instead, such an agreement grants an arbitrator the authority to render a valid ex parte award if a party refuses to appear and participate in arbitration. In the event that parties cannot agree on an arbitrator, or on the respective arbitration fees, the parties may petition the court to hear and resolve the dispute.

However, arbitration awards are not automatically legally enforceable. An arbitration award is effectively a contract between the two parties. If a party refuses to comply by the terms of an arbitration award, the other party must petition the court to confirm the award, and compel the party to abide by its terms. Alternatively, a party may petition the court to vacate the arbitration award, and effectively dismiss the award.

Thus, consulting an attorney before entering into a contract that contains an arbitration clause may help the parties properly determine whether the clause is binding, and the implications of the arbitration requirement. Furthermore, consulting with an attorney throughout the course of a legal dispute will provide the parties with a more comprehensive understanding of their rights and responsibilities.