Straight Answers to Twenty Frequently Asked Questions

Q1. What is arbitration?

A. Humans being humans, disputes arise from time to time. Most often, when two or more persons disagree, they resolve it amicably amongst themselves. Resolution may consist of one party totally prevailing. Or resolution may involve a compromise. Regardless, no outside party is involved. From time to time, however, an outside person helps to resolve the issue. That outside person may offer suggestions for the parties to adopt or reject. Or perhaps the parties decide in advance that they will abide by the decision of that outside party. In this latter situation, the outside person is called an “arbitrator” or, sometimes, “arbiter”. “Arbitration” is the process by which an arbitrator (or arbiter) decides a dispute.

Q2. Are arbitrations formal?

A. Let's first define what we mean by “formal”. As used on this site, “formal” means a written agreement to abide by the decision of an arbitrator on a specified issue. As thus defined, arbitrations need not be formal. As indicated in answer to the first question, an arbitration occurs each time two persons agree to accept the decision of a third on some disagreement. For example, Bob and George, two members of a three-person group, may disagree on where to meet for dinner, and leave it to Henry, the third member of the group, to decide. Henry will now “arbitrate” the dispute: He'll decide on the venue and announce his decision.

This “dispute”, while trivial, implicates important arbitration principles. We present this dinner dispute only to introduce the arbitration model. To be sure, no rational person would bother with court processes over where to have dinner. In real life, however, disputes that arbitrators resolve can involve thousands and, sometimes, millions of dollars. We will refer to this trivial dispute in this question as “the Dinner Dispute”. This page will return to the Dinner Dispute from time to time.

Q3. Who can be an arbitrator?

A. As just illustrated, in an informal arbitration, any person whose decision two (or more) persons agree will decide a dispute between them can serve as an arbitrator. The selected person may have no stake in the outcome. Conversely, the selected person or persons may themselves be directly involved in the dispute. The Dinner Dispute illustrates this situation since, in that example, Henry will be bound by his own decision.

The answer for formal arbitrations is exactly the same: Anybody can serve as an arbitrator. Often, arbitrators are lawyers. In many instances, however, persons other than lawyers are more appropriate for the task. For example, in a dispute involving architects, an architect may be much better qualified to understand the factual issues and render a fair and appropriate award.

In practical terms, the selected person in formal arbitrations will seldom have a stake in the outcome. As the Dinner Dispute itself shows, having a stake in the outcome is not an automatic disqualifier.

Q4. What is an award?

A. In formal arbitrations, the arbitrator's ultimate decision is memorialized in a written document. That document is called an “award”. The verb used to describe the arbitrator making the terms of their award known is called “rendering” the award.

Q5. Must parties comply with the terms of an award that an arbitrator renders?

A. Yes and no. The “yes” part is that, by committing in advance to abide by the arbitrator's decision, the non-prevailing party has a certain moral obligation to honor that commitment and comply. The “No” part is that there is no legal penalty for refusing to comply with the terms of an award.

Q6. Since the non-prevailing party in an arbitration incurs no legal penalty for not complying, what is the point of going through arbitration?

A. Resolving disputes by arbitration offers numerous benefits:

In the vast majority of instances, the parties do comply with the terms of an award, thus ending the dispute and enabling the parties to get on with their lives.
In those instances where a party refuses to voluntarily comply, the prevailing party can ask a court to “enforce” the award. In arbitration lingo, this application to the court is called asking the court to “confirm” the award. ONCE THE COURT CONFIRMS THE AWARD, THE COURTS WILL ENFORCE THE PROVISIONS IN THE AWARD THE SAME AS IF THE LITIGATION HAD ORIGINATED IN COURT.

A court process to confirm an arbitration award is typically summary in nature. “Summary” means that the matter is typically resolved in a single court session, with no discovery, and in a short period of time. That court session does not involve relitigating the merits of the underlying dispute. Rather, it is limited to examining whether the dispute was arbitrable and whether the arbitration was conducted properly. “Short period of time” here, means typically weeks, as opposed to months or even years required in non-summary litigation.
It costs much less for parties to a dispute to arbitrate resolution, than to fight it out in court. In our famous Dinner Dispute, for example (see Question Three, above), the monetary cost of resorting to the court process will exceed by orders of magnitude the cost of the dinner itself. This cost will include fees of lawyers who typically bill by the hour, as well as court filing fees.
Arbitration proceedings are private; court proceedings are public. Bob and George may be embarrassed by exposing their Dinner Dispute, and its outcome, to the eyes of the world. Beyond mere embarrassment, real life disputes may involve trade secrets and other proprietary information. Arbitration can maintain the privacy and confidentiality of information that, in court litigation, would become public.
Arbitration is usually quicker. By the time a court were to render its judgment in the Dinner Dispute, the parties would have starved to death.
The parties to an arbitration have much more control over the process than if the dispute were to be litigated in court. Thus when parties agree to arbitrate their dispute, the arbitration agreement can specify, to name a few provisions, how many arbitrators will be selected, the process by which the arbitrator or arbitrators are to be selected, what background or other qualifications the arbitrator or arbitrators must have, who the actual arbitrator or arbitrators will be, what discovery to allow, whether hearings will be in-person or virtual, where arbitration hearings are to take place, and the time frame within which the hearings are to occur.

Q7. How are arbitrators selected?

In most instances, the parties' arbitration agreement specify how the arbitrator is to be selected. For example, the agreement can name a specific person or persons to serve as arbitrator. Or the agreement can designate an organization to manage the arbitration process. The rules of that organization would then specify how the arbitrator is to be selected. New Jersey Arbitrations Inc. is one such organization. Another very prominent organization that provides such services is the American Arbitration Association. As a last resort, if no other provision for selecting an arbitrator is in place, and the parties cannot agree on who is to serve as arbitrator, any party to an arbitration agreement can go to court and ask a judge to appoint an arbitrator.

Q8. What enables the arbitration process to resolve disputes in a more cost-effective manner?

A. One of the biggest expenses in dispute resolution is lawyers' fees. When parties to an arbitration have lawyers, those lawyers typically bill the parties for their time, just as they would were the matter to be resolved in court. Parties in arbitrations involving substantial sums typically will have lawyers, the same as in court proceedings. For reasons discussed by the next question, however, the number of hours that the lawyers will have expended will typically be drastically less.

Q9. How can it be that fewer lawyer hours are typically consumed in arbitrations?

A. Oh, let us count the ways! We begin with discovery. Court litigation can involve interrogatories, oral depositions, requests for admissions, and other discovery methods. Interrogatories are onerous. They often consist of questions containing subparts and subparts to subparts. These interrogatories typically begin with a set of definitions. These definitions by themselves typically consume multiple pages. Answers to legitimate interrogatories are often evasive or non-responsive. In order to obtain responsive answers to legitimate questions in interrogatories, parties must go to court and ask a judge to order compliance.

Arbitration cuts through this mess. To begin with, discovery in arbitration is limited to discovery that the arbitrator specifically allows. The arbitrator can consider the amount in dispute in determining what discovery to allow, and how much. Thus the arbitrator can limit the number of interrogatory questions or subparts. The arbitrator can limit the number of oral depositions, or disallow them entirely. When discovery disputes arise, the arbitrator can resolve those disputes more quickly.

Arbitration hearings also consume less attorney time than do court proceedings. The arbitrator schedules only one matter for a particular time slot, as compared with court proceedings in which dozens of matters are scheduled before a particular judge, all at the same time. Matters before an arbitrator usually begin promptly at the indicated time. Judges, on the other hand, often come onto the bench a half hour or more after the litigants' matter is listed. And the arbitrator can allow hearings to proceed remotely.

Q10. How are arbitrators compensated?

A. Arbitrators are compensated by the parties. Arbitrators set their own compensation rates. The parties have access to information concerning what those rates are. Those rates are an important factor in determining what arbitrator will be selected.

Q11. How does arbitration preserve the privacy of the parties?

A. With rare exceptions, court proceedings are public. Anybody can watch them. That includes the media. Proceedings are recorded stenographically or electronically. Anybody can order written transcripts of those proceedings. By way of contrast, arbitration proceedings are private. Attendance is limited to persons that the arbitrator allows to be present. Those persons are typically the parties themselves, their lawyers (if they have lawyers), witnesses, and a court stenographer, if there is one. The media has no right to attend. Indeed, the media is typically unaware that arbitration proceedings are even happening. And the outcome of the arbitration becomes known to the public only if the parties make it public.

In addition to arbitration proceedings being non-public, New Jersey Statute 2A:23B-17e gives arbitrators the power to issue protective orders to prevent the disclosure of privileged information, confidential information, trade secrets, and other information protected from disclosure to the extent a court could if the controversy were the subject of a civil action. Most states have similar provisions.

Q12. Can arbitrators provide the same relief that a court can provide?

A. Yes, with limited exceptions. Arbitrators cannot determine guilt or innocence on alleged violation of criminal statutes. (They can, however, determine civil liability on demands associated with those alleged violations.) Arbitrators cannot mandate resolution of child custody disputes. They can, however, resolve disputes concerning custody or ownership of family pets.

Concerning relief that a court can provide, we should also mention that most arbitration statutes empower arbitrators to issue subpoenas compelling attendance of witnesses at arbitral proceedings. The specific New Jersey statute making that provision is N.J.S. 2A:23B-17a. That statute says:

An arbitrator may issue a subpoena for the attendance of a witness and for the production of records and other evidence at any hearing and may administer oaths. A subpoena shall be served in the manner for service of subpoenas in a civil action, and upon filing a summary action with the court by a party to the arbitration proceeding or the arbitrator, enforced in the manner for enforcement of subpoenas in any civil action

Q13. How do judges, and New Jersey courts generally, feel about arbitrations?

A. New Jersey courts, as well as federal courts, favor arbitration. Indeed, the Supreme Court of New Jersey observed in Martindale v. Sandvik, 173 N.J. 76, 92 (2002), “The affirmative policy of this State, both legislative and judicial, favors arbitration as a mechanism of resolving disputes.”

Judges themselves look with favor upon disputes to being resolved in arbitration. Every dispute resolved by arbitration is one less dispute on the courts' overcrowded dockets. Additionally, arbitrations sometimes involve disputes in very technical or specialized areas. Judges can lack the expertise to competently handle such disputes. In arbitration, by way of contrast, the parties to such dispute can obtain the services of an arbitrator having expertise in the subject matter of the dispute. Thus arbitrators can be found with expertise in (to name a few areas) labor, securities practice, information technology, aviation, gemology, architecture, construction, and on and on.

Q14. How does a dispute get diverted from court to arbitration?

A. Disputes being arbitrated typically begin in arbitration--they do not start out in court. Disputes become “arbitrable” by agreement of the parties. Typically, agreements to arbitrate are reached before a dispute even arises. Indeed, many contracts contain arbitration clauses whereby a party to a dispute that arises can demand that that dispute be resolved by arbitration. The label given to the document that demands that a dispute be arbitrated is (not too surprisingly) called a “Demand for Arbitration”. Where a party to an arbitration agreement disregards the arbitration clause and sues in court, the party seeking to enforce the arbitration clause can ask to court to dismiss the suit and require the parties to arbitrate the dispute. The courts will comply with this request when properly made.

Disputes arising in situations where no previous agreement to arbitrate is in place can also be placed into arbitration if all parties to the dispute agree to do so. This agreement can be made even after suit has been filed in court. When the parties agree only after a dispute has arisen, the parties are said to be “submitting” their dispute to arbitration. Thus the dispute becomes arbitrable by “submission to arbitration”, rather than by a demand for arbitration.

Q15. Can an arbitrator's decision be challenged in court?

A. Arbitrators' awards can be challenged in court. The name of the process whereby a party challenges an arbitral award is called an application to “vacate” the award. However, the grounds upon which a court will vacate an arbitral award are extremely limited. For example, a judge will not vacate an arbitration award merely because the judge would have decided the dispute differently. Thus arbitrators' errors of fact, and even arbitrators' errors of law, that the judge discerns, will normally not constitute grounds to vacate the award. The grounds that do exist to vacate an award are specified in statutes. When the arbitration is conducted in accordance with New Jersey statutes, then New Jersey statutes specify the grounds upon which a court will vacate the award. When the arbitration is conducted in accordance with federal statutes, then federal statutes specify the grounds upon which a court will vacate the award. Much overlap between New Jersey and federal vacating criteria exist.

Q16. What are the grounds by which an arbitral award can be successfully challenged?

A. The grounds under which an arbitral award can be successfully challenged are determined by the law of the jurisdiction in which the challenge is made. The arbitration laws of most states, however, are patterned after a model set of laws called the Revised Uniform Arbitration Act (“RUAA”). The RUAA, in turn, is largely based upon the Federal Arbitration Act. For these reasons, great similarity in grounds to successfully challenge an arbitral award exists from state to state.

The grounds to successfully challenge an arbitral award, both in New Jersey and federally, are to be found elsewhere on this site.

Q17. What about appeals?

Opportunities to appeal an arbitrator's award are limited. Appeal provisions dilute the rapid and cost-saving advantages that arbitration attempts to provide. Within the arbitration system itself, dissatisfied parties can appeal only if the arbitration agreement make provision for such appeal.

As discussed in the previous question, the dissatisfied party can proactively ask the court to vacate the aribtrator's award, or reactively oppose the prevailing party's application to confirm the award. State Court jurisdiction would typically be with the Superior Court of New Jersey, Law Division. Federal court jurisdiction would typically be the United States District Court for the District of New Jersey. Person dissatisfied with the outcome of that process can then appeal to the next higher level of court, either State or federal. State court jurisdiction in that instance would typically be the Superior Court of New Jersey, Appellate Division. Federal court jurisdiction in that instance would typically be the United States Court of Appeals for the Third Circuit.

Q18. Will New Jersey Arbitrations Inc. handle any kind of dispute that is arbitrable?

A. No. Certain disputes call for arbitrators having experties in particular fields. Examples of such disputes would include disputes arising over issues requiring experties in construction, or disputes requiring expertise in labor, or disputes requiring expertise in architecture. New Jersey Arbitrations Inc. presently lacks panelists having those kinds of specialized background. Thus New Jersey Arbitrations Inc. at present would decline to manage an arbitration involving predominantly such issues.

Q19 Does resort to arbitration have disadvantages?

A. Arbitration can sometimes have disadvantages. Like judges and juries, arbitrators can sometimes reach the wrong result. In the judicial environment, the non-prevailing party can appeal. In an arbitration, the non-prevailing party in an arbitration can also appeal. As explained in Question Fifteen, above, however, what can be examined on appeal from an arbitration award is extremely limited. Thus, if the arbitrator reached the wrong result, that wrong result may be one that cannot be corrected.

As explained in Question Six, above, one of the advantages of arbitration is savings achieved by the limited scope of discovery typically available. But this limited scope can sometimes work to the disadvantage of a party. Discovery's limited scope can potentially make unavailable to an arbitrant pertinent facts that the wide scope of discovery in judicial proceedings would have uncovered. Skilled and experienced arbitrators can minimize the unavailability of pertinent information.

Q20. Are arbitrations managed by New Jersey Arbitrations Inc. limited to disputes having ties to New Jersey?

Absolutely not! New Jersey Arbitrations Inc. will manage arbitrations anywhere in the United States and, in many instances, in locations around the world. Not in New Jersey? Call us!