Arbitration (and/or mediation) clauses are the topic of the day for Wilson Cole, President of Adams, Evens, & Ross (AER) and Samantha Cole, in-house counsel for AER.
To begin with, there are legal differences between arbitrations and mediations, but the terms will be used interchangeably for the purposes of this article. To give an overview of the arbitration process, it brings both parties and their attorneys together somewhere (such as a conference room) along with at least one representative of the court to negotiate through issue until a resolution is reached.
Arbitrations cost $15,000 on average due to split costs of attorneys, conference room(s), court representative(s), and still having to file suit at the end. No way around it, arbitration clauses make expensive additions to agreements/contracts. Wilson dreads them so much he considers them typically the kiss of death from a collections standpoint, for multiple reasons.
On a special note, forced arbitration is not the same as arbitration that happens because of an arbitration clause. Forced arbitration is part of a court process in some jurisdictions and the cost is negligible because the bulk of the cost is on the shoulders of the court. So what do you do if prompted by a client to sign an agreement with an arbitration clause? You can tell them you don’t like that clause and suggest an alternative like an “each side carries their own expenses” clause. On the downside, you won’t be able to sue for attorney’s fees later, but on the upside it should be less costly and time-consuming. If have a collections issue that you want AER to take a look at, feel free to call 800-452-5287, extension 6578, or you can email Wilson@aercollections.com. For information on best practices agreement or resource vault, email Samantha@aercollections.com and put “resource vault” in the subject.
2 Key Quotes
From a business perspective, arbitration requires two honest people coming together in a good faith effort to resolve a problem where neither is really right or wrong. This scenario is rarely congruent with cases handed over to collections because by that point debtors are typically in survival mode.
So what do you do if prompted by a client to sign an agreement with an arbitration clause? You can tell them you don’t like that clause and suggest an alternative like an “each side carries their own expenses” clause.