This article is taken from a course which is regularly taught by Jonathan Gelber Esq. This article is not a substitute for the information taught in that course, or the course itself or consultation with an attorney, but represents both a summary and commentary on this particular topic.

Arbitration, and its sibling, mediation, are one of the many topics I deal with in my collections practice on a frequent basis. There is much misunderstanding that surrounds these topics; accordingly, they deserve the time and attention this column allows.

Arbitration and mediation go in and out of fashion. The latest cycle in arbitration and mediation occurred in the late 1990's when the dot-commers decided that they could "shift the paradigm" of the entire legal system, as they had done to other areas with the computer revolution. Arbitration and mediation are thought of by the uninitiated as being a substitute for the entire legal process. In fairness to the dot-commers, the computer revolution was based upon the ever-growing efficiencies of computers and Moore's Law; computers roughly double their efficiency every eighteen months. Therefore, the computer industry was used to doing twice as much work with the same resources over an eighteen-month period on a regular basis. What bothered the dot-commers was that the legal trade was not experiencing a similar growth in efficiency. Therefore, it was the belief of many of the naïve dot-commers that they could make lawyers obsolete by simply arbitrating. In fact, I was told one story by a client about the founder of a medium-sized company which could easily be characterized as a "dot-com," that had a near-religious belief in arbitration. Apparently, this person was on an airplane and read an article about how to get rid of lawyers by arbitrating everything and placing arbitration clauses in all agreements. While this person had much knowledge about computers, this wide-eyed innocence ended up costing this company millions of dollars. Justice is a wheel not easily reinvented.

First of all, there is a technical distinction between arbitration and mediation. Arbitration is binding. Mediation is non-binding. Arbitration should resolve the entire issue, to include, theoretically, getting paid. The results are binding on the parties. Mediation, is simply an opportunity for the parties to share their respective positions with a third party.

Focusing on arbitration, it has a statutory basis. There are both federal and state laws that put a backbone in arbitration. The Commonwealth of Virginia has adopted the Uniform Arbitration Act with a few minor changes. The Federal Arbitration Act, which is contained in Title Nine of the U.S. Code, also exists. However, the state code section is probably used more often and, in fact, contains a more comprehensive scheme for arbitration, at least in the opinion of this writer.

The entire Virginia Uniform Arbitration Act is contained in Virginia Code § 8.01-581.01 through § 8.01-581.016. To demonstrate the comprehensive nature of arbitration, as well as to illustrate how arbitration functions, it is best to review the Virginia Uniform Arbitration Act through several pertinent code sections.

Section .01 of the Act indicates that arbitration agreements are "valid, enforceable and irrevocable..." There is an exception, of course, on "such grounds that might exist at law and equity" for the revocation of a contract. Section .02 of the Act allows a party to compel arbitration, subject to the existence of an arbitration agreement, or, if another party has commenced arbitration, to challenge the existence of the arbitration agreement and have the Court rule on the existence of the agreement itself, as well as whether it in fact does compel arbitration.

Section .04 of the Act describes how the hearing should be held. Whatever few fundamental due process rights are granted are found here. However, arbitration is a contractual mechanism, and accordingly due process rights can be contracted away. Section .05 of the Act allows that a party may be represented by an attorney, and that a waiver of this is ineffective. Parenthetically, this is contrary to Rule 24 of the Commercial Arbitration Rules of the American Arbitration Association, as more completely discussed below. This does represent a rare instance of a statute compelling the contractual rights of a party in arbitration. Additionally, the arbitrator may issue subpoenas.

An arbitration award must be in writing and signed by the arbitrator under Section .07 of the Act. For a period of twenty days after the delivery of the award to a party, a party may ask the arbitrator to change the award. This has the effect of keeping the ball in the air for an additional twenty days after the arbitration ruling. However, under Section .09 of the Act, after these twenty days, the arbitration may then be confirmed by a Court. This Section, along with Section .012, allows a Court to turn the arbitration into a judgment of the Court. Therefore, after the effort of going through arbitration, if the arbitration does not result in payment, one is left with bringing the matter before a Court.

Section .010 of the Act allows that an award may be vacated within ninety days after delivery, and contains numerous grounds for vacating the award. Additionally, certain rights are preserved beyond ninety days, such as when an award is "predicated upon corruption, fraud or other undue means..." Additionally, under Section .011, and within a ninety day period, an award may be modified or corrected if there is an "evident miscalculation of figures or an evident mistake" or if the arbitrators have awarded something "upon a matter not submitted to them..." These two Sections are an invitation to litigation and have been used effectively to preclude the results of an arbitration being enforced by a Court, in short rendering the arbitration proceeding moot.

While the statutory scheme described above may give the impression of a clean and simple system, the first thing that is obvious is that after one has gone through an arbitration, one must then return back to the Court for more litigation to get an enforceable award. Glaringly obvious to the regular practitioner is that the matter must be "tried" twice, or at least done once in the arbitration and then challenged again in Court.

The practice of arbitration itself depends upon who the arbitrator is, what the arbitration format is, and the parties' contractual agreement. There are many sources of arbitration and arbitration rules. For example, there is labor arbitration, arbitration through the American Arbitration Association, or various sports arbitration agreements. These are some of many examples; there is even religious arbitration-there are thriving Muslim and Jewish court systems that function as arbitrational forums. However, what is important to recognize is that the arbitration itself delegates the due process that would be done by a Court to the arbitral panel. In other words, one gives up, by contract, one's right to a fair trial by a judge which an appellate court can review. Instead, one is left with the grounds of appeal from an award mentioned above. The contention that the arbitration was not fair may, in fact, fail.

Additionally, the costs of arbitration can impact the entire process. For example, the filing fees for many arbitrations can be very high. Thereafter, the arbitrator is usually paid on a per hour basis. If one attempts to pay a judge for anything, much less on a per hour basis, one has purchased a direct ticket to jail without passing go. Therefore, a party may end up buying and paying for the club by which that same party will be beaten. Moreover, many arbitration clauses will compel arbitration in places and forums that are surprising, to say the least.

There are strong negatives to arbitration. The costs create a tremendous barrier to going forward with the case. The quality of the fact-finder will also be a problem. Afterwards, when an arbitration award has been issued, there is no finality to it. Furthermore, to turn this into a judgment, one needs to return to a Court. Additionally, the timing of arbitration can extend much farther than the time a Court case might take, at least within the Commonwealth of Virginia.

There is, however, one major positive side to arbitration. Arbitration is frequently a safe haven for marginal businesses, businesses in marginal industries, and businesses in industries with many unhappy customers. For example, aluminum siding was one of the pioneer areas for arbitration agreements. If one owed money to an aluminum siding provider, that provider was allowed to file suit. However, if one had a complaint regarding the aluminum siding, one was compelled to arbitrate. Nowadays, many industries keep their unhappy customers away through arbitration agreements. Amongst these are stock brokers, insurance companies, various providers of consumer services, and many other businesses.

However, Courts are beginning to back away from arbitration. This was the principal issue in the United States Supreme Court case of of Green Tree Financial Corp.-Alabama v. Randall, 531 U.S. 79, 2000. Law now exists in Virginia which would defeat an arbitration clause. The similar case in Virginia is Camacho v. Holiday Homes, Inc., (U.S. District Court, Western District of Virginia, Roanoke Division (2001)). In this case, a purchaser of a mobile home who was filing suit was not compelled to follow through with arbitration on the alleged defects of the mobile home. The Court found that the arbitral form was "financially inaccessible" to the plaintiff and therefore she was unable to vindicate legal rights granted to her in a statute. Further, the Court found that the "..additional costs of the arbitration process itself amount to an insurmountable financial barrier..." Accordingly, the Court found the arbitration clause to be unenforceable. Whether the Supreme Court case or the case cited above represent a major change in direction of the Courts remains to be seen. It is the opinion of this writer that this is, in fact, true, and that Courts will soon begin to cut back on the broad enforcement of arbitration.

Therefore, the attempt to "shift the paradigm" has not succeeded; rather, it has reinvented the wheel. What began as an effort to avoid the Courts has ended up back in the Court, but the excursion was costly and will frequently be pointless for anyone who wishes to repeat this excursion.