What You Need to Know: Arbitration and Your Business Contract

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arbitrationYou entered into a business contract with another company. As far as you’re concerned, the agreement contains language that appears somewhat standard. In fact, it could be that your own attorney drew up the contracts.  Meanwhile, there’s a chance an experienced business lawyer reviewed the agreements before you signed on the dotted line. You recall mention of arbitration as a means of ending disputes. However, you’re not really sure what that means.

Unfortunately, you ultimately gain first-hand knowledge of how arbitration pertains to your business – sooner than you expected. You are more than ready to file a lawsuit against another organization. You consult with legal counsel and are advised that the court will not entertain your complaint. Your contract calls for dispute resolution through arbitration.

What is arbitration?  It is first and foremost a form of alternative dispute resolution, also known as ADR.  The term alternative means that it’s a way of keeping a case off the court’s docket. This often suggests quicker resolution and gives the judge an opportunity to hear other legal matters.

Most often, the reason for arbitration is because a contract calls for it as a means of ending disputes. Arbitration is less formal than court proceedings and is headed up by an arbitrator with particular expertise. For example, some arbitrators specifically handle construction disputes.

Interesting enough, some types of cases are more frequently the subject of ADR than others. According to a brochure put together by the New Jersey Department of Consumer Affairs, these often include contract disputes regarding home improvement, billing, retail sales and service and moving and storage claims.

Binding Arbitration

In many cases, a clause in the contract refers to binding arbitration as far as resolution of contract disputes. If you sense a tone of finality in using “binding,” you have assumed correctly. The arbitrator considers the evidence and renders a final award.

That’s not to say that everyone is pleased with the arbitrator’s final decision or even tries to circumvent the use of ADR from the beginning. In fact, the New Jersey Appellate Court recently considered this issue. The court’s opinion is unpublished and therefore not viewed as precedential law.

Go Express, et al. v. Auto Drop was decided by the appeals court earlier this month. Notably, the court’s written opinion is shorter than most. In this matter, the plaintiffs sought preliminary injunctive relief from the defendants. Upon review of the limited case facts, it appears there was a dispute regarding the License Agreement between the parties. During oral arguments, Auto Drop’s attorneys  reference  the client’s “desire to re-brand and promote the car wash, possibly with a new name and in a manner of its own choosing.”

In making its determination, the court decided that the plaintiff’s request was not temporary – but actually called for permanent relief. Prior case law has found that contracts with binding arbitration clauses prohibit the courts from determining the merits of these types of issues.

Ultimately, the New Jersey Appellate Division ordered that defendant’s motion to compel arbitration would present the case in the proper forum in accordance with the Licensing Agreement executed between the parties.

Contact Us

Contact the Law Offices of Lawrence M. Centanni if you have questions concerning arbitration. We are happy to assist you with all your company’s legal issues.

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