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Arbitration

By
Lia Kopin-Green
/
November 27, 2022

What is Arbitration?

Arbitration is a legal mechanism used to resolve conflicts between brokers or between investors and brokers. It is one of the most common forms of mediation in business law, in which parties reach a voluntary settlement outside of court. Accordingly, decisions made in arbitration are not legally binding unless all of the parties involved agree to its conditions. Arbitration is overseen by the Financial Industry Regulatory Authority (FINRA), a private corporation that regulates brokerage firms.

Key Takeaways

  • Arbitration is a mechanism used to solve a business dispute between brokers or between brokers and investors.
  • As a form of mediation, arbitration involves a neutral third party and does not typically require court intervention.
  • Solving legal disputes in arbitration can be less expensive and quicker than settling matters through formal court processes.

How Arbitration Works

Since expenses are high and delays are frequent in standard legal proceedings, arbitration has gained plenty of popularity in recent years. Due to the fact that the courts of law do not interfere in the process, arbitration is known to be an efficient and cost-effective way of resolving disputes in business law. Further, since arbitration is confidential, it protects the privacy of all parties involved.

While arbitration does not take place in a formal court setting, the process is quite similar to the proceedings in a traditional court case. The parties may have lawyers, and after a thorough exchange of documents and information, a hearing takes place in which both parties call for witnesses and present their cases. Once the hearing is over, the arbitrator, which acts as a judge, will make a decision regarding the case. Typically, arbitrators hold somewhat of a legal background. They may be retired judges, qualified lawyers or individuals with experience in the subject at hand. Nonetheless, according to FINRA regulations, arbitrators are not required to explain the reasoning behind their decisions.

Arbitration may take place in a conference room rather than a courtroom. However, in some cases, in-person hearings are not considered necessary. In fact, for most disputes involving less than $50,000, written material is submitted to a single arbitrator who will settle the case. In-person hearings with a single arbitrator are standard for disputes ranging from $50,000 to $100,000. Lastly, if the conflict involves over $100,000, the parties may opt for an in-person hearing with multiple arbitrators.

Bottom Line

Arbitration is an excellent way to solve a number of conflicts in the field of business law. However, it is not always suitable for all circumstances. Arbitrators are mediators who strive to satisfy both sides, so you may not get your desired outcome. Moreover, arbitration fees can reach as high as 10% of the claim amount, despite the fact that arbitration is designed to save costs. Find out if arbitration is right for you by consulting with one of our top business lawyers today.

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