Arbitration

[Jonathan Buhacoff]

Proposal:

Arbitration should be the mandatory first legal step for two parties who have a dispute relevant to their trade agreement.

An arbitrator shall be selected randomly from a pool of available and qualified arbitrators who are not related to or associated with either party and have not been previously involved in the dispute.

Following arbitration, if either party is aggrieved, that party can request an arbitration review with a three-person arbitration panel. The members of the panel would be selected randomly from the same pool of available and qualified arbitrators. The panel shall review the records of the arbitration proceedings, the evidence, the conduct of the arbitrator, any related circumstances, a written statement from the aggrieved party about its unfair treatment, and a written response from the other party. The arbitration review panel would then either confirm or reject the arbitration result with a written explanation.

If the arbitration result is unanimously confirmed, it means the panel members believe the arbitration was conducted fairly, and that the result follows the facts and is a reasonable outcome given the the applicable laws or lack thereof.

If the arbitration result is rejected by at least one member of the review panel, the arbitration would return to a new arbitrator who would start by reviewing the complete record to that point and then proceed to hear from both parties and make a determination.

Following a second arbitration, if either party is aggrieved, that party can request an arbitration review. The second review is conducted with a five-person arbitration review panel selected randomly from the same pool of available and qualified arbitrators. If there aren’t enough available and qualified arbitrators, the pool shall be expanded to include the pools of neighboring jurisdictions.

If the second arbitration result is unanimously confirmed by the second review panel, it means the panel members believe the second arbitration was conducted fairly, and that the result follows the facts and is a reasonable outcome given the the applicable laws or lack thereof.

If the second arbitration result is rejected by at least one member of the second review panel, and the second review panel unanimously agrees on a change to the arbitration outcome which would resolve both the dispute and address any unfairness in the prior proceedings, the second review panel confirms the amended outcome.

If either party alleges a clear error in the confirmation of the first review panel or of the second review panel, or if the second review panel fails to confirm the outcome of the second arbitration, the dispute may proceed to a trial.

When an arbitration fails and the dispute proceeds to trial, the two parties may not settle outside of court because the time for that has passed. If the jury determines that the plaintiff alleged unfairness in arbitration merely because they disagreed with the result and without convincing evidence of actual unfairness in the process, the judge shall order the arbitration result to be enforced and impose a penalty on the plaintiff to punish and deter such behavior. However, if the jury finds that the arbitration process was unfair, the judge shall order the final outcome of the dispute, shall award a compensation to the plaintiff for the unfair process, and shall issue a warning to each of the arbitrators who the jury deems to have acted unfairly.

If any arbitrator in the pool receives three such warnings in a five-year period, that arbitrator shall be removed from the pool of available and qualified arbitrators and shall be ineligible to serve in any such pool in any jurisdiction for five years.

Intent:

Arbitration is intended to be a quicker and less expensive process than a full trial. Whenever possible, trade disputes should be settled with more efficient means so that the courts have greater capacity to hear criminal cases. However, if arbitration fails the matter should proceed to the court system.

With this arbitration system in place, business agreements don’t need to include an arbitration clause because if the parties can’t resolve a dispute themselves it will proceed to arbitration every time. Furthermore, this proposal includes a mechanism by which the parties can proceed to trial if they believe the arbitration process was unfair.

It’s possible that some people will allege the arbitration was unfair merely because they disagree with the result. Such people, if they lose at trial, would receive an additional penalty from the judge to punish and deter such behavior.

It’s possible that some arbitrators act unfairly. If this is proven at trial, those arbitrators would receive a warning from the judge. If they get too many warnings, they’re no longer eligible to serve as arbitrators. The three warnings allows arbitrators to learn from their mistakes before they are removed from the pool. Removal from the pool has consequences because arbitrators are paid to resolve disputes, so arbitrators who act unfairly lose that source of income. However, judges do not impose any financial penalties or any jail time on arbitrators who are deemed to have acted unfairly because doing that would deter people from being willing to serve as arbitrators and also may be an injustice because the arbitrator may have made a mistake or may be unsuitable for that role but that isn’t a crime in itself. Removing the failing arbitrator from the pool is a sufficient correction to improve the chances of a just outcome for future parties entering arbitration.

Only disputes relevant to the agreement proceed to arbitration. If the agreement concerns a product or service but something else happens between the parties that is outside the agreement that is outside the scope of arbitration, the parties can proceed directly to trial. For example, if a customer enters a bakery to buy a cake, and is physically assaulted by an employee of the bakery, that assault is not a dispute for arbitration even if it happened in the context of a pending business transaction.

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