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What is Arbitration and When Should You Use it in NC?
Arbitration is defined by the North Carolina court system as an “informal legal proceeding held before a neutral court official, referred to as an arbitrator.” Arbitration hearings conducted under court supervision are limited in duration to one hour, with each side receiving up to thirty minutes, and must take place in the courthouse.
On the other hand, arbitration conducted pursuant to contractual arbitration provisions may take place over a number of days with extended presentation of evidene. Either way, an arbitration proceeding should be thought of like a trial. Each side will get the opportunity to argue their case, which includes presenting witnesses and exhibits, after which the arbitrator will render an award.
This area is largely regulated by state statute, but there are some arbitration agreements that will also be governed by federal law. For example, the Federal Arbitration Act (“FAA”) applies to arbitration agreements in contracts related to maritime transactions and transactions involving interstate commerce.
Likewise, in North Carolina, arbitration agreements are governed by the North Carolina Revised Uniform Arbitration Act (“NCRUAA”). North Carolina, like many other states, has a strong public policy favoring the resolution of disputes through arbitration, as opposed to in court. This is because, while some cases are tried in court, most cases settle, sometimes even on the courthouse steps right before trial.
Therefore, the principal purpose of arbitration “is to provide and encourage an expedited, efficient, relatively uncomplicated, alternative means of dispute resolution, with limited judicial intervention or participation and without the primary expense of litigation—attorney’s fees. Indeed, the purpose of arbitration is to reach a final settlement of the disputed matters without litigation.” Gemini Drilling & Found., LLC v. Nat’l Fire Ins. Co., 192 N.C. App. 376, 665 S.E.2d 505 (2008).
Arbitration can be binding or non-binding. Non-binding arbitration, which may be court-ordered in some North Carolina lawsuits,allows your case to proceed in court regardless of the outcome of the arbitration so long as you appeal an adverse decision. The decision to appeal an arbitration award is time sensitive and must be done within 30 days after the award has been entered, or else the right to appeal and proceed with a trial is waived. Once this time has elapsed, the arbitrator’s award become the final judgment.
On the other hand, many contracts contain binding arbitration language, where the parties agree not only to arbitrate, but that the arbitration award will be the final decision on the matter. Those cases do not go to court, but rather go straight to an arbitration organization like the American Arbitration Association. If one of the parties files a lawsuit in court when there is an arbitration clause in the parties’ agreement, the other party may file a motion asking the court to dismiss the case and compel arbitration.
Do I have to arbitrate?
The short answer is, yes. If your contract contains an arbitration clause, you must arbitrate before pursuing the matter in court. Even if your contract does not contain an arbitration clause you may still be required to arbitrate. For instance, in North Carolina, district court civil cases involving claims for $25,000 or less will be ordered to submit to non-binding arbitration. N.C.G.S. § 7A-37.1.
However, like with everything, there are exceptions. For example, if you are aware that your contract contains an arbitration agreement, but you think that it may be deficient in some way, you have the right to challenge its enforceability. In doing this, you would likely file a lawsuit in defiance of the arbitration agreement, where the opposing party may need to seek a court order to stay the litigation and compel arbitration. Likewise, if one party has initiated an arbitration proceeding in the absence of a prior agreement, the opposing party may need to seek an order staying those proceedings.
If this happens, whether there is an enforceable agreement to arbitrate will be decided by the court, where the court will look at the contract itself and determine the following factors: (1) the existence of a valid arbitration agreement, (2) whether the current dispute falls within the scope of that valid arbitration agreement, and (3) if applicable, whether the party compelling arbitration has waived its right to do so. Because of North Carolina’s strong public policy in favor of arbitration agreements, any claims that a party has waived its right to arbitrate will be closely scrutinized.
Presently, many contracts contain an arbitration agreement, which oftentimes gets glazed over until a dispute arises. Therefore, it is imperative that parties to existing contracts are aware whether their contract contains such language, whereas parties to a new contract must decide whether it is something they want to implement into their agreement.
Dye Culik PC is a North Carolina business law and litigation firm experienced in arbitration, litigation, and commercial disputes. If you have a contract that may be subject to arbitration, or if you have a dispute and are concerned about whether arbitration will be required, contact us to see how we can help your business problem-solve.