Emerging Legal Trends: Arbitration
04/05/2021By Andrew Bagley
Over the past several years, arbitration has emerged as a growing alternative to the traditional litigation process. Even before the global pandemic, we noticed an uptick in the number of cases where the litigants participated in arbitration. With the current backlog of cases clogging up Georgia’s state and superior courts, this trend may be here to stay. As arbitration becomes more commonplace, we think it is helpful to understand what “arbitration” mean, how it is used, and some of the issues that might arise when trying to arbitrate, rather than litigate, a case.
First and foremost, arbitration is a private process where disputing parties agree that one or several individuals can decide the dispute after receiving evidence and hearing arguments. Unlike mediation, a “neutral” (or panel a panel of neutrals) typically has the authority to issue a binding decision about the dispute. Thus, arbitration is like a trial where the parties make arguments and present evidence. Compared to trials, however, arbitrations are usually completed quickly, are significantly less formal (think, looser rules of evidence), and are usually decided by a panel of neutrals.
There are obvious advantages to having a savvy neutral decide a case quickly, instead of meandering through the traditional civil litigation process for years only to present the case to a jury of lay witnesses. Typically, the neutrals overseeing the arbitration process will be selected by the participants and will have some background or expertise in the relevant subject matter. It is thought that this aspect of arbitration helps to limit the risk of “nuclear” or “runaway” verdicts, especially in cases that involve complex or technical issues. Arbitration is also usually much faster than a jury trial but still permits the claimant to experience his or her “day in court.” In a post-pandemic world where the trial courts are jammed with a backlog of cases, the speed of this process could make it even more appealing, especially to claimants and their attorneys, who can be reluctant to take a case out of the jury’s hands.
In cases where arbitration may be a good option, the first step is to determine whether there exists a valid agreement to arbitrate. Parties arbitrate their disputes only by agreement and consent, and the binding effect of an arbitration agreement relies on state contract law principles of contract formation. Turner Cty. v. City of Ashburn, 293 Ga. 739, 747, 749 S.E.2d 685, 692 (2013) (“Arbitration is a matter of contract.”). If the parties possess a written arbitration agreement containing the claimant’s signature in ink, whether signed before or after the alleged tort, determining the intent of the parties to arbitrate can be straightforward. But the existence of a valid agreement can become complicated where, for example, the agreement was signed by someone other than the claimant (i.e., a guardian or spouse signed it on the claimant’s behalf), the signature was signed digitally, or the agreement was one of numerous pages of intake paperwork at a hospital or doctor’s office. Again, these questions, and others, are decided by principles of contract law. If a court determines that there was no “meeting of the minds” between the parties, a Court may deny a litigant’s Motion to Enforce the arbitration agreement.
The enforcement of an arbitration provision can be even more complex when the litigation involves multiple parties, including one or more parties who are not signatories to the arbitration agreement. It is still worth exploring whether arbitration is an option in these types of cases. Georgia law recognizes ways to bind non-signatories to, or allow them to enforce, contracts, and those same principles would apply to arbitration agreements. Some traditional principles that allow contracts to be enforced by non-signatories are incorporation by reference, third-party beneficiary theories, and equitable estoppel. SCSJ Enterprises, Inc. v. Hansen & Hansen Enterprises, Inc., 319 Ga. App. 210, 213, 734 S.E.2d 214, 219 (2012) (“Nevertheless, under both the [Georgia Arbitration Code] and federal law, in certain circumstances, the theory of equitable estoppel provides a means of bringing a non-signatory within the terms of an arbitration agreement.”).
Additionally, a claimant and one set of defendants in multi-party litigation has a valid and enforceable arbitration agreement, a trial court can still enforce the arbitration provision against the parties to that agreement. In such case, the trial court can either proceed with the litigation against the non-arbitrating defendants or exercise its discretion to hold the proceedings against the non-arbitrating defendants in abeyance until such time as an arbitration award is handed down. Order Homes, LLC v. Iverson, 300 Ga. App. 332, 339, 685 S.E.2d 304, 310–11 (2009). This means that there could be two concurrent processes arising out of the same nexus of facts. Alternatively, the litigation portion of the case could be stayed pending the outcome of the arbitration. Judges enjoy a great deal of discretion on this issue.
Finally, we should note that if you are considering the arbitration process, be mindful that any effort to conduct discovery undertaken while a party’s motion to enforce arbitration is pending could result in a waiver of that party’s right to enforce the arbitration provision at issue. As a practical matter, parties interested in arbitration should make an effort to evaluate this issue early and to put all parties on notice of any plans to pursue arbitration.