Introduction
Binding arbitration clauses are commonly found in many contracts and agreements between companies, employers/employees, consumers and businesses, and other parties. The purpose of an arbitration agreement is to require that any disputes related to the contract must be resolved through private arbitration rather than through the court system. Arbitration can provide benefits such as quicker resolution, lower costs, greater privacy, and arbitrators with subject matter expertise.
However, a party expecting to benefit from an arbitration clause may find those expectations unfulfilled if the other party refuses to cooperate with the process. When one party ignores requests to commence arbitration or otherwise obstructs the arbitration process, it can be frustrating for the party seeking arbitration in good faith.
This article will examine steps you can take to enforce an arbitration provision and compel an uncooperative counterparty into the agreed-upon arbitration process. We will cover arbitration clause basics, how to formally demand arbitration, petitioning the court to intervene, overcoming common arbitration enforcement issues, and strategies for moving forward with arbitration proceedings even without the other side's participation.
Arbitration Clause Basics
Before taking action to enforce an arbitration provision, it helps to understand the fundamentals of what makes up a valid, binding arbitration clause.
What is an Arbitration Clause?
An arbitration clause (sometimes called an “arbitration provision” or “arbitration agreement”) is a contractual provision that requires disputed issues related to the contract to be resolved through arbitration rather than court litigation. It lays out the rules and procedures that will govern arbitration should any disputes arise that necessitate arbitration.
Some key components of a typical arbitration clause include:
- Scope - The types of disputes or claims that must be arbitrated. Often very broad in coverage.
- Rules - The arbitral institution's procedural rules that will be followed (AAA, JAMS, etc.)
- Number of arbitrators - Often a single arbitrator, but sometimes a panel of 3 arbitrators.
- Arbitrator selection process - May specify qualifications and provide a selection process.
- Location - Where the arbitration hearing(s) will take place.
- Fees - Details who will pay the arbitrators' fees and other arbitration costs.
Additionally, a valid arbitration clause will also specify that the parties are waiving their rights to take a dispute to court and have a judge or jury decide the outcome.
Why Include an Arbitration Clause in a Contract?
There are several potential advantages to arbitration over traditional court litigation:
- Faster resolution - Arbitration cases typically conclude much faster than court cases.
- Lower costs - Attorney's fees and discovery costs are usually less.
- Greater privacy - Arbitration proceedings are not public like court cases.
- Arbitrator expertise - Parties can select an arbitrator with specific subject matter expertise.
- Flexibility of procedures - Arbitration rules and processes can be tailored to the situation.
- Finality - Very limited grounds for appealing an arbitration decision.
However, there are also some potential downsides, including lack of juries, less discovery, and limited judicial review. Parties give up certain litigation rights and remedies when agreeing to arbitrate.
Key Elements of an Enforceable Arbitration Provision
For an arbitration clause to be legally binding and enforceable, it must contain certain provisions and meet state contract law requirements. Areas to evaluate when drafting or assessing an arbitration agreement include:
- Mutual agreement - Both parties must assent to the arbitration provision. It cannot be slipped into a contract without awareness.
- Adequate consideration - For the clause to be valid, there must be consideration exchanged (promises, performance, etc.) as with any contract.
- Clear terms - The arbitration clause must spell out the arbitration process and procedures clearly so it can be enforced. Ambiguous clauses create enforcement problems.
- Scope - The disputes or claims covered by the arbitration provision should be clearly defined. Overly narrow or overly broad scope language risks unenforceability.
- Unconscionability - Courts may find an arbitration clause unenforceable if the terms are grossly unfair or unjust to one party.
Drafting a detailed, well-constructed arbitration clause improves the likelihood of smooth enforcement down the road if arbitration becomes necessary.
Steps to Compel Arbitration
When you have a valid arbitration agreement in place but the other party refuses or objects to proceeding with arbitration, you can take legal action to compel compliance. Here are the typical steps in this process:
Make a Demand for Arbitration
The first action to formally initiate arbitration is sending the other party a written demand for arbitration. Your demand letter should:
- State you are requesting arbitration under the terms of your agreement.
- Specify the claims and issues to be arbitrated.
- Name your appointed arbitrator if the agreement provides for this.
- Provide a deadline for them to comply with the demand.
Ideally your arbitration clause specifies how arbitration demands should be delivered - by registered mail, courier service, etc. Send your demand accordingly and retain proof of delivery.
File a Petition to Compel Arbitration
If the other party does not voluntarily proceed with arbitration after your demand letter, the next step is filing a petition in court to compel compliance. This petition should:
- Identify the parties, agreement, and arbitration clause.
- Assert that you requested arbitration properly under the terms of your agreement.
- State that the other party refused to arbitrate.
- Ask the court to issue an order compelling the other party to adhere to the arbitration provision.
File the petition in the appropriate court as specified in your arbitration clause's judicial jurisdiction terms. In most cases, you will file in state court rather than federal court.
Request an Order Compelling Compliance
Assuming proper notice of your petition was given, the court will schedule a hearing to evaluate your request for an order compelling arbitration. If the court finds your arbitration clause enforceable, it will issue an order that may require the other party to:
- Appoint their designated arbitrator by a certain date.
- Work with you cooperatively to select a neutral third arbitrator if needed.
- Participate in good faith in the arbitration process as provided in your agreement.
- Cover certain costs related to their refusal to arbitrate initially.
This court order adds enforceability and urgency to the arbitration process. Refusal to comply becomes much more difficult once a binding court order is in place.
Seek Sanctions for Refusal to Arbitrate
If the other party continues refusing to arbitrate after a court order, you can seek additional court intervention to impose sanctions, including:
- Monetary sanctions - Fines made payable to you for failure to comply.
- Entry of default judgment on your substantive claims.
- Striking of the breaching party's defenses related to your claims.
- Finding of contempt of court for violating the court order.
- Award of attorney's fees spent compelling arbitration.
In severe cases, ongoing refusal to arbitrate despite court orders can even warrant imprisonment for contempt.
Overcoming Common Arbitration Enforcement Issues
Parties resisting arbitration may raise certain arguments or claims in an attempt to avoid or delay arbitration. Here are some examples and how to counter them:
Unclear or Ambiguous Arbitration Clause
If your arbitration clause is poorly drafted or contains ambiguous terms, the other party may argue it is unenforceable. To overcome this:
- Point out that courts will usually interpret ambiguous arbitration terms in favor of arbitration.
- Note any course of conduct indicating intent to arbitrate disputes.
- Suggest the court modify or sever any problematic terms so rest of clause remains valid.
- Offer to clarify or supplement unclear arbitration terms as needed to fulfill intent.
With a little flexibility, inartfully drafted clauses can often still be enforced.
Claim the Arbitration Clause is Unconscionable
Parties also commonly argue arbitration clauses are unconscionable and unenforceable when terms unreasonably favor one side. Respond by:
- Emphasizing that both sides are bound equally to arbitrate disputes.
- Noting any negotiations or modifications to the arbitration terms.
- Showing legitimate business justifications for the terms at issue.
- Offering to modify truly one-sided or unfair provisions if needed.
Usually some degree of mutual benefit and fairness can be demonstrated.
Argue the Dispute is Outside Scope of Arbitration Clause
Another tactic is asserting that your claims fall outside the scope of arbitrable issues under the clause's terms. To address this:
- Recite the broad arbitration clause language covering all disputes "arising out of" or "relating to" the agreement.
- Cite strong presumption in favor of arbitrability when broad clause used.
- Explain contractual nature of your claims stemming from the underlying agreement.
- If needed, agree to narrow issues down to those clearly within scope of clause.
Courts prefer to find disputes arbitrable when feasible under the clause language.
Strategies for Initiating Arbitration Proceedings
Even if the other party continues objecting to arbitration, you can proceed unilaterally to advance the arbitration process by taking the following steps:
Selecting the Arbitrator(s)
If the agreement provides an arbitrator appointment process, follow this process to select arbitrators. If not, petition the court to appoint the full arbitration panel. Emphasize arbitrator neutrality and expertise in your request.
You can proceed with selecting your party-appointed arbitrator even without the other side's cooperation. This puts the onus on them to either appoint their own arbitrator or risk you obtaining a default arbitration award.
Filing Documents and Setting Discovery Schedule
File your formal arbitration demand, statement of claims, and supporting documents with the arbitrator(s). Provide sufficient copies for all parties and request the arbitrator(s) set a discovery and motions schedule so you can obtain needed evidence.
If the other side refuses to produce discovery, seek subpoenas from the arbitrator(s) and request sanctions for non-compliance. Document their lack of participation.
Establishing Procedural Rules
Work with the arbitrator(s) to implement the arbitral institution’s procedural rules or establish ad hoc rules for motions, evidence exchange, hearing protocols, etc.
Get agreed upon rules in place upfront to prevent delay tactics once the hearing starts. Object promptly to any improper deviations from the rules.
Selecting Arbitration Hearing Location and Format
Propose convenient hearing locations and virtual/telephonic hearing options citing any relevant contract terms or arbitration rules.
Accommodating the other side upfront makes it harder for them to object later that the process was inconvenient or inaccessible for them.
Preparing for the Arbitration Hearing
Assume you will be presenting your full case at the hearing, even if the other side refuses to appear and defend.
Thoroughly prepare all your evidence, witnesses, legal arguments, and testimony to support your claims. Make your case as persuasively as possible.
The less the other side participates, the more comprehensive your arbitration presentation should be to justify your requested award.
Conclusion
Even when the other party resists cooperating, there are steps you can take to enforce your contractual right to arbitration. Understanding arbitration clause requirements, formally demanding arbitration, obtaining court orders, overcoming common arguments against arbitration, and moving forward unilaterally with the arbitration process will place you in the best position to prevail.
With a well-drafted arbitration provision and persistence holding the other side to compliance, you can obtain a binding arbitration decision and avoid the uncertainties of courtroom litigation. The key is being proactive and using all available legal means to compel participation. Procrastination and passivity serve the party seeking to delay or derail arbitration.
Stay focused on the end goal of commencing the arbitration proceedings promptly and presenting a persuasive case, regardless of the other side's foot-dragging. With a properly followed process, an uncooperative counterparty cannot prevent you from realizing the potential benefits and efficiencies of private arbitration.
Frequently Asked Questions
What if the other party says they will not pay their share of arbitration fees?
Refusal by a party to pay required arbitration fees that are specified in the arbitration agreement is a breach of contract. However, you do not want their breach to derail the arbitration hearings entirely. In this situation, you can offer to front their share of the fees yourself in order to allow the arbitration to proceed on schedule.
Make clear that your payment of their fees is subject to later reimbursement with interest through the final award. Document their non-payment carefully. The arbitrator will most likely determine that reimbursement of their fees is warranted given their contractual obligation to share fees.
Can I get damages for the delays caused by their refusal to arbitrate?
Yes, you can and should specifically request damages for delays as part of your requested arbitration award. When one party refuses to adhere to a valid arbitration provision, the other party is forced to expend substantial time and resources compelling arbitration through letters, court filings, motions, etc.
You can seek recovery for provable monetary damages related to breach of the agreement to arbitrate. This includes any lost profits suffered because their foot-dragging postponed your ability to enforce the main contract. Interest on past due amounts in dispute and litigation costs spent on court proceedings to compel arbitration may also be recoverable.
What if they go to court instead of arbitration in breach of our agreement?
If the other party shows contempt for your arbitration provision by filing claims in court, you should promptly file a motion asking the court to dismiss their court action. In your motion, reference your arbitration clause and point out that it requires arbitration of the claims they are asserting in court.
Their court filing is a clear breach of the arbitration provision. Under the Federal Arbitration Act, the court must dismiss their action and order the parties to resolve the dispute through the agreed upon arbitration process instead. Remind the judge that filing in court waives their right to have that court decide the merits of the claims.
Do I have to wait to arbitrate until after their court case finishes?
No, you do not have to passively wait for their improper court case to conclude before commencing arbitration. Even if they refuse to withdraw their court claims, you can proceed to demand arbitration immediately. The arbitration process and court case can run parallel to each other.
The arbitration would proceed per the terms of your agreement and ultimately result in a binding arbitration decision. For any issues brought in both forums, the arbitrator's decision would supercede the court's ruling. Do not let their breach of the arbitration agreement by filing in court delay your contractual right to arbitrate.
Can I still request an injunction related to my claims even though we agreed to arbitrate?
Whether you can seek injunctive relief related to your claims depends on the specific terms of your arbitration clause. Some arbitration agreements contain "carve-out" provisions that expressly allow parties to seek certain temporary pre-hearing remedies in court without waiving the right to arbitrate. Common examples include preliminary injunctions, attachment orders, or receivership appointments.
If your arbitration clause is silent on the issue, the default rule is you cannot seek injunctive relief in court because it is contrary to the agreement to arbitrate all dispute remedies. However, the arbitrator may be authorized to award urgent provisional relief as part of the arbitration proceeding if warranted. Carefully review your arbitration provision's terms regarding injunctive or equitable relief availability.
What if the other party challenges or appeals the arbitration award?
The grounds for appealing or challenging an arbitration award in court are very limited due to the strong public policy favoring arbitration. Arbitration awards can only be vacated or modified in cases of corruption, fraud, evident bias by the arbitrator(s), abuse of power, or clearly exceeding the scope of issues submitted.
Mere legal or factual errors are not sufficient grounds to overturn an award. The award would also have to violate public policy, which is an extremely high bar rarely met. With the tremendous deference given to arbitrators by courts, appeals of arbitration awards rarely succeed so long as the arbitration process adhered to contractual procedures and basic fairness.
When can I confirm my arbitration award as an enforceable judgment?
In most states, you can apply to confirm your arbitration award and have it converted into an enforceable court judgment immediately after receiving the award from the arbitrator(s). The other party often has limited time (e.g. 90 days) to file an appeal after the award issues before it can be confirmed.
Once confirmed, the court enters a judgment on the award that provides access to the same collection and enforcement procedures as any civil court judgment. This includes garnishment of wages, liens on property, or seizure of assets to satisfy the confirmed monetary award. Simple court confirmation quickly gives your arbitration award teeth.
What if they claim the arbitrator was biased against them?
Claims of bias against the arbitrator are generally unsuccessful absent concrete, objective evidence. When parties have input in selecting the arbitrator, such as providing a ranked list of candidates, this undercuts later bias claims. Arbitrators also have an obligation to disclose any potential conflicts that could impact their neutrality.
However, more than just an impression of partiality is required to disqualify an arbitrator. Courts realize some adverse rulings against a party do not equate to bias. There must be a showing of actual bias or financial ties improperly influencing the arbitrator's decision. Unsubstantiated perceptions of bias rarely warrant overturning an award.
What if they refuse to comply with the arbitration award?
Should the other party continue resisting compliance with the arbitrator's binding decision, you can petition the court to confirm the award as an enforceable judgment as discussed above. Once confirmed, continued refusal to pay amounts owed or abide by the award can potentially be addressed through contempt of court proceedings enforcing the judgment.
At the arbitration stage, be sure to document clearly any non-compliance by the other party. A record of willful defiance of the process will support contempt sanctions later if necessary to obtain compliance with the confirmed arbitration award.
What if they claim the arbitrator exhibited evidentiary or procedural errors?
Claiming legal or procedural errors by the arbitrator is generally insufficient to vacate an arbitration award. The arbitration process allows for more relaxed rules of evidence and procedure than court litigation. The parties agree through their arbitration agreement to be bound by the arbitrator’s discretion on issues of process, objections, admissibility and other procedural matters.
For an award to be overturned, procedural errors must be so substantial that they effectively denied the complaining party their right to present their case. Minor deviations from litigation formalities do not warrant throwing out an award. The court will uphold the award as long as the complaining party was able to present its basic arguments and evidence to the arbitrator.
What if they argue no valid arbitration agreement exists?
If the other party contests the fundamental enforceability of the arbitration provision itself, you may need to petition the court for a separate order finding that a valid arbitration agreement governs the parties’ dispute. Your petition would lay out the evidence showing mutual assent to arbitrate, consideration, and other elements forming an enforceable arbitration contract.
With a specific order confirming the agreement’s validity, it becomes much harder later to resist arbitration on grounds that there is no arbitration clause or that it is invalid. This extra step strengthens the case for judicially mandating compliance with arbitration should they continue to object.
Can confidentiality concerns ever prevent arbitration?
Parties sometimes argue they cannot be compelled to arbitrate because arbitration’s private nature will prevent them from presenting certain critical evidence or arguments. However, fundamental public policy favors enforcing arbitration agreements as written.
Claims that arbitration confidentiality might hamper a party’s case generally fail unless truly core statutory or constitutional rights are at stake. Mere inconveniences or tactical disadvantages from arbitration’s greater confidentiality are insufficient excuses. The arbitrator also has procedures to handle sensitive evidence when truly necessary.
What if they go bankrupt before the arbitration concludes?
If the other party files bankruptcy before the arbitration concludes, you must obtain relief from the automatic stay from the bankruptcy court to continue arbitrating claims against the debtor that are subject to the arbitration provision.
However, you likely can proceed to final award with claims against non-debtor parties named in the arbitration since the stay only applies directly to actions against the debtor. The trustee may also choose to participate voluntarily if the pending arbitration could impact assets of the bankruptcy estate.
What if important evidence is only in their possession?
If relevant evidence is exclusively within the other party's control, you can request the arbitrator issue a subpoena or discovery order requiring them to produce it. Arbitrators have authority to order exchange of documents, depositions, and other discovery between the parties. Refusal to comply can result in evidentiary sanctions or adverse inferences against them.
Lack of critical evidence due to their stonewalling could also warrant postponement to enable you time to pursue legal means of obtaining the information. However, arbitral discretion over procedural issues is very broad. Material withholding of necessary evidence can jeopardize the integrity of the award.
What if the arbitration agreement contains a damages limitation provision?
Contractual provisions restricting damages such as capped liability or waiver of certain damages must be weighed against enforceability considerations. An unfairly one-sided term could potentially render the arbitration provision entirely void if deemed unconscionable.
However, if the limitation bears some reasonable relationship to the risks and costs accepted under the contract, and does not immunize serious misconduct, courts tend to uphold freedom of contract principles allowing parties to agree upfront to damage restrictions. The key is mutual proportionality and industry custom.
Can I recover attorney's fees spent to compel arbitration?
Most arbitration agreements provide that arbitrators can award reasonable attorney's fees to the prevailing party on the underlying contract claims. Refusal to arbitrate in breach of the agreement often allows recovery of fees spent specifically enforcing the arbitration provision through court orders.
Catalog time entries and costs dedicated solely to compelling compliance with arbitration versus litigating the overall contract dispute. Apportion fees appropriately between obtained court orders mandating arbitration and those incurred prosecuting your claims in the arbitration itself.
What if the arbitration provision requires mediation before arbitration?
If a valid pre-arbitration mediation requirement exists, courts will generally enforce the requirement strictly before allowing arbitration to proceed. However, you can argue against stay pending unsuccessful mediation if the other party refuses to mediate in good faith or reasonable efforts at mediation have been exhausted.
Requires showing they are preventing mediation from occurring through non-cooperation or unreasonable demands compared to your good faith efforts. Where mediation is futile due to their obstruction, the court may allow skipping immediately to arbitration without further delay.
What if the arbitration clause requires following procedures of an arbitration organization that no longer exists?
If the arbitration clause specifies following procedural rules of a named arbitration organization that has since gone out of business or merged into another entity, it creates uncertainty around applicable procedures. In this scenario, you can ask the court to reform the outdated provision by substituting reasonably comparable current arbitration rules to fulfill the intent.
For example, replacing references to the discontinued National Arbitration Forum rules with the current American Arbitration Association (AAA) or JAMS equivalent. This enables the core arbitration obligation to remain functional and enforceable.
What if they claim the arbitrator should be disqualified?
A party may attempt to disqualify an appointed arbitrator if evidence suggests partiality or bias calling their neutrality into question. However, adverse rulings or decided legal issues against a party do not themselves indicate disqualifying bias absent accompanying evidence of personal prejudice or financial conflicts of interest.
The arbitration agreement can require arbitrator candidness about potential conflicts upfront. Past professional associations, prior arbitrations, and relationships posing possible bias concerns should be disclosed and addressed before commencement. Later unsupported allegations of partiality face a high bar rebutting the presumption of arbitrator integrity.
Can third parties be added to an existing arbitration?
Joining additional parties to a pending arbitration requires consent of the existing parties and the newcomer the existing parties wish to add. Opposing their addition could result in a parallel arbitration against the new party, raising potential for inconsistent rulings. However, refusing joinder requests without good cause may be seen as improper obstruction.
For new parties added post-commencement, the arbitration panel can rule on fairness measures such as revisiting previously decided issues, modifying the award date, or re-doing certain procedural steps to accommodate their addition.
What if they argue the arbitrator exceeded their powers under the agreement?
Challenges arguing the arbitrator exceeded their authority have limited chances of succeeding. As long as the arbitrator arguably construed the agreement in reaching the award, it will be upheld even if legal or factual errors are alleged. However, awards addressing issues clearly outside the scope of the parties’ contractual arbitration agreement risk being vacated for overreach.
Ambiguous arbitration clauses with undefined coverage invite challenges. Carefully delineating the breadth of arbitrable issues and remedies in the agreement provides clarity around the arbitrator's powers. Exceeding unambiguous scope boundaries crosses the high threshold of overstepping arbitral authority.
What if they argue the arbitration agreement is unconscionable or illusory?
Challenges to arbitration agreements as unconscionable or illusory often allege one-sided terms, unfair surprise, or lack of meaningful mutual consideration. However, arbitration provisions within broader contracts supported by ample consideration rarely succumb to illusory challenges.
While lopsided terms favoring one party over another may raise unconscionability concerns, courts aim to sever problematic provisions and enforce the balance of voluntary arbitration agreements containing adequate bargained-for exchange and disclosure.
Can confidentiality of arbitration proceedings impede enforcement?
Parties sometimes argue compelled confidential arbitration prevents adequate remedies or transparency, undermining enforcement. However, absent clear public policy conflicts, courts favor enforcing voluntary arbitration confidentiality against speculatory enforcement criticisms.
Parties aware of arbitration privacy during contract formation are deemed to accept possible enforcement constraints. Narrow public policy exceptions exist for certain statutory claims or whistleblower rights requiring public filing. Otherwise, confidential proceedings do not preclude confirming or enforcing awards.
What if the arbitration agreement contains a forum selection clause?
Forum selection provisions governing arbitration disputes require filing any judicial enforcement proceedings in the chosen jurisdiction. This aims to prevent “home field advantage” by requiring arbitration challenges be brought in a neutral forum.
Mandatory forum selection binds parties to bring enforcement motions only in the specified courts. Actions filed elsewhere in breach of clear forum selection terms are subject to dismissal or transfer to the contracted-for forum absent extraordinary inconvenience.
Can arbitrators be civilly liable for misconduct in the proceedings?
Unlike judicial immunity for judges, arbitrators lack absolute immunity against civil liability relating to arbitral duties. However, significant misconduct must be proven, such as corrupt or fraudulent acts. Mere legal errors or professional negligence generally will not subject arbitrators to liability given arbitration's flexible adjudicatory norms.
Removing absolute immunity aims to hold rogue arbitrators accountable where arbitration confidentiality might hide misdeeds. However, substantial misconduct must be proven, with mere unsatisfactory decision-making insufficient for liability.
