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The arbitration proceeding at issue in the Carter case arises from a rather lengthy series of intellectual property disputes between the plaintiff, a hip-hop artist and record producer, and the defendant, a clothing company.

Arbitration vs. Litigation: It's Not An Either-Or Proposition

The plaintiff sold a clothing brand to the defendant in , leading to several lawsuits and settlements involving trademark rights. A lawsuit filed by the defendant against the plaintiff in New York in , for example, is still pending. The current arbitration is related to a settlement agreement between the parties from The defendant alleged breach of the agreement, and commenced a proceeding with the American Arbitration Association AAA in October The plaintiff filed suit in a New York state court in Manhattan under a state law that allows a party to an arbitration to ask a court to stay the proceeding.

The court granted a ninety-day stay in the arbitration in late November.

While an arbitration can feel a bit less formal, it is key to remember that arbitration is still an adjudicative and adversarial proceeding. Private Nature : Arbitration is, again, private. That said, they certainly can agree to strict confidentiality provisions above and beyond the non-public nature of arbitration.

Federal Arbitration Act

Procedural and Evidentiary Rules : In court litigation, there are rules of procedure and evidence set forth in a number of different places. Evidence is received according to the Federal Rules of Evidence. In state court, there are typically a number of different evidentiary and procedural rules that will govern any proceeding. Unlike in court proceedings, the procedural rules and rules of evidence are slimmer. Arbitration forums often have their own rules, which will generally apply by default unless the parties elect to follow the federal or state rules in their arbitration contract.


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Arbitration rules are generally much more compact than federal or state rules, and based on the private nature of arbitration, there are usually no cases discussing how those rules are to be applied. The result of this process is that arbitration proceedings can seem less formal.

Arbitration is not Mediation : One common misconception is that arbitration is or is similar to mediation, when the two are in fact very different. Mediation is a typically non-binding process in which parties come together in front of a third-party neutral the mediator to discuss their case with the intention of settling it. Arbitration is similar to a trial, and if it proceeds to the end, will result in an award to one party which can be filed in court , rather than a settlement.

A Powerful Coalition Forms

The only important similarities are the presence of a neutral, and the fact that many arbitration companies employ arbitrators and mediators often, the same people do both kinds of work. This all sounds great, right? Supreme Court cases as enforcing contracts requiring disputes to be settled out of court.

Arbitration vs. Litigation: It's Not An Either-Or Proposition

Szalai is no fan of the widespread use of binding arbitration clauses in consumer contracts. The FAA reflected mayhem in the federal court system, where until the Federal Rules of Civil Procedure were passed in , each judge picked whatever procedural rules he wanted and courts were overwhelmed with Prohibition-related cases anyway. The class-action bar is a vital source of financial support to the Democratic Party and it is fighting back hard.

The Consumer Financial Protection Bureau has proposed new rules that would ban contracts in consumer-finance contracts over credit cards, loans and the like, that prohibit class actions.

Arbitration Provisions in The Federal Arbitration Act

Back when the FAA was passed, he said, arbitration clauses ran all of one sentence and were entirely between businesses. For arbitration clauses to work in the consumer market, he said, they have to come with all the procedural protections of the federal court rules.