2006/Vol. 5 No.1 - Hamline Law - Hamline University

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14 THE JOURNAL OF AMERICAN ARBITRATION [Vol. 5:1 Practice allows civil cases to be referred to some form of ADR solely on the initiative of the judge or only one of the attorneys representing a party. 53 If the case is referred to arbitration, the decision is non-binding and either party may reject the award and demand a trial. If after ten days neither party rejects the award of the arbitrator and demands a trial, the decision becomes binding. So, a “non-binding arbitration” can become “binding” if both parties accept the outcome or both wait too long to demand that the case be returned to court. 54 B. The Arbitration Clause Arbitration is commonly known as a creature of contract. 55 In a free-market, free-trade economy, the parties to an arbitration agreement have wide latitude in drafting their arbitration clause. Because the arbitration clause affects how the entire arbitration process will proceed, careful drafting is required. The treatment given an arbitration clause resembles that of any free-market contract. 56 Parties to a contract make their own law, and it is, of course, true that, subject to the rules of public policy and public order, the parties are free to agree upon such terms as they may choose. Nevertheless, agreements that are intended to have legal operation . . . create legal rights and duties, and legal rights and CAL. LOCAL CT. R. 4-2 (2005). 53. MINN. R. GEN. PRAC. 114.01 (2005) (“All civil cases are subject to Alternative Dispute Resolution (ADR) processes, except for those actions enumerated in Minn. Stat. § 484.76 and Rules 111.01 and 310.01 of these rules.”). 54. See, e.g., MINN. R. GEN. PRAC. 114.09(e) (2005) (stating that “[i]f no party has filed a request for a trial within 20 days after the award is filed, the court administrator shall enter the decision as a judgment . . . [which shall] have the same force and effect as . . . a judgment in a civil action or proceeding.”). 55. See Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 472 (1989) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985) (“[B]ecause ‘the thrust of the federal law is that arbitration is strictly a matter of contract,’ the parties to an arbitration agreement should be ‘at liberty to choose the terms under which they will arbitrate.’”)). 56. See Doctor’s Assocs. v. Casarotto, 517 U.S. 681, 687 (1996) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 511 (1974) (“By enacting § 2, . . . Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed ‘upon the same footing as other contracts.’”)); St. John’s Sanitary Dist. v. Town of Schereville, 621 N.E.2d 1160, 1162 (Ind. Ct. App. 1993) (recognizing that when interpreting an arbitration clause, “the court will apply ordinary contract principles”); see also Ziegler v. Whale Secs. Co., 786 F. Supp. 739, 741 (N.D. Ind. 1992).
2006] ARBITRATION: THE BASICS 15 duties cannot exist in a vacuum, but must have a place within a legal system. 57 While contracts generally do not have to be in writing to be enforceable, arbitration clauses must be in writing to be valid. 58 Because both parties give up their right to go to court, the Federal Arbitration Act requires that an arbitration clause be in writing. 59 An agreement to arbitrate must be “openly and freely” entered into by both parties. 60 Parties will not be compelled to arbitrate if they have not voluntarily contracted to use this mechanism to resolve their disputes. 61 Once the court has determined that the arbitration agreement is valid and that the parties contracted for arbitration of their dispute, they will be held to it. 62 57. Angela L. Kimbrough, Arbitration: Demise of the Right to Trial by Jury, in 1 AM. TRIAL LAW. ASS’N ANNUAL CONVENTION REFERENCE MATERIALS 397 (2000) (quoting Lord McNair, The General Principals of Law Recognized by Civilized Nations, 33 BRIT. Y.B. INT’L L. 1, 7 (1957)). 58. 9 U.S.C. § 2 (2000) (providing that “[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, . . . or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable”) (emphasis added). 59. Id.; see Kilmer v. Flocar, Inc., 212 F.R.D. 66, 72 (N.D.N.Y. 2002) (citing In re Arbitration Between Chung & President Enters. Corp., 943 F.2d 225, 229 (2d Cir. 1991) (noting that, “[g]enerally, the FAA governs all questions before a federal court regarding the validity and enforceability of arbitration agreements if: (1) the parties have entered into a written arbitration agreement”)). The Kilmer court held that, because agreement was not in writing, it did not meet requirements of the FAA. Id. 60. Benyon v. Garden Grove Med. Group, 161 Cal. Rptr. 146, 149 (Cal. Ct. App. 1980) (“[I]n order to be enforceable an agreement to arbitrate must have been openly and fairly entered into by the parties.”); see also United Steel Workers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960) (“[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”). 61. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985); Litton Fin. Printing Div. v. NLRB, 501 U.S. 190, 199 (1991) (quoting Hilton-Davis Chem. Co. v. Local 342, Int’l Chem. Workers Union, 185 N.L.R.B. 241, 242 (1970) (“[T]he commitment to arbitrate is a ‘voluntary surrender of the right of final decision which Congress . . . reserved to [the] parties.’”)). 62. Hahnemann Univ. v. Dist. 1199C, Nat. Union of Hosp. & Health Care Employees, 765 F.2d 38, 41 (3d Cir. 1985) (quoting Warrior & Gulf Navigation Co., 363 U.S. at 582-83) (“A court should order the reluctant party to submit the dispute to arbitration ‘unless it may be said with positive assurance that an arbitration clause is not susceptible of an interpretation that covers the asserted
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