By S. Timothy Buynak, Partner

November 2014

          For most businesses, their contracts stipulate that disputes are to be resolved by arbitration.  As a concept that sounds great, as it allows the parties to resolve their differences expeditiously[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][1] and privately, at less cost than court resolutions.

The specifics of each arbitration clause are important; California law does not make arbitration provisions “self-executing”.  Stated otherwise, if a party refuses to participate in an arbitration proceeding, the party desiring the arbitration is required to force the attendance of the absent party, unless the contract provides for the arbitrator’s jurisdiction and his/her ability to render an award/judgment.[2]  These problems can be avoided with contractual arbitration provisions that

• specify the law, jurisdiction and venue for an arbitration, so long as one of the parties has “minimum contacts” (an office) in the jurisdiction. For example:

“The laws of the State of California shall govern this Agreement without giving effect to conflict of laws, with venue for all purposes mandatory and proper only in the County of ______________________, State of ______________________.”

• waive defenses to the venue (place) of the arbitration, for example, “the choice of venue is considered to be exclusive, mandatory and not permissive in nature, thereby precluding the possibility of proceedings in any other jurisdiction. The parties waive any right to assert the doctrine of forum non-conveniens or otherwise object to the designated venue.”

• stipulate to each parties’ personal jurisdiction for the arbitration proceeding – – “the parties expressly consent to, and submit to, the personal jurisdiction of the arbitration,”

• allow the arbitrator to proceed in spite of the absence of a party.

“Should either party refuse or neglect to appoint an arbitrator, to furnish arbitrator with any papers or information, or otherwise participate in the arbitration, the arbitrator is empowered by the parties to proceed and an award may be entered against a party notwithstanding its failure to appear or participate in the arbitration.”

Properly drafted arbitration clauses are critical.  You and the viability of your business need to count on the expeditious arbitration resolution process that you have chosen if disputes arise, rather than being stalled for years in court proceedings.

Additional arbitration provisions should allow for

The prevailing party to recover its attorney’s fees, costs and expenses;

• The ability to gain injunctive relief through the court system; to preserve the status quo (to avoid the improper exploitation of your intellectual property); and

• Local arbitration at a reduced cost with limited discovery (e.g., two depositions only) and limited presentation time (one day for each side).

Almost daily the attorneys of our Firm craft arbitration clauses for the benefit of our clients, so that their businesses will succeed in spite of dispute “bumps” along the way.  We look forward to being of assistance to you.  It is easy to write an agreement to specify the interaction of the parties for their mutual benefit.  It is difficult, but as important, to have contractual provisions to hold each of the parties to their agreement with appropriate resolution proceedings, like arbitration.  All business arrangements should be reduced to written agreements.  As soon as your tentative business deal is struck, you should see your attorney, craft an appropriate agreement to ensure that you receive the full benefit of the business arrangement.

Timothy Buynak, Partner

TBuynak@BFASLaw.com

(Direct) 805.966.7575

DISCLAIMER:  This Advisor is one of a series of business, real estate, employment and tax advisories prepared by the attorneys at Buynak, Fauver, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution of this legal Advisor.

[1] Santa Barbara Superior Court resolutions usually take 1-2 years; other jurisdictions may take 3-4 years.

[2] The specification of the Procedural Rules of the American Arbitration Association or other arbitration organizations provide for “default awards” in the event a party fails or refuses to participate.  The inclusion of these Rules makes the arbitration “self-executing.”[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]