American Arbitration Association

Panacea to an Overburdened Court System or an Unconstitutional Fraud on the American Businessman?

On the Matter of Wand Electric, Inc. v. Clinton County Highway Department

   The American Arbitration Association has been touted by many as a cure for the justice system by relieving the courts of some of its burden. Indeed, the courts, in their zeal to relieve the growing case load, have given arbitrators near godlike powers in passing judgment. For example, an arbitrator need not give any reason for his decision and he does not have to follow the law in arriving at a verdict.

   Their decisions are not generally appealable unless a very narrow criteria is met, such as evidence of fraud, new issues have occurred, proper procedures have not been followed, or they have made irrational decisions against public policy.

   Supposed benefits include less cost, faster processing, and impartiality. The truth is, in some instances, just the opposite. The fees of the AAA in the Wand Electric case mentioned above, exceeded $30,000 between the parties and took eleven days stretched out over six months. It took the AAA nearly one year to the day to appoint a panel of three arbitrators and set a arbitration date. It took another year to render a verdict. Meanwhile, the contractor is without work during this time because his money is being held hostage by the owner and his surety has dropped his bonding until settlement of the case. Finally, because of apparent personal bias and prejudice (an arbitrator that is an engineer is reluctant to find against a fellow professional just as doctors protect doctors, lawyers protect lawyers, etc.), political maneuvering and perhaps complete ignorance of the law and ethics, arbitrators may do irreparable harm to an innocent party.

   As it stands now, in most states, arbitration is mandated by local contract provisions. The courts have said that this is a VOLUNTARY process. The states by themselves do not mandate arbitration leaving it instead to the localities or individual owner whether or not to include an arbitration provision. This, then, in the courts infinite wisdom, makes it a VOLUNTARY inclusion. It is voluntary because one does not have to sign the contract. I fail to see what is voluntary about this whatsoever. If you object to the arbitration provision and refuse to sign the contract with said provision in it, you lose the job as the next low bidder will gladly accept. What this means to the aggrieved party when an unjust verdict has been rendered is that on appeal the appellate court is simply going to say, “It was a VOLUNTARY arbitration, the arbitrators can do as they please, they do not have to follow the contract and they do not have to tell you why. You lose”. (NYS Third Department decision d December 31, 1997)

   In a jury trial, you’re being heard by your peers, where it is much more unlikely that 12 jurors will be biased and prejudiced. Secondly, if an unjust verdict is rendered, the aggrieved party has the benefit of an appeals process that supposedly will follow contract law and give reason as to why the contract was breached, not so with arbitration.

   At the very least, a choice between arbitration and a jury trial should be mandated, not arbitration by itself as is mandated in most construction contracts today. Arbitrators should be compelled to give reasons for their justifications, and there should be an appeals process. One may argue that is exactly why arbitration was implemented, to eliminate the cost and lengthy trial process with its appeals. As witnessed by the Wand Electric arbitration, this was not the case. The unfortunate result is that in many cases, arbitrators have too much power and too little accountability for their decisions. I would hazard to say this is unconstitutional. Whatever happened to fairness, justice, and due process? How is it constitutional when arbitrators do not have to give reasons for their decisions? How is it constitutional that arbitrators do not have to follow the contract that was signed in good faith and provides for contractor’s rights? America On Line's legal forum on the American Arbitration Association contains numerous complaints from individuals who have had less than satisfactory results as a result of an arbitration hearing. The common thread is that arbitrators seem to take a middle ground in determining awards whereby neither party will be severely hurt.

   This is all good and fine in some cases of small merit, however, when one party loses his entire source of income and a business of nearly twenty years good standing, a platonic middle-ground award just doesn't cut it, not when the evidence clearly shows otherwise. Not when an arbitrator states during a hearing that, "Aren't you supposed to have the money to withstand a two year long hearing?" This statement was made after the contractor had lost his bonding capacity and hence his business and had no income for two years. Not when an arbitrator falls asleep during your testimony but comes "alive" when perjured testimony from the other side is offered. Not when the arbitrator(s) had to deliberately ignore so many breaches of contract by the other party that it rendered the contract meaningless. Not when the other party is a government agency and therefore has unlimited staying power and money to burn.

   Ultimately, what this means, is that a contract is not worth the paper upon which it is printed. In arbitration, the contract is unenforceable and may be completely repudiated without justification and the courts will condone this. Large contractors rarely face this problem because they have the money, the staying power, and the backing of a quality surety that the smaller contractors lack. Government entities shy away from suing these big boys for this very reason, they prefer to pick on the little guys that they can intimidate.

   Little is being done to address this grievous situation. There is no sex, abuse, violence or other politically correct issue involved. The public is apathetic because it doesn’t concern them. The few contractor’s organizations such as the American Subcontractors Association, the Associated Builders and Contractors, and the Associated General Contractors don’t care. They’re more concerned with getting the contractor’s dues so they can go to the next state and national convention parties with their wives, girlfriends, and cronies free of charge. Letters to each of these organizations asking for help were unanswered. The state legislature, forget about it. Of over one hundred assemblyman and state senators that were contacted, four replied. One referred it to the local state senator who promptly filed it in his circular file as he could very well have been involved in the arbitrator's "decision". Two more expressed interest and said they would follow through and never did. And the last actually obtained a legal opinion, asked what he could do to help and never followed through. The last resort is media attention and a lawsuit, hence this Internet website for the former and stay tuned for the latter.  

   A letter to American Arbitration Association regional vice-president Deborah Brown detailing the areas of the contract that were neglected by the panel and her reply is below. One thing is certain, reform of the arbitration process is needed. If anyone has ideas, support, or a case to be presented, please contact:

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Letter to and answer  from AAA Regional Vice-President Deborah Brown.