Litigation is expensive. While it may not be readily apparent, litigation costs can add up very quickly. In some cases, attorney’s fees exceed the amount in dispute. One way parties may be able to bring the cost of litigation down is to avoid it through alternative dispute resolution (ADR). In Texas, arbitration is one of the most popular forms of ADR.
What Is Arbitration?
Arbitration is when the parties to a dispute agree to let a neutral third party—an arbitrator—hear the case and decide on a binding decision. Although a single arbitrator hears some disputes, it’s not uncommon for a panel of arbitrators to also be used. Texas law has specific rules and regulations about arbitration. These rules and regulations are found in the Texas Arbitration Act, which we discuss further below.
The Texas Arbitration Act
The Texas Arbitration Act covers the rules and procedures for arbitration in Texas. It’s important to note that there is also a Federal statute related to arbitration, called the Federal Arbitration Act. Further, specific organizations, such as American Arbitration Association (AAA), have their own rules and procedures.
Texas Arbitration Rules
The most important provision of the Texas Arbitration Act is the first section, which states that an arbitration clause in Texas is valid if it is designed to arbitrate:
- A dispute that existed before the agreement or
- A dispute that arises between the parties after the agreement has been signed.
The Texas Arbitration Act states that an arbitration provision can be revoked only if a party has legal grounds to do so. In other words, this means that if you sign an arbitration agreement, there is a good chance that it can be enforced, even if you regret it later. That said, an unconscionable arbitration clause would probably be unenforceable.
Enforcement of Arbitration in Texas
If one of the parties to a Texas arbitration agreement decides they don’t want to arbitrate, can you make them do it anyway? Generally speaking, the answer is yes, presuming there is a valid arbitration agreement. The Texas Arbitration Act states that a court can order or compel arbitration when:
- An arbitration agreement exists and
- The other party refuses to arbitrate.
Thus, a party can ask the court to compel the non-compliant party to arbitrate. If the non-compliant party denies the existence of the agreement, then the court will have a hearing on the issue and determine whether or not to compel arbitration. Some arbitration provisions state the arbitrator will decide whether the dispute, or part of the dispute, should be decided by arbitration.
Choosing an Arbitrator
Most contracts specify that the arbitration will use a specific organization, such as AAA, to find an arbitrator and define the parameters of the process. Whenever the agreement does not specify an arbitrator or the appointment provisions cannot be enforced, a party can ask the court to appoint a qualified arbitrator. However, this is somewhat rare as most parties will usually negotiate to determine an arbitrator when there is no appointment provision.
What Is the Venue for Arbitration?
The place where the arbitration takes place will depend on a few factors. If the arbitration agreement explicitly identifies the county where the arbitration will take place, that county will most likely be the venue for the arbitration. Absent a provision specifying the county, the arbitration typically occurs in the county where the adverse party is located. If that party resides outside Texas, arbitration may take place in any Texas county.
The Process of Arbitration in Texas
Arbitration works a lot like an actual trial. The arbitrator will hear both sides of the dispute. Arbitrators can take depositions and summon witnesses to appear before them. Even though arbitration does not take place in a courtroom, you will still typically need an attorney for arbitration. On the other hand, arbitration tends to move more quickly than a trial, and the discovery and motion practices that tend to drag litigation out are usually not as prevalent during the arbitration. After hearing both sides and reviewing the evidence, the arbitrator will make a decision and possibly issue an award (i.e., damages). Absent certain exceptions, a court can usually enforce an award issued by an arbitrator.
Although many people believe arbitration is less expensive than going to court, this is not necessarily true. The parties must pay fees and expenses to the AAA plus pay for the arbitrator. Many arbitration provisions in contracts require the parties to equally split the cost of the AAA and the arbitrator. The arbitrator can order one party to pay for all such fees and expenses at the end of the case. An arbitrator typically charges by the hour at rates similar to a lawyer plus a day rate for the actual arbitration final hearing. It is not unusual for the AAA and the arbitrator to charge each party thousands of dollars for the service.
Talk to the Hunnicutt Law Group
When it comes to arbitration in Texas, the Hunnicutt Law Group has you covered. Whether you need an arbitration attorney or just want to know more about the Texas Arbitration Act, we want to help. Our team of skilled attorneys have experience in Texas law and dispute resolution. When you pursue litigation or arbitration, you deserve an attorney who knows what they are doing. Contact our office today to set up your initial consultation.