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ENFORCEABILITY OF ARBITRATION CLAUSES

Posted by Aric S. Bomsztyk | Jan 14, 2019 | 0 Comments

By contract, parties can agree to forgo the traditional court system and settle their disputes by arbitration. Broad rules regarding arbitration in Washington are governed by Washington's Uniform Arbitration Act. RCW 7.04A et. seq. 

Washington's Uniform Arbitration Act RCW 7.04A et. seq.  was adopted to in order to promote the judicial enforcement of private agreements to submit disputes to arbitration.  Thus, in Washington, Courts favor arbitration when the parties contractually agree to it.  That is to say, if there is a doubt or a question as to whether a dispute is arbitrable, or some part of a dispute is arbitrable, Washington Courts will lean in favor of arbitration and force the parties to arbitrate.  Both state and federal law strongly favor arbitration and require that all presumptions be made in favor of arbitration.

An arbitration is a private proceeding where an arbitrator is appointed, by the parties or by a procedure they agree to, to determine how a dispute should be resolved.  Arbitrators are typically retired judges and/or lawyers, but they do not necessarily need to be.  The procedure for how an arbitrator should conduct the arbitration, including how evidence should be produced, witnesses should testify and the arbitrator's ultimate decision should be rendered can be predetermined by the contractual parties.  If the parties do not predetermine these types of questions, then the ultimate decision on how the arbitration is to proceed is up to the arbitrator.  The broad rules regarding the arbitration process are set forth in RCW 7.04A.150(1) which states:

“(1) The arbitrator may conduct the arbitration in such manner as the arbitrator considers appropriate so as to aid in the fair and expeditious disposition of the proceeding. The authority conferred upon the arbitrator includes the power to hold conferences with the parties to the arbitration proceeding before the hearing and to determine the admissibility, relevance, materiality, and weight of any evidence.”

In contrast, in “Open Court” proceedings are public and the rules are predetermined by statute or court rule.  Therefore, one aspect of arbitration that is very different from “Open Court” is that the parties can stipulate to a confidentiality requirement in an arbitration agreement.  This does not conflict with Washington State law which guarantees public access to judicial proceedings, or the right to have a dispute in “Open Court” because the parties have stipulated to confidentiality.   

However, if there is an agreement to arbitrate, and a party refuses to arbitrate, then the party wishing to arbitrate must actually file a lawsuit in “Open Court” to have a judge compel the recalcitrant party to submit to arbitration.  The procedure on how to force an objecting party to arbitrate is set forth in Washington's Uniform Arbitration Act at RCW 7.04A.070  Conversely, if a party participates in a lawsuit in “Open Court” without timely objecting and promptly demanding a judge stop the proceeding and compel arbitration, then a party may waive the previous right that they had to demand a private arbitration.  A judge will review a three (3) part test to determine whether a party waived their previous right to demand arbitration.  The three parts of the test are “(1) knowledge of an existing right to compel arbitration, (2) acts inconsistent with that right, and (3) prejudice.”  Schuster v. Prestige Senior Management, L.L.C., 193 Wash. App. 616, 376 P.3d 412 (2016)

In sum, it is very important for businesses who sign contracts to determine if there is an arbitration clause as soon as a dispute arises.  If there is an arbitration clause, and a business wishes to enforce an arbitration clause to proceed in arbitration, it is very important that they follow the procedures to compel arbitration which are found in Washington's Uniform Arbitration Act RCW 7.04A immediately.  If a business does not follow the procedure, they may waive or lose their right to have their dispute resolved by arbitration. 

Our firm represents companies who wish to arbitrate their disputes or are currently in arbitration.  We also defend individuals and companies defending against claims that they have signed agreements which make them subject to arbitration.  Prior to a dispute arising, we also advise businesses on whether their agreements should contain an arbitration provision and, if so, what clauses should be adopted to ensure that arbitration makes sense for their business. Please contact our firm with any questions, we will provide a free consultation.    

About the Author

Aric S. Bomsztyk

Partner - Mr. Bomsztyks practice encompasses all aspects of small business representation including incorporation, financing, contract/lease review, negotiations, dispute resolution, and litigation. Mr. Bomsztyk represents a wide variety of business including internet startups, general con...

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