In 1925, Congress enacted the Federal Arbitration Act (FAA) requiring courts to enforce agreements to arbitrate as valid contract provisions. Business communities and trade associations campaigned vigorously in support of its passage. They sought to make certain that they would have access to the arbitration tribunal of their choice to resolve disputes quickly and without recourse to lengthy and expensive litigation. Notably, this was a period during which trade associations routinely required their members to attempt to resolve their disputes though internal arbitration systems. It was against this backdrop that Congress passed the FAA to reflect the value it saw in the arbitral process and to effectively announce a national policy favoring arbitration. As enacted, the FAA provided that when a dispute involved a contract with an arbitration clause, a court must, upon motion, stay litigation to allow the arbitration to proceed. The act grants courts only circumscribed power to review an arbitration award on the merits and further disempowers states from imposing judicial constraints on claims that the parties agreed to resolve by arbitration. In the period since the enactment of the FAA, the U.S. Supreme Court has gone on to refine and clarify its scope. Over the past 25 years, it has issued decisions involving arbitration almost every term, generally strengthening its enforceability in order to achieve the desired goal. Critical to the success of the arbitration process is the ability of the parties to exert contractual control over its key elements: The selection of the arbitral tribunal, the choice of the arbitrator, the designation of a particular format for the resolution or award and the fact that the decisions do not set precedent have given arbitration the flexibility the parties have sought and contributed to its ever-increasing popularity. The preservation—indeed, the strengthening—of these components is essential if arbitration is to continue to thrive. Of particular significance is the ability of the parties to select the best qualified arbitrator, with the requisite expertise, knowledge base and temperament. Having the right arbitrator for the right case translates into immediate, discernible benefits, reducing the necessity for extensive background explanations and introducing increased efficiencies into the process from the outset. An arbitrator, functioning essentially as a private judge, is responsible for decision-making as to both the substantive and procedural aspects of a dispute. Interpreting statutory or contract terms, determining credibility, weighing the evidence and reaching a sound and binding decision are all within their purview. For this reason, the significance of the selection of an arbitrator familiar with the norms, terminology and key features of a particular industry cannot be overstated. Similarly, arbitration can be designed to best fit the specific circumstance, including modification of procedural elements such as discovery limits, briefing schedules, qualification and use of experts in the proceedings, and hearing formats. Additional details around the arbitrators’ authority regarding issuance of interim relief, conduct of the proceedings, the predicate of decisions, and the type and amount of damages can also be defined. As a whole, creating a flexible format better tailored to the nuances of each dispute avoids wasting process on what is both inefficient and impractical. In short, arbitration gives parties the power to design the dispute resolution process that best works for the nature of their distinct dispute. Lastly, in contrast to court proceedings, which are generally public, arbitration allows parties to keep the details of their business disputes private, which is invaluable for matters of branding and public perception. In a time where the stock price of a company can be immediately affected by negative publicity, the ability of a business to maintain privacy around its disputes is profound. A dramatic dip in a company’s stock value is unfortunately only a negative social media post away. The landscape of business disputes has certainly evolved since 1925. New industries continue to emerge, cutting-edge technologies are developing and global commerce has introduced intercultural exchanges that invite new types of conflict. At the same time, the heart of effective dispute resolution has not changed, which involves a well-respected neutral with subject matter expertise—as envisioned by the early-20th-century trade associations—hearing the matter in a fair process. As we reflect on the FAA’s centennial milestone, it is clear that this aspect of arbitration will continue to drive the evolution and elevation of arbitration space. Hon. Allyson K. Duncan (Ret.) is a retired judge of the United States Court of Appeals for the Fourth Circuit and currently works as a JAMS mediator, arbitrator, referee/special master, neutral evaluator and hearing officer. Ellen Kim, Esq., serves as corporate counsel at Workday, where she partners with a robust sales organization in leading negotiations in complex commercial transactions. She is also a JAMS ADR Fellow and career design coach at Santa Clara University’s Leavey School of Business. EXPLORE MORE ON THESE TOPICS Arbitration
