Arbitration for Small Business Transactions

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News headlines related to arbitration typically fall into broad categories of sports, union and collective bargaining, international arbitration, and other big-business matters.  Arbitration related to small business disputes aren't often deemed news-worthy.  However, if we look at small business arbitration as a category, these small dollar claims are significant.  Arbitration for small claims often carries prohibitive costs that bar access to resolution. 

When the dollar amount in a contractual dispute is low and the parties are unaware of the arbitration provision, they may initially file the dispute in Small Claims Court, only to be referred by the judge back to arbitration; an arbitration provision prevents parties from taking their dispute to court.  Only at this point are many parties made aware of the prohibitive costs of arbitration for small contractual claims.  A recent Wall Street Journal online article titled Supreme Court Declines to Revive Delaware Arbitration Program by Brent Kendall and Peg Brickley published March 24, 2014  states,

"Businesses like arbitration because it often is faster and less expensive than fighting in court—and because it takes place behind closed doors…. so long as corporate litigants were willing to pay a $12,000 filing fee and $6,000 a day in arbitration costs." 

When the cost of arbitration exceeds the claim amount, disputes are often dropped.  It may seem counter-intuitive for corporate attorneys to write into their contracts an arbitration requirement for small business transactions, given the limited options for affordable resolution; however, these provisions may point to an underlying strategy.  When individual parties to a contract lack affordable access to arbitration and are forced to drop their complaint without a hearing, companies save not only the cost of litigation and arbitration, but are also able to effectively side-step consumer complaints.  

What can be done?  Expand the options for affordable hearing by striking or modifying contractual arbitration provisions that insist on arbitration proceedings through a specific arbitration provider or forum.  As a consumer, you may consider modifying a stringent arbitration provision in the interest of utilizing a fair process that is reasonably priced, especially when the cost of contract is low.  Rather than arbitrating a small dollar claim, you may want to strike the arbitration provision altogether, opting for small claims court instead.  Small Claims Court requires a nominal fee and is designed to address complaints in a manner that consumers can manage without legal counsel.  Contracts are deemed to "inure to the benefit" of the party who wrote it.  In other words, the drafter of the contract is assumed to have chosen the most favorable option for the company, rather than for the protection of the consumer.  Prior to signing, such provisions are often negotiated.

Colorado Mediators & Arbitrators offers affordable arbitration hearings to address small and mid-size claims.  Parties may file for arbitration with confidence when their contractual provision doesn't specify another forum.  Hearing by Documentary Review carries a flat fee for claims under $15,000, and Hearing by Teleconference is offered for a flat fee for claims under $75,000 when total teleconference time does not exceed three (3) hours.  Colorado Mediators & Arbitrators Fee Schedule can be referenced at http://coma.com/fees.   
 

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