Are Arbitration Clauses Enforceable in TN?

How does arbitration work?

Arbitration is the process whereupon parties resolve their disputes via a private proceeding rather than in a courtroom. During arbitration, a neutral party known as an arbitrator presides over a case and issues a ruling, similar to what a judge or jury would do in the court system. An arbitrator is generally an experienced lawyer or retired judge with specific subject matter expertise in the area of the dispute. Unlike mediation, arbitration is a binding process, and the findings of the arbitrator are usually upheld and rarely overturned. Arbitration is favored by some litigants and disfavored by others.

What are the pros and cons of arbitration?

Proponents of arbitration generally prefer arbitration because it can offer a more efficient process and allow for a quicker resolutions than litigation, which can take years to resolve. However, arbitration awards tend to be more conservative than jury verdicts, so large corporations often prefer to have disputes against them resolved in arbitration. Unlike the court system, there can be substantial fees associated with arbitration.

Arbitrations are usually administered by a company such as the American Arbitration Association (AAA) or Judicial Arbitration and Mediation Services, Inc. (JAMS) and these third parties require various filing and administrative fees that may be payable by an individual party or jointly. Furthermore, the arbitrator is also required to be compensated by the litigants. These fees can drastically increase the costs for litigants. If either party attempts to invalidate an arbitration agreement due to substantial fees, that party assumes the responsibility of proving that excessive fees will be incurred.

What types of contracts contain arbitration clauses?

Arbitration clauses are included in all types of contracts. It is common to find arbitration clauses listed in real estate contracts, construction contracts, employment contracts and any contract with a corporation or individual who prefers to resolve a potential dispute through arbitration rather than the court system. The Tennessee Uniform Arbitration Act of the Federal Arbitration Act may be specifically invoked via contract.

Can litigants avoid an arbitration clause and pursue their claims in court?

The Tennessee Supreme Court has held that The Tennessee Uniform Arbitration Act is “valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the revocation of any contract.”  Benton v. Vanderbilt Univ., 137 S.W.

As a general matter, Tennessee courts find that arbitration clauses are usually valid and enforceable. However, there are some narrow exceptions to this rule.

In a recent case decided by the Tennessee Court of Appeals, Mankin Media Systems v. Timothy Corder. The Tennessee Court of Appeals held that an arbitration clause contained in an employee handbook was not enforceable because the handbook did not “constitute an enforceable employment contract.” As a result, it overturned an arbitrator’s award.

In another case decided by the Tennessee Court of Appeals, Brenda Gibbs v. Capitol Resort Group, LLC, et al.  the Court of Appeals refused to enforce an arbitration provision when the Plaintiff alleged that she was fraudulently induced to sign the contract for a timeshare in east Tennessee that included the arbitration provision. As a result, of the Court’s decision, the Plaintiff was allowed to pursue her claims in court.

Notably, these cases are the exception to the general rule that arbitration clauses included in contracts are enforceable. Therefore, consumers should keep in mind that if a dispute arises over a contract that includes an arbitration agreement and the Defendant chooses to compel the matter to arbitration, the dispute will very likely be compelled to arbitration. Furthermore, even if a litigant is able to successfully convince a trial court that an arbitration clause should not be enforced, then a Defendant has an automatic right of appeal that they can exercise during the pendency of the litigation.

Do I need a lawyer to represent me during arbitration ?

You are not required to have your attorney accompany you during arbitration. However, it is prudent to seek your own counsel if (1) the opposing party will have a lawyer present, (2) if a significant amount of money is at stake, (3) if the subject matter of the arbitration is important, or (4) if you believe that the arbitration clause might be invalid. It is always beneficial to have a lawyer on hand who understands the arbitration process and who can level the playing field.

If you need help with a contract that contains an arbitration clause, or if you are required to go to arbitration, call one of our Brentwood attorneys at Cole Law 615-490-6020 for a consultation.