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Arbitration is the resolution of a dispute by a neutral third person (the arbitrator) that listens to the arguments of each party, reviews the evidence, and issues an arbitration award. The arbitrator simply "hears" the case. Unlike the mediator, she does not work to persuade the parties to come to any kind of an agreement. Additionally, the arbitration award is a legally binding decision on both the parties. Generally, parties who submit their differences to arbitration are bound by the decision of the arbitrator and cannot go to court on the issue once a final decision has been made.

Mandatory arbitration is becoming common. For instance, most credit card company agreements require that customer disputes go to arbitration and do not permit the customer to file an action in a court. Consumers are generally unaware that they have signed an agreement containing a mandatory arbitration clause. These clauses are found in car lease contracts, cell phone contracts, insurance policies and HMO enrollment forms, to name a few.

SIDEBAR: Mandatory arbitration clauses typically require the consumer to arbitrate through a preselected arbitration service. The service may require hundreds of dollars in filing fees and an advancement for the arbitrator's time. Consumers frequently spend several thousand dollars arbitrating their dispute.

TIP: The Federal Trade Commission maintains information on arbitration on its Web site at

State and federal courts enforce arbitration awards. Parties who do not comply with the arbitrator's decision may be forced to defend an enforcement action.

Who chooses the arbitrator?

Ideally, the parties agree on an arbitrator. In some cases, there is a panel of arbitrators (one chosen by each side plus a neutral arbitrator). Companies may require customers or employees to choose or agree to an arbitrator from a preselected list.

SIDEBAR: Choosing an arbitrator often involves each side eliminating names from a list until one is left.

Who pays for the arbitrator?

In voluntary arbitration, the parties can split the cost or one party may offer to pay. In mandatory arbitration, the person bringing the dispute is responsible for the arbitrator's fees.

TIP: Local Better Business Bureaus (BBBs) have arbitration programs for individuals who agree to arbitrate their disputes. The BBB typically bears the cost of the arbitration. The arbitrator is usually a community volunteer and does not charge a fee.

Where does arbitration take place?

The arbitration often takes place at the arbitration services offices. If a mandatory arbitration clause is in effect, the location could be anywhere in the nation.

Can I appeal the arbitrator's decision?

No. Arbitration awards are final and binding.

Do I need an attorney to represent me at arbitration?

No. However, if you are dealing with a large company and complex issues, an attorney will be invaluable. Additionally, it is not uncommon for an arbitrator to require written memoranda of the legal issues in the case with cites to relevant statutory or case law.

Can a judge order my case to binding arbitration?

Yes. Laws in some states permit courts to send cases to arbitration where the amount at stake is below a certain sum, such as $25,000.

SIDEBAR: To remove a case from binding arbitration ordered by a judge, a party must file a motion for removal.