Arbitration agreements are legally binding contracts, commonly found in various settings—from employment and consumer contracts to business partnerships—requiring disputes to be resolved through arbitration rather than court litigation. When a party fails to honor an arbitration agreement, however, it can leave the other party in a difficult position. Refusing to participate in FINRA arbitration, ignoring an arbitration award, or otherwise undermining the process can have serious legal and financial consequences. Understanding the options available when an arbitration agreement isn’t honored can help parties navigate these disputes effectively and seek enforcement or relief.
1. Attempt to Resolve the Issue Informally
In cases where a party is hesitant to honor an arbitration agreement or participate in the process, starting with informal communication can often be the quickest way to address the issue. This approach can involve reaching out to the opposing party or their legal representative to discuss any concerns they might have regarding the arbitration process, such as fairness, costs, or logistics. Sometimes, clarifying the terms or providing reassurances about the arbitration process can resolve misunderstandings and encourage participation.
2. File a Motion to Compel Arbitration
If informal attempts to resolve the matter fail, the next step is to seek a court order to compel arbitration. Filing a motion to compel arbitration involves requesting that a court enforce the terms of the arbitration agreement, thereby requiring the opposing party to participate in the process. Under the Federal Arbitration Act (FAA) and many state laws, courts are generally supportive of arbitration agreements and are likely to compel arbitration if a valid agreement exists.
In a motion to compel arbitration, the filing party needs to demonstrate that:
- A valid arbitration agreement exists.
- The dispute falls within the scope of that agreement.
- The opposing party has refused to participate in arbitration.
If the court finds that the agreement is enforceable, it will order the other party to participate in arbitration, effectively upholding the terms of the contract.
3. Seek Enforcement of an Arbitration Award in Court
If the issue arises after an arbitration award has been issued, and the other party refuses to comply, the affected party can petition the court to confirm and enforce the award. Courts generally treat arbitration awards as binding and final, and under the FAA, they can convert an arbitration award into a court judgment. Once confirmed as a judgment, the award has the same enforceability as any court decision, meaning the winning party can pursue collection or enforcement actions, such as garnishment or property liens, to secure payment or compliance.
4. Counter an Unwilling Party’s Challenges to the Agreement
Occasionally, a party may refuse to honor an arbitration agreement by challenging its validity. Common arguments against enforceability include claims that the arbitration agreement is unconscionable, unclear, or conflicts with public policy. In such cases, it is essential to be prepared to defend the validity of the agreement, which may involve presenting evidence that both parties agreed to arbitration knowingly and willingly and that the terms are fair and equitable.
The Federal Arbitration Act generally favors the enforceability of arbitration agreements, and courts often look unfavorably on attempts to invalidate them unless there is substantial evidence of unfairness or impropriety. A legal defense of the agreement can emphasize these protections, citing the precedent that supports the enforceability of arbitration clauses in contract law.
5. Consider Settlement or Mediation as an Alternative
If the dispute over the arbitration agreement proves contentious, exploring alternative dispute resolution methods like mediation or settlement may provide a path forward. Mediation offers a more flexible and informal setting for discussing disagreements, and it might reveal compromises that make arbitration or another resolution option more appealing to both parties.
When an arbitration agreement isn’t honored, there are several steps that the aggrieved party can take, ranging from informal resolution attempts to filing a motion to compel arbitration or seeking court enforcement of an award. These legal avenues, supported by the Federal Arbitration Act and many state laws, generally favor the enforceability of arbitration agreements and awards. While challenging, navigating these options strategically can help ensure that the benefits of arbitration are realized, and parties are held accountable to their contractual obligations.