I’m a small business owner. In 13 years of being in business not one claim was filed against me. I guess it’s the sign of these economic times, as one of my clients has just filed a meritless small claims lawsuit against me. In the agreement the client signed before we began work, there is an arbitration clause that says “neither client nor company will be able to go court for disputes once both parties agree in advance to arbitration.” The client agreed and signed the agreement. What should I do now? Should I inform the court somehow before the court date?

Thanks in advance.

Jim

This is quite common.

I assume you are in the USA. In the UK, the Arbitration Act 1996, Section 9, covers the problem:

(1) A party [in these circumstances] may (upon notice to the other parties to the proceedings) apply to the Court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.

(2) An application may be made notwithstanding that the matter is to be referred to arbitration only after the exhaustion of other dispute resolution procedures.

(3) An application may not be made by a party before taking the appropriate procedural step (if any) to acknowledge the legal proceedings against him or after he has taken any step in those proceedings to answer the substantive claim.

(4) On an application under this section the Court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.

The bold is mine but the words in bold in sub-section (3) are extremely important. You have to file the Acknowledgement of the proceedings but then make the Application before entering any other Defence to the Claim.

I don't know the procedure in the USA but I imagine there is some similar provision. Maybe, you can acknowledge the proceedings by making the Application. Ask the Court Clerk. In my, admittedly limited, experience in the USA, they can be very helpful.

If the proceedings are stayed, one of the parties has to follow the procedure laid down in the Arbitration Agreement (the Contract in this case) to commence the Arbitration.

Finally, whether or not the proceedings are stayed for Arbitration, you can, if you wish, suggest Mediation (A Meeting with the other party and an independent Mediator to try to reach a negotiated settlement). I suggest the right order to do things is:

• Acknowledge the proceedings;
• Make the Application for a stay for arbitration;
• If the proceedings are stayed and if you want to, make an Application in the Arbitration itself for those proceedings to be stayed for, say, two months to enable Mediation to take place;
• If the proceedings are not stayed for Arbitration and you want to, make the Application for a stay for Mediation in the Court proceedings themselves.

This all seems fairly involved but is actually quite logical. It is important, though, to follow the procedure absolutely to the letter.

I hope this helps but, please, bear in mind that:

• It is intended to be just that - helpful - but is not legal advice, which only an Attorney can give you.

Good luck!

David Ellwood, FCIArb

Arbitration Fellow of, and Civil and Commercial Mediator accredited by,
the Chartered Institute of Arbitrators

www.mediationandarbitration.co.uk

You should inform the court of the existing arbitration agreement.
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