What if I have an arbitration agreement and the other side sues me?
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UPDATED: Oct 17, 2011
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“If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.”
This means that courts will automatically default to what a contract between two parties says, instead of overruling it. So, if a private agreement between two parties dictates that the parties solve their dispute with arbitration instead of through litigation, then the parties must use this method.
Courts enforce agreements to arbitrate by stopping a lawsuit and forcing both sides to arbitrate their dispute. If one side has begun a lawsuit and if the other side demonstrates that there is an arbitration agreement that covers the subject matter of the lawsuit, the litigation will be “stayed” (not allowed to proceed) and the parties will be required to arbitrate. In general, the courts take a very broad view of the subject matter covered by an agreement to arbitrate any future disputes.
One possible exception exists where there is a law that specifically precludes pre-dispute agreements to arbitrate certain types of claims. For example the United States Court of Appeals for the Ninth Circuit in San Francisco held that the Civil Rights Act precludes an employer from demanding arbitration under a standard employment agreement if the issue involved something entirely unrelated to employment such as sexual discrimination. The Court may also refuse arbitration in cases where the person who signed the agreement was mentally handicapped or in some other way unable to make an informed decision on what they were signing.
If someone has violated your mandatory arbitration agreement, contact a business attorney and request that they submit a letter to court informing the court of the agreement. You’ll need to include a copy of the agreement in the letter. The court reviews the request and either stays or dismisses the case entirely. At that point, it is best to contact the person who filed, inform them of the requirement, and determine whether they wish to proceed with arbitration.