Is Arbitration Required?

Arbitration Agreements: many business people have heard of them, many businesses have signed one, and some businesses have even gone through arbitration.  Arbitration can be a good alternative in the right circumstance.  However, don’t assume arbitration is the best for you without doing sufficient homework.  Despite the familiarity or arbitration agreements, the agreements sometimes still require a basic question to be asked: when will courts compel arbitration?

This question was the central issue in the Court of Appeals case, Ellison v. Alexander.  Ellison filed suit alleging Ellison was induced into investing in Alexander’s company, “The Elevator Channel,” based on Alexander’s misrepresentations concerning his experience and education.  In response, Alexander filed a number of motions—one of which was to compel arbitration pursuant to an arbitration clause found in an agreement between them.

In this situation, the Court determined two questions must be asked: 1) Did the parties have a valid agreement to arbitrate; and 2) Does the dispute fall within the substantive scope of the agreement?  Here, the Court reasoned that 1) a valid arbitration clause existed; and 2) because the agreement discussed investing, Ellison’s claims fell within the scope of the agreement and should be arbitrated.

An important lesson from this case is carefully read each contract, purchase order or quote you receive before accepting it.  Otherwise, you may be agreeing to arbitrate your case even if you would rather submit it to mediation or Court.