Watch Your Language! Why Having an Arbitration Clause Isn't Enough

By John S Preston

In an arbitration clause for a Real Estate contract, the language used can be just as important as the clause itself. There have been several arbitration cases recently that have proven this point--take California as an example.

One case sent to the California Supreme Court concerned an arbitration agreement that used the following language: "The arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error." Due to this language, the party on the losing end decided to take the route given to them through the clause and appeal the arbitrator's decision on the grounds that an "error of law or legal reasoning" was committed. Although the Federal Arbitration Act does not call for this type of review, because of the language included in the clause, the case was re-opened for further scrutiny when it didn't have to be.

In another California case, a commission dispute was sent to binding arbitration in which a company attorney copied documents containing privileged information. In addition to resolving the arbitration dispute, the arbitrator also ordered the company attorney involved to pay fines in excess of $7,000 for copying the privileged documents. The attorney, who had not signed the arbitration agreement, appealed for reasons that there was no arbitration clause submitting him to the power of the arbitrator. However, due to the language of the clause describing attorneys as agents of the client, the Court of Appeal found that the arbitrator's decision should stand.

So what do these cases tell us? First of all, they show that just having an arbitration clause in a Real Estate contract is not enough. In addition to having the clause, the language within it can mean the difference between a successful alternative dispute resolution process and one that will go through multiple appeals before finally being settled.

Additionally, the Arbitration Act that is invoked within the clause's language can allow for a wider scope of reasons for appeal. While invoking a state Act rather than the Federal Arbitration Act might provide benefits, doing so could also extend the cost and time involved in settling the dispute. Therefore, parties responsible for writing an arbitration clause in their Real Estate contract should pay careful attention and seek expert legal advice before doing so. It might mean the difference between a smooth arbitration process and one that is more trouble than it was worth.

If you need any legal assistance or concerns regarding Real Estate Arbitration, contact John S. Preston for help. As an attorney and licensed real estate broker who has practiced in real estate law and securities law for more than 30 years, he can serve you as an expert arbitrator and mediator. Call 510-763-9131 or go to http://www.johnspreston.com to see how he might be of service to you.

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