Many standard goods and services contracts contain clauses pertaining to potential future disputes between the parties. Often times the language will provide for all disputes to be resolved by and through the American Arbitration Association. There is nothing wrong with having such a clause in a contract or with turning to the American Arbitration Association, however, it’s very important to know what it is (compared to statutory arbitration) and whether it’s right for your dispute.
The American Arbitration Association (AAA) is a national organization, independent of state or federal courts, that provides binding dispute resolution. The AAA has its own set of filing fees, filing procedures and regulations. AAA arbitration hearings are conducted before an arbitrator who is assigned to the matter from the beginning and who manages the case throughout the arbitration process. The arbitrator’s decision after the conclusion of the hearing is final with no appeal process available.
In Pennsylvania, however, statutory arbitration also exists through the Court system. It is in no way related to the AAA although it is also called “arbitration.” In a matter filed with the Court of Common Pleas in Pennsylvania, if the amount in controversy is under a certain dollar amount, the matter must first go to arbitration. Although each county in Pennsylvania has its own amount in controversy threshold, in most counties the amount in controversy must be under $50,000.00 in order to be automatically submitted to arbitration first. Statutory arbitration is conducted before a panel of 3 attorneys and is governed by the Pennsylvania Rules of Civil Procedure. The panel will render a decision after which both parties have the automatic right to appeal within 30 days. If an appeal is made by either party, the matter is then placed on the trial list to be scheduled for a non-jury trial (unless a jury trial is specifically requested).
One benefit of AAA arbitration is that the arbitrator’s decision is binding and, once the hearing is finished, there is no possibility of being required to go through the process again. If you happen to be located out of state and it is costly for you to attend a hearing, this may be helpful. A drawback, however, is that it can be much more costly to file suit with the AAA as opposed to filing it with the Court of Common Pleas. The AAA has a sliding scale of initial filing fees (depending on the amount in controversy), however, there is also a fee for the arbitrator and often a “final fee.”
No matter which way you go (AAA arbitration or statutory arbitration) you will need to provide a witness to attend the hearing so you will want to take such expense into consideration.
It is something to think about, however, when drafting or signing a contract as it can be an unpleasant surprise should a dispute arise.