(Editor’s note: Today we hear from Stephen Kane, Founder & CEO of ArbiClaims, which helps people resolve small claims disputes online without having to go to court. Legal issues are complicated, so please be sure to consult a legal advisor about how the information below applies to you.)
If you have a dispute with someone, i.e. unpaid invoice, breach of contract or security deposit, and don’t feel you can work it out with them directly, you may want to hire an attorney. But attorneys can be pricey. So if your dispute is less than $25K or so, you may want to consider other more affordable dispute resolution options, namely: small claims court, mediation, and arbitration.
Small Claims Court
Small claims court can be an effective dispute resolution tool if the amount of money in question is relatively small (i.e. someone owes you $2,500). Every state has a different limit for small claims court, AKA the highest dollar dispute you can argue in small claims court. But it’s typically less than $15,000, or lower. The filing fees are usually around $50 depending on the amount in dispute, and you can argue your case yourself without hiring an attorney. In fact, in some states, you aren’t allowed to have an attorney argue your case in small claims court. In those states, you can hire an attorney to get advice before going into small claims court, but that attorney can’t represent you in front of the court.
Some small claims courts offer free mediation services provided by volunteers. Whether in small claims court or not, mediation is a process in which an independent third party helps two disputing parties discuss their issue in an attempt to negotiate an agreeable settlement. Mediation is not binding, so either party can typically walk away at any time and there is no requirement that the parties settle. It’s more of an opportunity to air differences and find out if everything can be worked out for both sides.
Arbitration is an agreement between two parties to allow a third party,the arbitrator, to evaluate and make a decision regarding a dispute between the two parties, much like a judge & jury in court. There is federal and state regulation which sets the ground rules for arbitration. Arbitration can be binding, in which case the arbitrator’s decision is final and court-enforceable. Or it can be non-binding, in which case the arbitrator’s decision is more of a trusted, objective resolution recommendation, but not final or enforceable. ArbiClaims, for example, uses binding arbitration to help parties resolve small claims disputes online for $79-159 per party.
The difference between mediation and arbitration can be somewhat confusing, especially when we’re talking about non-binding arbitration. Mediation is more like a negotiation between two parties, whereas arbitration lets a third party, the arbitrator, review evidence, interview witnesses, consider facts, and make a decision regarding a dispute, i.e. who owes whom money and how much.
Mediation & Arbitration Clauses
Don’t want to be taken to small claims court? Want to ensure you can use mediation and/or arbitration in case of dispute with another party?
You can do that by putting mediation and/or arbitration clauses into written agreements which say both sides must use mediation and/or arbitration in case of dispute. You can even add an addendum to an existing agreement with a mediation and/or arbitration clause. Even if you don’t have a mediation or arbitration clause, you can still both agree to use mediation or arbitration. But including a clause is insurance against having to go to court.
For larger disputes, you can add a American Arbitration Association (AAA) or JAMS mediation/arbitration clause (both are alternative dispute resolution service providers; AAA instructions for adding a clause, JAMS instructions for adding a clause). For smaller disputes, you can add an ArbiClaims arbitration clause.
So you won your small claims case, negotiated a settlement, or got an arbitration award. Now what? How do you collect?
It can be difficult to collect a judgment from a defendant, even with a judge and jury certified court judgment. The same goes for small claims court, arbitration, and negotiated settlement. In the case of small claims court you get an official court judgment that you can take to local law enforcement to garnish wages and/or levy bank accounts to recover your judgment if the defendant doesn’t pay you on time. In the case of binding arbitration, you can have local law enforcement help you collect once you confirm your arbitration award, a generally straightforward process which involves filing a petition with the appropriate court (depends on your arbitration). Arbitration awards are confirmed in the overwhelming majority of cases unless something goes seriously awry, i.e. ethical complications. In the case of mediation, you typically get a written agreement which parties often adhere to because they took part in the process. But if parties don’t keep their end of the bargain up after out of court mediation, you can go to court to enforce that agreement like you would enforce a contract.
I hope you don’t ever have to use any of these tools or go through litigation. But if you’re in business long enough chances are you will have disputes. When you do, I hope you’re able to resolve them in the best most cost effective way possible. Visit ArbiClaims to learn more about arbitration.