A lawsuit is typically decided in a court. The plaintiff and the defendant litigate the case and then present evidence and arguments at a trial conducted by a judge and then a jury decides the case. Courts are part of our government, and the judges in our courts are public officials who work for and are paid by the citizens through the government.
Arbitration is an alternative to having a lawsuit decided in a court. In arbitration, the parties pay a private person, an arbitrator, to decide the dispute. The arbitrator who decides the dispute is usually a lawyer show still practices law and represents clients in addition to serving as an arbitrator.
Arbitration is used as an alternative to deciding a dispute in a court where the parties to the dispute (the plaintiff and the defendant) agreed in advance to arbitrate any claims they may have against one another. Often, a contract the plaintiff was required to sign to purchase a house or condo will have language the defendant inserted into the contract with claims to require the plaintiff to engage in arbitration for any claim the plaintiff may have against the defendant. Defendants also often like to insert language providing for arbitration in warranty documents.
In arbitration the parties litigate using different procedures and rules than those used in court. The parties presents evidence to the arbitrator under those procedures and rules. There is no jury in arbitration. The arbitrator both conducts a hearing at which the evidence is presented and decides the case.
The arbitrator’s decision is typically binding on the parties meaning that whatever the arbitrator decides, whether correct or incorrect, fair or unfair, is the final decision that the parties have to live with. Parties have very limited abilities to appeal and challenge an arbitrator’s decision as incorrect. The limited ability to appeal is different from when a dispute is decided in court where parties have the right to appeal a decision and ask a higher court to correct any mistakes.
Arbitration is usually administered by a private organization like the American Arbitration Association or JAMS (Judicial Arbitration and Mediation Services, Inc.). The organizations that administer arbitration have their own procedural rules that they created and which govern the arbitrations they administer. The organizations also function like a clerk of court by accepting filings and scheduling hearings. The organizations also provide methods for selecting an arbitrator from a list of lawyers they provide. The organizations charge large fees for providing these services, which are in addition to the fees charged by the arbitrator for the time spent deciding the dispute.