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What Is Arbitration?

Arbitration is referral of a dispute to one or more impartial persons (non­parties) for final and binding determination (resolution). When the decision is binding, this means that the parties must stick to the arbitration result. Constituting a private and confidential proceeding, the goal of arbitration is to produce quick, practical, and economical settlements. During arbitration, the parties state their views of the dispute, offer evidence at an arbitration hearing, and agree to let an impartial, professionally­trained arbitrator make a decision that will end the dispute. People usually agree to use arbitration in a contract, such as in the contract signed when purchasing a new car, or in a clause contained in a sales invoice or on a notice sent with a monthly bank account statement. Arbitration is used when people have a legal dispute they can not solve by themselves. Sometimes the parties can increase their control over the arbitration process, prior to a dispute arising, by adding specific terms to the arbitration clauses in their contracts. When a dispute arises, certain arbitration rules may be modified to improve the likelihood of resolution of that particular dispute. Stipulations may be made concerning confidentiality of proprietary information used; evidence, locale, number of arbitrators; and the issues raised in the dispute, as some examples. The parties may also add terms designed to speed up the arbitration process, including shortening the usual time limit for paying out an arbitration award. All such mutual agreements must be upheld by the American Arbitration Association as well as by the arbitrator. The AAA has also developed special Procedures for Large, Complex Disputes for cases in which the claim of any party is $500,000 or more (see FAQ). Prior to the first hearing in a case, the AAA may schedule either an "administrative conference" with the parties or a "preliminary hearing" with the arbitrator(s) and the parties to arrange for matters such as the provision by the parties of relevant documents ("document production") and identifying each party's witnesses, and for discussion of and agreement by the parties as to any desired modifications of the arbitration rules. The AAA arbitrators are generally guided by the decisions that the parties make about how to handle sensitive issues like privacy of proceedings, confidentiality, trade secrets, evidence, proprietary information, and injunctive relief.

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