No Pay No Play: How to Solve the Non-Paying Party Problem in Arbitration - Chapter 28 - AAA Handbook on Arbitration Practice
Richard J. DeWitt is a principal at DeWitt Law/ Resolve Disputes in Coral Gables, Florida. He has over 25 years’ experience as a business and technology attorney and business executive. Mr.DeWitt serves as an arbitrator and mediator in domestic and international commercial, business, technology and employment disputes. He is a member of the American Arbitration Association's National Roster of Neutrals serving on its large, complex case panel, its commercial, employment and technology panels and its panel of Mediators. He is also a Member of the FINRA Dispute Resolution Board of Arbitrators and serves on the National Arbitration Forum's Panel of Neutrals and the CDRS Panel of Neutrals. He is a Florida Supreme Court Certificated Arbitrator and Florida Supreme Court Certified Circuit Civil Court Mediator. Mr. DeWitt is a member of the Florida Bar, a Fellow of the College of Commercial Arbitrators and Distinguished Fellow of International Academy of Mediators.
Richard J. Dewitt, III is an attorney at Brigham Moore, LLP, in West Palm Beach, Florida. He practices exclusively in the areas of eminent domain, inverse condemnation, and property rights litigation, protecting the rights of property owners against governmental entities. He is a member of the Florida Bar.
A continuing complaint of parties who put arbitration clauses in their commercial agreements is that they are not realizing the benefits of arbitration due to the nonpaying party problem. The problem arises when one party fails to pay its share of the required deposit for arbitrator compensation and administrative arbitration fees. This chapter discusses the practical implications and legal issues resulting from this problem and proposes a solution that should preclude parties from using nonpayment of deposits strategically as a means of “gaming” the arbitration process.
What happens when a party to arbitration fails to pay its share of a required deposit covering arbitrator compensation and arbitration fees? Generally, the other party is faced with the choice of:
(i) paying the nonpaying party's share of the deposit and then later seeking to be reimbursed the sums advanced as part of the final award; or
(ii) filing an action in court to obtain an order requiring the nonpaying party to advance the required deposit; or
(iii) discontinuing the arbitration and filing suit in court, claiming that the nonpaying party has waived the right to arbitrate.
These alternatives may not be available in some cases and, in some jurisdictions, courts are reviewing the alternatives. Where they are available, each alternative adds cost and delay to the resolution of the disute and deprives the party who commenced arbitration of the main benefits of the process - that is, a faster, better, cheaper solution to resolving disputes. The ability of a party to stymie arbitration through nonpayment has the potential to discourage the use of arbitration to resolve commercial disputes, thus undermining the strong policy of encouraging arbitration that the courts have found to exist in the Federal Arbitration Act1 (FAA) and state arbitration laws. Moreover, the options a party can use to resolve the nonpayment problem are not particularly advantageous.