Q: We live in a new home community. We have some construction issues with our home, and our contract has an arbitration provision in it. Are we required to arbitrate? Is that like a mediation? Is this the same as suing the builder? 

— K.N., Jensen Beach  

A: First, some definitions and background discussion are in order. Arbitration is a way to resolve disputes outside of court. Also, while both are considered forms of “alternative dispute resolution,” people will oftentimes confuse arbitration with mediation; however, those two things are completely different. A mediation process is where the parties negotiate to resolve the issues in a dispute through an independent third party, a mediator, who pushes the parties to settle their claims. A mediation is a “focused negotiation.” Mediations are not binding, meaning that the parties may or may not settle a case at mediation, and the case will continue should the process impasse (i.e., fail). Arbitration, on the other hand, is a process where an independent adjudicator decides on the issues based on the evidence presented by the parties. This is similar to what a judge would do in a courtroom, with one of the big differences being that arbitration takes place outside of court. Arbitration usually arises as a result of a dispute resolution clause in a contract, although it can also occur where the parties voluntarily decide to go to arbitration or when a judge orders that arbitration take place. Another important point to raise is that arbitration can be binding or nonbinding. In a nonbinding arbitration, if a party disagrees with the decision of the arbitrator, that party can reject the decision and continue litigating the case. There are some risks involved in rejecting an arbitration decision should the rejecting party ultimately lose the case, such as the imposition of attorney’s fees. In a binding arbitration, on the other hand, the arbitrator’s decision is final and generally cannot be appealed.  

As opposed to arbitration, litigation is what most people think of when they talk about the legal process. Litigation is a legal process where a judge and/or jury makes the decision on the dispute inside a courtroom. Also, as opposed to arbitration, in litigation, a losing party can attempt to appeal the judge or jury’s decision to a court of appeals. While both litigation and arbitration involve the presentation of evidence, the manner in which each of those processes work are different and operate under a different set of rules, with arbitration being more malleable in terms of setting up those rules. Depending on the case, arbitration could be a good process as it can, oftentimes, streamline and shorten the time that a case takes to get to litigation. However, with an arbitration, the parties lose the right to present their case to a jury and, as mentioned above, appeals are limited. In both litigation and arbitration, the parties can still mediate the case, which takes the decision out of the hands of a judge, jury or arbitrator, giving the power to resolve the case to the parties. One other point is that the cost of an arbitration could be higher than litigation because the parties are generally responsible for paying the arbitrator’s fees. Keep in mind that there is a reason that builders have those provisions in their contracts — it generally favors them to go to arbitration rather than try to win their case in front of a jury, which are much more susceptible to finding against the builder.  

In regard to the enforceability of an arbitration provision, Florida and federal law have consistently held that written agreements to arbitrate are binding and enforceable. This includes arbitration provisions contained in real estate contracts. What that means in a practical sense is that if a party attempts to file a lawsuit, the opposing party would most likely be successful in getting the judge to dismiss the lawsuit and order that the case proceed to arbitration. Although there are potentially a number of reasons upon which a party can attempt to challenge the enforceability of an agreement to arbitrate, the courts will generally decide such a challenge in favor of arbitration. In order to determine whether or not you have a valid basis to oppose an arbitration provision, you must take a look at the exact language contained in the contract. When you look at the language contained in these contracts, you will find that arbitration provisions are sufficiently broad enough to be a “catch all” for any issues that arise, even if it does not appear that way on its face. For instance, the courts have found that a homeowner’s claims against a builder for construction defects will bear a significant enough relationship to the purchase contract to enforce an arbitration provision, even if it does connect those dots explicitly in the contract. It is important that you speak to an attorney regarding your contract and the arbitration provision contained in it as the language used will sometimes be difficult for a non-attorney to interpret. Then, you and your attorney can decide how to proceed. Your attorney could attempt to file a lawsuit in the hopes that the builder will not attempt to enforce the arbitration clause, although that is likely a longshot.