Arbitration vs. Court Litigation

James from South Lyon wrote in last week. He and his wife are buying a new construction home in South Lyon, MI. They are having a major disagreement with the builder about the integrity of the foundation. They don’t want to move forward and they want their $55,000 earnest money deposit back.

The builder says the contract requires the parties to arbitrate their dispute. James wants to know if he can just go to court instead, and what the difference is.

Many real estate and sales contracts contain arbitration clauses whereby the parties agree not to litigate, but go through a less formal decision making process. If a contract calls for arbitration, the case cannot be litigated in court unless the parties agree to do so later.

Litigation

Litigation is deeply rooted in centuries of English and American jurisprudence. It involves determining issues through the court system with a judge or jury. Circuit courts handle cases over $25,000 and specific matters such as quiet title actions or specific performance; district courts handle matters of $25,000 or less. In my experience it can take anywhere from 90 days to about 18 months to litigate a matter.

Arbitration

In arbitration, the parties avoid the court system and hire a disinterested third party to resolve the dispute. The parties can pick who will arbitrate and set their own timeline, and decide whether the decision is binding. Binding decisions cannot be appealed unless there is fraudulent behavior by the arbitrators.

Arbitration is usually faster, more private and less formal — but it can be just as costly, since the parties pay the arbitrator. Before signing any contract, check for an arbitration clause. Courts will not entertain a case where the parties agreed to arbitrate.

I hope you found my answer helpful, James.