The art of negotiating a contract between a principal and an independent manufacturers’ representative is wholly dependent upon the deal being made. There are several important provisions contained in written agreements between a principal and a manufacturers’ rep, and each provision must be carefully considered.

One often misunderstood provision is the inclusion of an agreement to arbitration in lieu of using the court system to resolve disputes. Parties may incorrectly believe that arbitration is an inexpensive way to resolve matters and are often unaware that arbitration can be equally time-intensive. Unless the parties agree otherwise, in arbitration, the ability to conduct discovery is often more limited and the rules of evidence are frequently loosely enforced. Further, appellate review is extremely limited.

The agreement to arbitrate is a matter of contract and, therefore, “a court may order arbitration of a particular dispute only where the court is satisfied that the parties agreed to arbitrate that dispute.”¹

Absent an agreement to arbitrate, legal disputes are generally filed in a court of law. There are several different arbitration tribunals that administer disputes between parties. Arbitration can be conducted by one arbitrator or a panel of arbitrators.

Arbitration can be binding or non-binding. As a general rule, arbitration is usually binding unless stated otherwise. Binding means the outcome of the arbitration is meant to be non-appealable, however, appeals are often filed. Some examples of these appeals include:

• When the arbitrator’s rulings go beyond the agreement to arbitrate.
• When there is evidence of arbitrator bias or partiality.
• The arbitrator fails to admit or consider evidence.

Additionally, once an arbitration award is rendered, the award must be confirmed and a judgment entered in a court of law. The entry of a judgment is necessary to execute on the judgment if the losing party is unwilling to voluntarily pay the award.

There are Pre-dispute Arbitration Agreements and Post-dispute Arbitration Agreements. A Pre-dispute Arbitration Agreement is an agreement between parties that should a dispute arise in the future, the parties agree to arbitrate.

Post-dispute Arbitration Agreement is an agreement entered into after a claim or cause of action arises where the parties choose arbitration as the forum for resolving their dispute instead of the courts.

While many people contend that arbitration is the most cost-effective and expedient forum, that conclusion is now a matter of considerable debate. On a cost analysis, the cost of filing a lawsuit in a state or federal court with a jury demand is approximately $400.

Two of the most well-known institutes for arbitration are the American Arbitration Association (AAA) and JAMS (formally known as the Judicial Arbitration and Mediation Services). The cost to file a demand in the AAA ranges based upon the monetary amount claimed. Recently AAA amended its Commercial Arbitration Rules fee schedule to provide for two administrative fee options for parties filing claims or counterclaims. The Standard Fee Schedule has two payment schedules and the Flexible Fee Schedule has a three-payment schedule which offers reduced initial filing fees, but potentially higher total administrative fees of approximately 12 percent to 19 percent for cases that proceed to hearing. For example, the Initial Filing Fee for a claim ranging above $300,000 to $500,000 is $4,350. Moreover, AAA charges a Final Fee of $1,750.² There are additional administrative fees that may be charged by AAA as well, including, a room rental fee if the hearing takes place at an AAA locale. And, the parties must also cover the cost of the person(s) who sits as the Arbitrator(s). The charges vary but are usually between $300 and $600 dollars or higher per hour, per Arbitrator.

JAMS Arbitration Fee Schedule is $400 per party, per day, plus 10 percent of professional fees in excess of initial 30 hours. JAMS arbitrator’s fees range from $450 to $800 per hour. There is also a $5,000 initial fee for a deposit on the arbitrator’s research/preparation time. Depending upon the circumstances, one party or both parties may be required to cover the cost of the arbitration.

A concern with the selection of an arbitrator is the life experience and preconceived ideology of the arbitrator(s). While many people may believe that manufacturers’ representatives’ cases are basic contract cases; this is not true. There are many nuances about manufacturer representative law, which makes careful selection of the arbitrator(s) imperative. Further, an arbitrator who presides over the case may have absolutely no experience in your industry or may be fully lacking in an appreciation for the commercial nature of the dispute. And, unless an agreement to arbitrate solidifies how an arbitrator or arbitrator(s) are to be selected, the method a tribunal uses for selection might not take into consideration these special concerns.

Perhaps another reason to shy away from entering into pre-dispute arbitration agreements is that most courts of law now have Alternative Dispute Resolution (ADR) rules. The ADR rules require that the parties participate in some sort of program or process to settle a matter without the need to litigate the matter though the court system. For this reason, the ability to choose to mediate or arbitrate is always available after the institution of a lawsuit. And, because the causes of action and claims can be more readily determined after a cause of action arises, it is often more preferable to forego a pre-dispute arbitration provision.

1. Granite Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct. 2847, 2856 (U.S. 2010) (internal citations omitted).
2. See American Arbitration Association, Commercial Arbitration Rules, Fee Schedule Amended and Effective June 1, 2010.