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Arbitrations - Designed to be Speedy and Reduce Costs

Posted by Attorney Stephen Hance | May 22, 2015 | 0 Comments

Lawyers are somewhat divided on the risks versus benefits of binding arbitration. I, for one, am an advocate because usually arbitration is faster and cheaper, and it is fair. For every perceived weakness I hear about for arbitrations, I can cite a counter-veiling weakness in our district court system. Arbitration, however, does not necessarily guarantee a quick and fair outcome. One recent Minnesota Court of Appeals Case, to me, is a good study on how one party's refusal to accept an arbitration result pretty much defeated the purpose of arbitration in the first place. Nassar, et al. v. U.S. Home Corporation, d/b/a Lennar Homes, 27-CV-12-21299 (Minn. Ct. App., April 27, 2015) (“Nassar”).

In Nassar, a homeowner brought an arbitration against a builder for a defective condition. The homeowner sought “rescission” meaning they wanted the builder to take the house back. The arbitrator ruled in favor of the homeowner but instead of rescission, ordered the builder to fix the problem. The homeowner did not agree with the award and filed a motion in Hennepin County District Court to vacate the arbitration award.

As we have written before, the grounds to vacate an arbitration award are extremely narrow. Under Minn. Stat. §572B.23, the only grounds to vacate are if the award was procured through corruption or fraud, due to “evident partiality” of the arbitrator, corruption by the arbitrator or “misconduct” of the arbitrator, among other similarly grave concerns.

In Nassar, the District Court denied the homeowners' motion to vacate finding, among other things, that the homeowners had “misidentif[ied] or conflate[d] [the] grounds for vacating an arbitration award.” Undeterred, the homeowners appealed the District Court ruling to the Minnesota Court of Appeals. The Minnesota Court of Appeals affirmed the District Court decision.

Now, in my experience, this would have been a good point for both parties to accept the outcome and move on with life. But that did not happen. This time, the builders brought a motion in District Court for an award of attorney's fees pursuant to Minn. Stat.§572B.25(c).

The builder had apparently spent about $40,000.00 (!?) in defending the District Court motion to vacate. The District Court ruled that 25% of that amount was the result of arguments the homeowner should not have made and awarded the builder about $10,000.00. Worth the effort? I doubt it. But that was not the end of it! The homeowners could not accept that award either and appealed once again to the Court of Appeals, where the decision was again affirmed.

In some ways, Nassar is an example of the folly of litigation in some instances. Some lessons from this case though are: (i) possibly $100,000.00 spent collectively by the parties in District Court did not materially change the outcome; (ii) the attorney's fees award bolsters the finality of arbitration; and (iii) whether in arbitration or otherwise, intractable parties can drive up the costs no matter the forum.

About the Author

Attorney Stephen Hance

Steve represents and advises clients that are dealing with business and real estate disputes. Steve is an investor and business owner, and his approach is unique from other attorneys.

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