Collections: Arbitration - A Collection Alternative

     Arbitration has become an increasingly popular way of resolving disputes. For those readers unfamiliar with the concept, arbitration is a process in which parties agree to submit the issues in controversy for determination by a party that they choose. The purpose behind the decision to arbitrate is usually to reach a resolution to the dispute in a quicker and cheaper manner than court action. Although most parties to the arbitration retain counsel to represent them, costs are normally less than court action because the rules of evidence are more relaxed, and the proceedings are less formal. 

     Virginia law recognizes the arbitration process and provides for the legal enforcement of arbitration awards. 

     The American Arbitration Association has developed standard rules, procedures, and panels of trained professionals to serve as arbitrators - the finders of fact. 

     The structure of the arbitration hearing is similar to a regular court hearing. A party has the right to representation by an attorney. Both parties also have an opportunity to make an opening statement, discuss the remedy they are seeking, introduce and cross-examine witnesses, and make a closing statement. Unlike a regular court proceeding, neither party in arbitration has the burden of proof because each party must persuade the arbitrator that its position is correct. 

     Virginia Code §8.01-577 to §8.01-581.016 establish Virginia's rule for arbitration. First, both parties must agree in a written agreement to submit a case for arbitration. The parties then select an arbitrator from a list of names. The court also may appoint an arbitrator.

     An arbitrator has several duties. The first and foremost is to preside over the arbitration hearing. An arbitrator in Virginia may issue subpoenas for witnesses to appear. Lastly, the arbitrator issues and signs the award.

     The court then confirms, modifies or vacates the award. The reasons for modification or vacation vary from a mistake in calculation to the arbitrators exceeding their powers (see Virginia Code §8.01-581.010 and §8.01-581.011). The court proceeds to enter a judgment or decree on the award. A party may appeal an award as one would in a civil action.

     The California Court of Appeals has ruled on the enforceability of arbitration clauses. In Bell v. Congress Mortgage Co., Inc., the California Court held that an arbitration clause in a contract must be highlighted in bold type or the consumer needs to initial beside the specific clause. These methods should make the consumer aware of the arbitration clause in the contract, as previously a consumer might waive his right to a jury trial without realizing it because, the California Court stated, an arbitration clause is not within the reasonable expectations of the consumer. There is no such requirement in Virginia law for the arbitration clause to be highlighted, however, but until the issue is litigated in Virginia, initials next to the clause would be a good measure of caution.

     I have litigated several arbitration cases, each to positive results, once to an amount higher than initially requested by the client.

Collections: Garnishment/Arbitration

     The Richmond Circuit Court case of Va. Builder's Supply, Inc. v. Brooks & Co. Gen Contractors Inc. serves as a good example of judicial recognition of the rights of judgment creditors in arbitration proceedings. 

     In Va. Builders, the creditor, a building supply company, issued a garnishment summons upon a general contractor for sums due from the general contractor to the judgment debtor, a subcontractor. The contracts between the contractor and the subcontractor, under which the judgment creditor sought to garnish the sums due the subcontractor, included clauses for mandatory arbitration. The garnishee sought arbitration after being served with the garnishment. The garnishee refused to allow the judgment creditor to participate. The garnishee received a garnishment award indicating that it owed the subcontractor no sums. The garnishee answered the garnishment that no sums were due. The Richmond General District Court agreed. The Richmond Circuit Court disagreed, and sent the case back for further review. The Richmond Circuit Court reasoned that the garnishee should not be able to affect the potential funds due the judgment creditor while prohibiting the judgment creditor from participating in the proceedings. 

Collections: Construction Case Garnishments

     The United States District Court in Alexandria has reviewed a matter important to many supplier and contractor creditors: the garnishment of funds due their debtors from another party. The case was U.S. v. Harkins Builders Inc. In Harkins a material supplier was pursuing a garnishment proceeding against a builder who owed money to the judgment debtor, a drywall subcontractor. The Court ruled that the supplier was not bound by a mandatory arbitration clause in a separate contract between the builder and the drywall sub.
     In Harkins a materials company supplied drywall materials to drywall subcontractors. When the drywall subs failed to pay for the materials, the supplier obtained a federal court judgment for $278,520. The supplier then initiated a garnishment proceeding against a builder to attach monies owed by the builder to the drywall sub under a contract between them. As garnishee, the sub confessed assets but argued that the amount it owed to the drywall sub should be reduced by setoffs totaling $50,853 allegedly owed by the sub to the builder under their contract. The garnishee also argued that any dispute about these setoffs must be resolved through arbitration, as provided in the contract between the drywall sub and the builder.
     The Court rejected the contention that the resolution of the amount of money owed by the builder to the drywall sub and subjected to garnishment must be accomplished through arbitration. As a judgment creditor of the drywall sub, the supplier was not a party to the contract between the sub and the builder, and its interest was limited to the drywall sub's property interest in the builder's hands. The parties to the drywall builder contract agreed to arbitration as an efficient procedural mechanism for resolving contractual disputes, including disputes over amounts owed. The agreement to arbitrate, however, does not add or subtract value in the calculus for determining the value of the contract right. The Court ruled that since the judgment creditor was afforded court procedures for determining the value, the fact that the property before the court was created by a contract containing an arbitration clause did not require a non-party to the contract to follow the contract's procedural mechanisms for dispute resolution. Accordingly, the federal courts assumed jurisdiction to make the decision.

Collections: Arbitration - A Collection Alternative

     Arbitration has become an increasingly popular way of resolving disputes. For those readers unfamiliar with the concept, arbitration is a process in which parties agree to submit the issues in controversy for determination by a party that they choose. The purpose behind the decision to arbitrate is usually to reach a resolution to the dispute in a quicker and cheaper manner than court action. Although most parties to the arbitration retain counsel to represent them, costs are normally less than court action because the rules of evidence are more relaxed, and the proceedings are less formal.
     Virginia law recognizes the arbitration process and provides for the legal enforcement of arbitration awards.
     The American Arbitration Association has developed standard rules, procedures, and panels of trained professionals to serve as arbitrators - the finders of fact.
     The structure of the arbitration hearing is similar to a regular court hearing. A party has the right to representation by an attorney. Both parties also have an opportunity to make an opening statement, discuss the remedy they are seeking, introduce and cross-examine witnesses, and make a closing statement. Unlike a regular court proceeding, neither party in arbitration has the burden of proof because each party must persuade the arbitrator that its position is correct.
     Virginia Code §8.01-577 to §8.01-581.016 establishes Virginia's rule for arbitration. First, both parties must agree in a written agreement to submit a case for arbitration. The parties then select an arbitrator from a list of names. The court also may appoint an arbitrator.
     An arbitrator has several duties. The first and foremost is to preside over the arbitration hearing. An arbitrator in Virginia may issue subpoenas for witnesses to appear. Lastly, the arbitrator issues and signs the award.
     The court then confirms, modifies or vacates the award. The reasons for modification or vacation vary from a mistake in calculation to the arbitrators exceeding their powers (see Virginia Code §8.01-581.010 and §8.01-581.011). The court proceeds to enter a judgment or decree on the award. A party may appeal an award as one would in a civil action.
     The California Court of Appeals has ruled on the enforceability of arbitration clauses. In Bell v. Congress Mortgage Co., Inc., the California Court held that an arbitration clause in a contract must be highlighted in bold type or the consumer needs to initial beside the specific clause. These methods should make the consumer aware of the arbitration clause in the contract, as previously a consumer might waive his right to a jury trial without realizing it because, the California Court stated, an arbitration clause is not within the reasonable expectations of the consumer. There is no such requirement in Virginia law for the arbitration clause to be highlighted.  However, until the issue is litigated in Virginia, initials next to the clause would be a good measure of caution.
     I have litigated several arbitration cases, each to positive results, once to an amount higher than initially requested by the client.

Collection: Fraudulent Conversion or Removal of Property Subject to Lien or Title

     The Richmond Circuit Court case of Va. Builder's Supply, Inc. v. Brooks & Co. Gen Contractors Inc. serves as a good example of judicial recognition of the rights of judgment creditors in arbitration proceedings.
     In Va. Builders, the creditor, a building supply company, issued a garnishment summons upon a general contractor for sums due from the general contractor to the judgment debtor, a subcontractor. The contracts between the contractor and the subcontractor, under which the judgment creditor sought to garnish the sums due the subcontractor, included clauses for mandatory arbitration. The garnishee sought arbitration after being served with the garnishment. The garnishee refused to allow the judgment creditor to participate. The garnishee received a garnishment award indicating that it owed the subcontractor no sums. The garnishee answered the garnishment that no sums were due. The Richmond General District Court agreed. The Richmond Circuit Court disagreed, and sent the case back for further review. The Richmond Circuit Court reasoned that the garnishee should not be able to affect the potential funds due the judgment creditor while prohibiting the judgment creditor from participating in the proceedings.