Can My Boat’s Buyer Force Me Into Arbitration Over a Dispute?

I am in a dispute with the person who bought my boat earlier this year. The boat needed some work after the deal closed, and the buyer claims that I should have disclosed the problem prior to the sale. He has filed a claim with an arbitration panel, and the administrator of that panel has sent me a package of paperwork to respond to the claim. I am concerned, however, that the panel does not seem very professional, and my sales contract with the seller did not say anything about arbitration. Can he force me to participate in the arbitration? When I purchased my home, I recall some language in the purchase agreement that required the parties to participate in an arbitration procedure for dispute resolution. Is there anything similar that would apply to a boat purchase?

Binding arbitration is an attractive system for the resolution of legal disputes, because it is typically a lot faster and a lot cheaper than a lawsuit. In California, the resolution of a dispute through binding arbitration cannot be compelled unless the parties have agreed to do so in writing. The written agreement may be set forth as a paragraph within a contract, and in some cases, California law will require the parties to initial the paragraph and require the paragraph to be formatted in a particular font or typeface.

Under most circumstances — including a boat purchasing contract — an agreement to arbitrate a dispute is treated like any other term in the contract, and there are no particular formatting or initialing requirements.

Our reader correctly notes that the standard real estate purchase contract used in California calls for arbitration of disputes, and in fact the standard yacht purchase contract produced by the California Yacht Brokers Association (CYBA) also has an arbitration provision. But the CYBA contract is not used by all brokers, and arbitration provisions are rarely included in non-CYBA contracts.

Most commercial arbitration panels require a claimant to produce evidence of an arbitration agreement at the time the original claim is filed. In our reader’s case, it seems that the panel allowed a case to proceed without evidence of an agreement, in which case the concerns about the professionalism of the panel may be well founded.

In the absence of an arbitration agreement, the arbitration panel has no jurisdiction over the dispute, which means it has no power to compel the parties to attend a hearing or to render a ruling or judgment in the dispute. Our reader could, therefore, ignore the arbitration demand entirely.

This may not be a good idea however, since the arbitration might proceed anyway. This could, in turn, lead to a default against the seller, and he would then need to fight the claimant’s attempts to enforce a money judgment.

A better approach would be to contact the arbitration panel and ask it to produce the arbitration agreement. If no agreement is produced, the panel would presumably stay or cancel the proceedings.

Under California law, there is almost no avenue for appeal of an arbitration award, even if the ruling by the arbitrator completely ignored the facts or the law. Federal law allows a small avenue for appeal, but as a practical matter, it is not much better.

“Lack of jurisdiction” is one of the few issues that may be raised to overturn an arbitration award, and the lack of an arbitration agreement would, in fact, amount to a lack of jurisdiction. But it would be very expensive to raise that defense after an arbitration has been completed.

As such, if there is any question about the existence, enforceability or validity of an arbitration agreement, or if the panel intends to go forward with a hearing notwithstanding the apparent lack of an agreement, a lawyer should be contacted immediately.