Since most disputes over a commercial loan transaction will involve a claim on the debt, the waiver of jury trial would ensure that any potential counterclaim will be decided by a judge sitting without a jury, thus significantly lessening the potential for punitive damages. Commercial lenders may want to include an arbitration provision in the commitment letter, and have that provision be superseded by a waiver of jury trial in the closing documents. This would permit a lender liability claim rising from an alleged breach of the commitment to be submitted to arbitration, and permit a suit on the debt, and any counterclaims by the borrower for lender liability or other matters, to be tried by a judge sitting without a jury. Of course, the content of any arbitration clause is extremely important, as it will determine the instances in which arbitration will occur and the rules that will be applied. Careful thought thus should be exercised in deciding whether to include an arbitration provision in a particular document, as well as the specific content of that clause.
Arbitration is a hot topic among financial institutions in Alabama right now.
The purpose of this newsletter is not to expound on every aspect of arbitration and the decision of whether it is better to arbitrate or litigate, but rather to point out that some caution should be taken when determining which types of potential disputes are best suited for arbitration.