Alternate Dispute Resolution as an Alternative to Litigation

During contract negotiations,your attorney may ask whether you want to include a provision for Alternative Dispute Resolution (ADR) in the event of a dispute or breach of the agreement.

Or . . . you have not been paid and want to sue but the contract contains a provision for mandatory arbitration.

Or . . . the insurance adjuster in your personal injury case has requested arbitration rather than a jury trial.

Alternative Dispute Resolution is rapidly gaining favor as a replacement for the traditional litigation process. Arbitration and mediation are the most common methods of settling legal conflicts outside of court. The basic difference:

Arbitration retains many of the adversarial aspects of the current judicial system but attempts to reduce overall costs, eliminate rules of evidence and expedite the final decision.

Mediation brings the parties together with a neutral mediator who attempts to negotiate a settlement.

Here is a more detailed explanation of these two alternatives:

Arbitration: During contract negotiations, the parties should consider whether to include an arbitration clause. Unlike general default provisions of a contract that require resolution in the courts pursuant to its laws and procedural rules, the contract can define the choice of arbitration forum, the rules or alterations to standard rules, the qualifications of arbitrators and even the types of remedies that can be awarded

Arbitration affords a number of advantages over traditional litigation including convenient hearing dates, the ability to amend rules utilized, and participation in selecting decision makers. Many cases result in decisions based upon the facts of the case as reviewed by experts in the field, rather than according to principles of law as defined by a judge with no prior experience in the disputed matter. The proceeding is confidential and may allow for a continuation of a business relationship while reconciling a particular dispute. Furthermore, the parties can agree to a high-low figure whereby the decision cannot exceed or be less than a specified sum.

The cost of arbitration can be a hindrance, especially for small cases and collection matters against insolvent defendants who sometimes use arbitration as a delay tactic. The largest arbitration organization, American Arbitration Association (AAA) charges a fee based upon the amount of the claim and the number of arbitrators, plus other types of fees. Although the arbitration fee is allocated by the arbitrators according to the merits of the respective claims and defenses, most of AAA’s fee must be paid before the hearing. Nevertheless, the fees charged can be reasonable if the appropriate arbitration forum is chosen and the cost is offset by savings in attorney’s fees and other litigation expenses.

Other concerns may be considered an advantage or disadvantage, depending on your point of view:

• Discovery is generally more limited, although this may result in lower attorney’s fees and may be modified by the arbitration agreement.
• Formal rules of evidence do not apply, but arbitrators who are lawyers or retired judges tend to give less weight to hearsay and other normally objectionable evidence.
• “Binding” arbitration, means that there is no appeal from the decision. However, timeliness and finality of judgments is generally a favorable aspect of arbitration.

Mediation: With this process, the parties meet with a neutral mediator who facilitates communication and problem solving in order to achieve a resolution of the problem. If you wish, your attorney may be allowed to attend these sessions. Sometimes, the mediator meets separately with the parties to assess the appropriateness of the process or to negotiate a settlement.

The mediator doesn’t render an opinion on the merits of the case. Instead, the mediator helps the parties communicate their positions and evaluate their own cases by exchanging information. In theory, relationships are repaired, rather than destroyed, by the process. Parties who reach their own solutions are more likely to be satisfied with the results.

Furthermore, certain types of disputes may be more adequately resolved by mediation than in court where parties receive an “all or nothing” verdict. For example, a person who is claiming sexual discrimination may not be seeking money damages or the loss of the offender’s job. It may be enough to simply secure an appropriate work environment.

Conclusion: When the time comes to enforce an agreement, arbitration may be desirable and should be considered. In fact, the courts are moving toward requiring some form of ADR even if it’s not required by contract.
Best advice: Discuss this alternative with your attorney. Don’t sign a standard arbitration clause without considering whether you want to be forced into the process and what rules you want to apply.