Alternative Dispute Resolution

Lawsuits are expensive; and because most court dockets are terribly overcrowded, it can take years to resolve the smallest of disputes. Is it any wonder, then, that even winning parties frequently find litigation less than satisfying? Different, effective and economical ways of resolving disputes are needed. This is where various forms of alternative dispute resolution (“ADR”) like mediation and arbitration come in.

Mediation has no fixed form or rules. It is most often a non-binding informal process in which the parties to a dispute work together, with the help of a neutral facilitator (the “mediator”), to voluntarily settle their dispute. The mediator does not determine who is at fault or what the proper value of a claim may be, but does help the parties reach a resolution by helping them define issues, identify needs, and eliminate communication obstacles. While lawyers can participate, it is really the parties themselves and the mediator who carry the laboring oar. Ultimately, if a mutually acceptable accord is not reached, no settlement is consummated and the parties are free to pursue arbitration or litigation.

Sometimes people believe that mediation is not useful because it does not force the parties to resolve their dispute. We disagree. We believe that creating a process that requires the parties to attempt to settle their differences before initiating litigation gives them an opportunity to negotiate with one another without being concerned that such negotiations will indicate to the other side that they lack confidence in the strength of their own positions.

Importantly, requiring mediation should not relieve the parties of the obligation to analyze their own case in an honest and critical fashion. Some mediators feel that they blur their role if they provide such a “neutral evaluation” to the parties, even if it is given confidentially to each party separately. However, neutral evaluation could still be built into the mediation process. For example, the mediator could require the parties to obtain a “second opinion” of their own case as part of the process. The second opinion would help to ensure that the parties approach the mediation process with a realistic view of the strengths and weaknesses of their own cases.

For years, arbitration has been the ADR method of choice for resolving commercial disputes. While the use of mediation has experienced greater growth in recent years, arbitration is still used quite often. Arbitration is a process in which two or more parties to a dispute agree to submit the dispute to one or more neutral decision makers (“arbitrators”) for the entry of a decision. While arbitration more closely resembles litigation than does mediation, there are a number of important distinctions. First, the parties themselves have substantial input in drafting the ground rules. Hence, the process can be as formal or informal as the parties desire. Moreover, the outcome can be binding or non-binding.; As a result, the parties can arbitrate their dispute, and then use the non-binding decision to foster a settlement.

Benefits common to both arbitration and mediation are:

  • Confidentiality  - the parties can choose to keep their dispute private
  • Expense  - the parties are better able to control the cost of resolving their dispute
  • Timing  - the parties can receive their arbitration decision in days or weeks, not years

While there are many benefits to mediation and arbitration, there are a number of drawbacks and not every dispute is appropriate for ADR. For instance, mediation only works if both parties want to resolve the dispute. If one party “wins” by dragging out the dispute, mediation will not be successful. Similarly, if settling a dispute is likely to lead to additional claims being filed, litigation is likely preferable to ADR.

While there are other forms of ADR, such as mini-trials and summary jury trials, mediation and arbitration remain the most commonly used methods. In fact, even the IRS is in the process of expanding the types of cases in which it will agree to mediate.