A Guide to Alternative Dispute Resolution: Arbitration and Mediation

Nicholas D. Krawec, Esquire
Bernstein-Burkley, P.C.

Many potential litigants are now looking to Alternative Dispute Resolution (ADR) to more expeditiously resolve their disputes, and to minimize the delays, and to some degree the expense, associated with filing suit, and joining a legion of pending cases on crowded court dockets. ADR typically refers to any method of settling legal disputes outside of the courtroom. Indeed, many Federal District Courts have implemented mandatory ADR for the litigants as a step that must be followed early in the litigation process. This step can include arbitration, mediation, early evaluation of the parties’ respective cases by a neutral, and conciliation conferences with the assigned judge. Many state courts have also provided ADR procedure, sometimes as part of the process of administering the law suits that have been filed, and sometimes through private mediation, perhaps in association with local chambers of commerce and/or the local bar association. For some state courts, this is a voluntary step, and for others it is mandatory. In any event, ADR has been increasing in popularity over the past several years, both with the courts and with private litigants.

Often, commercial and construction contracts contain an ADR clause, typically in accordance with the Commercial Arbitration Rules or the Construction Industry Arbitration Rules of the American Arbitration Association (AAA). Obviously, in order to refer a matter to arbitration or mediation, the parties must mutually agree to submit their dispute to such a forum, and the AAA is one of the better known and most frequently utlizied forum. Information pertaining to the AAA and its processes can be found at its website, www.adr.org. One hears often about arbitration and mediation, but many may not be aware of the difference between the two. Although they serve similar roles, they do have some differences.

Arbitration typically is a process whereby a dispute is submitted to one or more impartial arbitrators, who will hear testimony, review documents (and in some instances the parties can agree to submit their dispute based upon the documents only) after which the arbitrators render a final and usually binding decision called an “award” which can subsequently be presented to a Court of competent jurisdiction, for the entry of Judgment on the Arbitration Award, pursuant to an applicable state statute. This is the process that usually occurs when there is a contractual provision for binding arbitration that the parties have agreed to, and is usually the process seen as a result of AAA arbitration. The AAA has a panel of trained arbitrators of various areas of expertise (attorneys, engineers, architects, and accountants are some of the disciplines from which AAA arbitrators may be drawn) from which the parties may choose. They are given the opportunity to select an arbitrator (or arbitrators) whose background and/or expertise is related to the nature and subject of the parties’ dispute.

This Arbitration process is not to be confused with what I will refer to as “judicial arbitration,” meaning those courts that have an arbitration division, to which cases under a certain dollar threshold, must first be heard by a board of arbitrations, typically selected from a panel of attorneys who regularly practice in those courts, before they can be heard by a Judge and/or jury. Such arbitrations are typically not binding, and there is generally an automatic right to appeal from the award. However, the idea behind such arbitration requirements is still the same as for binding arbitration: that is to try to “unclog” the crowded court dockets, and to allow the parties to conduct what can be referred to as a “dry run” of a more formal trial, to see the relative strengths and weaknesses of the parties’ respective cases so as to perhaps encourage the parties to resolve their differences rather than file the automatic appeal.

Mediation, on the other hand, involves a somewhat different approach. Mediation is a process whereby an impartial, neutral third party meets with the parties to the dispute (and/or with their attorneys, if attorneys are involved) and this neutral third party acts more as a facilitator than as a decision-maker. A mediator does not impose a settlement or resolution. The mediator typically starts out by meeting with the parties and their counsel jointly, and then separately meets with them so as to facilitate candid communication about their particular position’s strengths and weaknesses. The mediator will also candidly set forth his or her perceptions about the merits and strengths of the parties’ case (or the lack thereof) and provide some insight as to how a trier of fact (i.e., a judge or jury) would view their case. The mediator also facilitates negotiation and encourages the parties toward a resolution of the dispute. As can be seen from the very nature of mediation, it is typically non-binding, and the dispute can still result in further contested litigation. However, mediation can be very successful, as mediators typically are trained professionals, and there are training and certification programs available for mediators. Mediation is becoming a growing practice area for many attorneys, and in quite a few instances, for retired judges as well, who bring valuable experience in case evaluation and conciliation. Furthermore, mediation is valuable to use to resolve a dispute with someone you may want to (or have to) deal with in the future. An amicable resolution of a dispute through mediation can help maintain a good continuing business relationship, something not often achievable after a lengthy, expensive and highly contentious court case.

There are other arbitration and mediation forums available. Many Better Business Bureaus have conciliation, mediation and arbitration procedures in place to deal with consumer complaints and disputes.
The National Arbitration Forum is also utilized by credit card companies to resolve disputes with their customers, and credit card agreements often have a provision for referral of disputes arising from the use of the card, to the National Arbitration Forum. Many bar associations have fee dispute resolution arbitration or mediation programs. The insurance industry has inter-company mediation to resolve coverage disputes with other insurers through nonbinding mediation through the Insurance Mediation Forum of the International Institute for Conflict Prevention & Resolution.

While there will be some expense to both parties, associated with paying the arbitrator(s) or mediator for their time, the expense can pale in comparison with the expenses that would be incurred for attorney’s fees, deposition expenses, perhaps expert witness fees, associated with a lengthy court battle. Resorting to arbitration or mediation early in the dispute, can save substantial time and money. If you become embroiled in a legal dispute, don’t hesitate to consider arbitration or mediation as an ADR method. Insisting on your “day in court” may not be in your best interests in the long run. If your opponent refuses to consider ADR, you may be fortunate enough to end up in a Court that does have a mandatory ADR step before litigation proceeds further. If so, take the fullest advantage of it.

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For additional information on perfection of security interests and the usage of other credit enhancements, please see the other articles in this Publications section.

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