When people think of Alternative Dispute Resolution or ADR, they think of mediation or arbitration. These two forms of ADR have little in common, except that they occur out of Court, the parties select their mediator or arbitrator, and both are designed to resolve cases expeditiously and cost-effectively.
Mediation by Agreement
Mediation is a creature of agreement (or may be court-ordered). It is best not to provide for mediation in a contract because it can thwart a party’s ability to go to court to seek preliminary relief if necessary. However, a contract may state that the parties will hire a mediator in the event of a dispute, to facilitate settlement talks early and/or bring the parties together at various opportune times from the outset.
The Right Time to Mediate
There is no formulaic “right” time to mediate and much depends on the nature of the dispute, the parties and whether the mediation is voluntary or court-ordered. Mediations are usually most successful after some discovery has taken place. For example, referring to relevant documents and/or excerpts from deposition testimony during a mediation can help the other side see the case in a different light and help the mediator broker a rational settlement.
Choosing a Mediator
Selecting a mediator should be based on the four “p”s: personality, patience, perseverance and practicality, as assessed during interviews of potential candidates. As to personality, some cases require someone to listen and empathize with the parties; others require a hammer. Patience on the part of the mediator maintains harmony during the slow process even if parties backtrack or become intransigent. The mediator must persevere and adhere to the procedures set in advance. Changing the rules midstream can cause the parties to lose faith in the mediator and the process. Most importantly, the mediator should be practical and look for non-monetary tools to resolve disputes, relief that a court or arbitrator could not award. Apologies and/or letters of recommendation or agreeing to preserve a business relationship may resolve a dispute.
Preparation is imperative. The mediation statement provides the first opportunity to persuade the mediator and is not a legal brief. It explains why the parties have been unable to resolve the matter, highlights the history of negotiations and describes the personalities of the parties. The statements can be exchanged, kept confidential or a hybrid—exchanging facts and arguments with the other side but revealing settlement possibilities for the mediator’s eyes only.
Attendance at the Mediation
Ensure that the right client representatives attend. A high level executive sends the right message and permits a party to commit to a settlement on a moment’s notice. If insurance is involved, the insurers must participate.
Concluding the Mediation
Make sure any settlement is documented. Since the participants are generally exhausted by the time a settlement is reached, prepare a draft settlement agreement in advance.
Arbitration is purely a creature of contract. Courts will compel signatories to an arbitration agreement to arbitrate, and therefore the agreement should explicitly exclude matters not intended to be covered. Sometimes non-signatories can also be bound under principles of agency, alter ego or third party beneficiary. The parties can provide for the forum, issues to be arbitrated, governing law, number of arbitrators, types of discovery, form of award and many other specifics.
Advantages of Arbitration
Control over the process is key. Arbitration is usually faster and less expensive than litigating in court. It also enables the parties to designate people with industry expertise to hear the matter. Arbitration avoids potential runaway jury verdicts.
Disadvantages of Arbitration
Generally very little discovery is allowed and some circuits do not enforce third-party discovery. Motions to dismiss are usually not granted (generally not permitted under FINRA rules). Grounds for vacating an award are extremely limited, arbitrators are not required to strictly follow the law, and the rules of evidence are not strictly enforced.
In contrast to Court documents, the pleadings are usually less formal and serve as persuasion documents. It is essential to be familiar with the particular rules of the forum. Rules are different in JAMS, AAA and FINRA.
One Arbitrator or Three
Many agreements provide for three arbitrators; usually each side appoints one and then the two decide on a third who is generally the chair. Agreeing to one arbitrator to save money creates risks, as three arbitrators are less likely to render an aberrational decision.
Pre-hearing briefs educate the panel as to the strengths of your position in advance of the hearing. Do not, however, overreach and say that the evidence will show particular facts, unless you are sure. It is very important not to lose credibility with the arbitrator(s). The pre-hearing briefs influence the arbitrators and prime their views of the merits.
Carefully Parse the Arguments
The proverbial “kitchen sink” approach often used in Court is not effective in arbitration. Make the strongest arguments and omit the others. With no right to appeal, you do not need to preserve the record. Weak or peripheral arguments undermine credibility.
In considering ADR, distinguish between mediation and arbitration. Mediation can be agreed to at any time on any matter and is generally not binding. Arbitration, on the other hand, will apply to all kinds of matters unless the arbitration agreement provides otherwise, and is generally binding.