Solving Your Legal Troubles Without Setting Foot in a Courtroom

Everyone knows you can solve a legal dispute by taking someone to court. But are there any other ways? Yes! In addition to litigation (what goes on in a courtroom), there are two alternative dispute resolution (ADR) methods commonly used to solve legal disputes: arbitration and mediation.

Mediation and arbitration tend to be sequential rather than mutually exclusive. In fact, many contract dispute resolution clauses require the parties to first attempt to resolve their differences through mediation and only if/when that fails, can they proceed with either arbitration or litigation.

What is mediation?

Mediation is always encouraged as the first step in dispute resolution because it has no downside. If mediation is successful, the parties are all satisfied, and everyone is saved from the riskier processes of arbitration or litigation. Plus, it allows the parties themselves a significant amount of influence over the outcome. If mediation is unsuccessful, then the parties move on to arbitration or litigation.

In mediation, a third-party mediator is chosen by the two conflicting parties to facilitate an agreement in an attempt to resolve the conflict. The mediator’s role is to perform “shuttle diplomacy” by encouraging each side to move away from their position and compromise with the other. The mediator cannot force a settlement.

In addition to the freedom to resolve their own dispute, mediation gives the parties the opportunity to listen to each other’s arguments. This allows everyone to compare the strength of their arguments. If one party discovers that their opponent has a much stronger argument than they realized, they can work harder to find a compromise in mediation, saving themselves from losing to that better argument during arbitration or litigation.

After the mediation session, if success is obtained in resolving the dispute, the parties will create an agreement which becomes legally enforceable. They can hold each other to their agreement in court, should one of them try to renege.

If the mediation is unsuccessful, and the parties decide to continue with their dispute, they will move from mediation to either arbitration or litigation. Both of these processes are binding, meaning that a decision will be made which both parties must respect. There will be a winner and a loser, unlike mediation. The two processes are also frequently mutually exclusive. Most binding arbitration clauses state that the arbitrator’s decision will be final. A court judgment may be appealed.

Fortunately, at any point before judgment is made in either arbitration or litigation, the parties can still settle the dispute by coming up with and agreeing to their own binding settlement agreement. This means that if either process becomes unappealing to both parties, they can still compromise on a solution.

What is arbitration?

In arbitration, a third party decides how to settle the dispute without the parties’ agreement. The arbitrator’s obligation is not to find a resolution that satisfies both parties but rather to decide who wins and who loses the dispute. The arbitrator will then decide on an award amount that the losing party must pay to the winning party. If unpaid, this award can be enrolled as a judgment in court and the losing party will be legally required to pay, just as if the case went to trial and a judgment was obtained.

An arbitrator’s decisions are not appealable unless the arbitrator commits fraud. This means that it is riskier for the parties. Perfect cases are rare, and there is always a chance that the arbitrator will get it wrong, decide against you, and you are stuck with that decision.

Sometimes, though, a bad decision is better than one that is delayed. Litigation can drag on for months or even years without a definitive resolution, and a losing party’s ability to appeal a decision means that even a definitive ruling may not be the end of the process. Arbitration offers speed of resolution.

Unfortunately, arbitration’s efficiency makes it a double-edged sword. A speedy result may not be correct, and the losing party has essentially no option to appeal it.

Additionally, many dispute mediation clauses dictate that the losing party is responsible for paying the arbitrator as well as the winning party’s expenses and attorney’s fees, potentially raising the costs for the losing party. So arbitration could result in you stuck with the wrong result and obligated to pay the expenses.

Further, arbitration’s speed comes as a result of reducing or skipping discovery, the phase of litigation where attorneys are able to gather all the evidence they need to make their arguments. While arbitration is quicker and less painful, the parties may not be able to get all of the facts that they may need to prove their case. Discovery can sometimes reveal case-winning facts that otherwise never would have become apparent. For this reason, alone, arbitration’s speed may actually be more costly.

Arbitration does have one single clear advantage over litigation: privacy.

Litigation leaves a public paper trail. A court case is a matter of public record, which can be found by anyone who knows where to look. For businesses with a national reputation or those dealing with highly sensitive disputes, they may prefer the privacy of arbitration as worth all the downsides mentioned above.

Over all…

It is best to attempt mediation before either arbitration or litigation because mediation is the only avenue where the disputing parties have ultimate control over the potential outcome. However, if that avenue turns out to be unavailing, the decision to arbitrate or litigate depends upon the nature of the anticipated dispute and the parties’ priorities. Also, the decision to select arbitration over litigation must be mutual between the disputing parties. This mutual agreement can be reached after the dispute starts; however, the surest time to get the parties to agree to arbitration is in the contract before it is executed. And this brings us back to a recurrent theme on the importance of thinking through contract terms with legal counsel.