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Why Use ADR?

By Michael Brier

Not infrequently, businesses find themselves in disputes that cannot be resolved through informal negotiation. Those disputes can always be resolved through the courts, but the path to a resolution is often time-consuming and expensive. In recent decades, the burdensome nature of litigation has led many businesses to explore alternative dispute resolution, or ADR, as a way to avoid the court system.

“ADR” is a general term that encompasses a variety of different alternatives to court, the most important of which are mediation and arbitration. The two are very different from one another.

  1. In mediation, the parties engage a “mediator” to help broker a settlement at some point in the litigation process.
  2. In arbitration, the parties engage an “arbitrator” who hears the evidence and then acts as judge and jury, eventually issuing a binding judgment.

So, the question of “why use ADR” is really is the two distinct questions of “why mediate?” and “why arbitrate?”

Why Mediate?

Every litigant sees a case from his or her own perspective. Good counsel aims to be more objective, but they are not immune from the natural human inclination to see the case from the perspective of their clients. Nor are lawyers as a rule especially effective at communicating the weakness of a case to their clients: after all, clients like to hear good news, and the lawyers work for them.

Mediation seeks to ameliorate these problems by having a neutral lawyer hear a summary of the evidence from both sides, then help to broker a settlement with a frank take on the weaknesses of each side’s case, the amount of a possible recovery, and the costs of further litigation. At its best, mediation can save both sides a great deal of money by helping them to reach a settlement that they would never have agreed to on their own.

That said, mediation does not always make sense:

  • Mediation is most beneficial before litigation starts and costs begin to pile up. But it can be very difficult, not to say risky, to reach a settlement before engaging in discovery and learning the strengths of one’s own case and the weaknesses of the others. Premature mediation often fails and can make is more difficult to settle later on.
  • Moreover, sometimes the sides are just too far apart to expect mediation to be successful. This can be because it is just too difficult to predict how a jury will view the evidence or how a judge will decide a legal issue or just because the other side is being unreasonable. In either case, a mediator isn’t going to be able to bridge the gap where a plaintiff’s demand is for $10 million and the defendant’s offer is for $5,000.

Why Arbitrate?

Arbitration generally begins long before a dispute arises, when the parties to a contract agree to a provision by which they agree to submit any conflicts they might have to an arbitrator rather than go to court. Parties are free to agree to arbitrate after a dispute arises as well, but this is much less common since once the contours of a dispute become apparent one party will usually conclude that it is more advantageous to proceed in court.

In either case, arbitration has several possible advantages over traditional litigation:

  • Arbitration is confidential. The case documents and trial are not open to the public, as court proceedings are. This is often the biggest attraction of arbitration for businesses that do not want their confidential documents or ex-employees’ allegations of wrongdoing appearing in court documents.
  • Arbitration is usually faster than traditional litigation.
  • Arbitration can be cheaper than litigation, primarily because it usually involves less discovery. On the other hand, the parties need to pay the arbitrator, and arbitration generally makes it significantly more difficult to resolve cases that do not involve disputed facts through the summary judgment procedure.

The biggest drawback to arbitration is that there generally is no appeal from the decision of the arbitrator. Of course, the winning party loves the lack of appellate rights. But the losing party is out of luck, even if the arbitrator got the law entirely wrong. As a practical matter, the arbitrator is usually granted all but unlimited authority to decide the parties’ dispute however he or she thinks best. This can make it more difficult to predict how an arbitrator is going to rule than would be the case in court.

Conclusion:

In sum, ADR can be a useful tool in a variety of situations. But it is not a panacea: in many instances, going to court will be the best option for a client, at least for the time being. The key in any instance is having good advice from counsel to determine what the best choice is for you.


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