As always, before reading today's post please review my disclaimer by clicking the link above or by clicking on this link. As always, any legal principles discussed apply only to the Commonwealth of Virginia.
Introduction
Everyone knows litigation is expensive. There's long, dragged out discovery, intensive back and forth between attorneys, a lengthy trial, and sometimes seemingly endless appeals. In light of this expense, there has been a rise in interest over the past couple decades in what is known as Alternative Dispute Resolution (or ADR). ADR is a series of options available to litigants to settle their case without going to court, and without the prolonged back and forth of a typical settlement negotiation. ADR can range from rigid and formal, to extremely relaxed and informal, and as a result can often save its participants substantial sums of money.
Today I will provide a brief description and pro/con list for each of the three major types of ADR - mediation, non-binding arbitration, and binding arbitration.
Mediation
There's a good chance you already know what mediation is - in theory. You and your opponent sit in a room together with a trained mediator and try to hash out an agreement. What I've been surprised to discover, however, is that to most people that is where their concept of mediation ends. In fact, mediation is a very robust process. In many cases there are breakout sessions, where each side sits with the mediator individually, and the mediator is someone trained in both the field of law in dispute and in the more psychological components of getting people to listen to each other. A good mediator will bring a neutral party perspective of helping to foster dialogue and helping each party see where they are being unreasonable. Further, a neutral third party can help find resolutions that neither party may have thought of on their own. As a result, in my personal experience, a majority of mediations I have been involved in have been successful - although I do add the disclaimer that attending mediation usually requires the agreement of both parties, so parties that go to mediation tend to already be somewhat more likely than average to want to settle.
The advantages of mediation are pretty clear. First, it is the least expensive of the three major ADR categories. This is because you can go to mediation right away - no discovery is necessary, no evidence is presented, no witnesses are called, etc. Second, it is the form of ADR most likely to result in everyone being happy, or at least satisfied. If mediation is successful, you have crafted an agreement between the parties, nothing is forced on you. It means that, at least on some level, you agree the resolution is fair. Finally, this is the most flexible form of ADR. Since you are working on a settlement, you can come up with creative solutions that are not available in court or in the other ADR settings.
The disadvantages of mediation are, in my opinion, fairly minimal, but they do exist. For one thing, if mediation fails, you are back to square one in terms of preparing for trial, so instead of saving you money you have to add the cost of the failed mediation to the cost of the rest of the litigation. For another, depending on the sophistication of the parties it is possible for a less sophisticated party to get railroaded in a mediation session, and the mediator has very little ability to prevent that from happening. This second disadvantage can be mitigated, though, by the parties having their attorneys at the mediation.
Non-Binding Arbitration
Non-binding arbitration is basically a cross between mediation and a trial. The ultimate purpose of non-binding arbitration is to get you to reach an agreement to settle your case, but the manner of doing so is different from mediation. Specifically, instead of a trained mediator, you will go before a trained legal professional, usually an attorney or a retired judge. Instead of a discussion, you will present your case, including exhibits and witnesses. Nonetheless, it is not a full trial. The rules of evidence and the atmosphere of the room will be much more relaxed. You are not there to prove your case, just to give your arbitrator a sense of each side's position. At the end of the arbitration, the arbitrator will make a ruling. The idea behind the arbitrator's ruling is that it is a combination of what the arbitrator believes a court would rule, and what the arbitrator believes the right resolution is (usually these will be the same thing). Since the ruling is non-binding, either party can refuse to accept the ruling and continue on with the courts, but the main idea is that the ruling can provide an agreement itself, or at least a starting point for further settlement negotiation.
I have often found that when clients talk to me about going to mediation, they are actually thinking of non-binding arbitration. The two are quite different. Specifically, mediation is collaborative, while non-binding arbitration is not.
The advantages of non-binding arbitration are similar to mediation. First, you avoid many of the costs associated with a trial - while you have to do more to prepare for non-binding arbitration than mediation, you still don't need a fully fleshed out case. Second, you are much more likely to reach a settlement after non-binding arbitration since now a neutral party (rather than your friends and family and an attorney trying to get you to hire him) has told you what is likely to happen. Finally, you still have the flexibility to craft more creative solutions, using the arbitration ruling as a guide.
The disadvantages are found primarily in the cost area. If someone outright rejects the arbitration ruling, you are not only back to square one as with mediation, but you have spent much more on the arbitration than you would on mediation. In other words, non-binding arbitration is probably the worst of the three ADR categories if the ADR does not work.
Binding Arbitration
So, the final major category is binding arbitration. As you can probably guess, binding arbitration is much like non-binding arbitration except that both parties are bound by the arbitrator's ruling. Binding arbitration can be chosen by the parties by agreement, or it can be forced on a party if the underlying lawsuit is based, at least in part, on a matter which that party had contracted to settle in binding arbitration if a dispute arose. Once the arbitrator rules, generally that's it. There's no appeal and you can only challenge the ruling in court if you have a defense to the arbitration agreement itself, and in very limited other circumstances.
The big advantage of binding arbitration is finality. Once a ruling is made, it's made. There is no appeal, no more fighting, nothing.
There are a number of disadvantages to binding arbitration, however. First, it is by far the most expensive of the three ADR categories. You have to fully flesh out your cases, since the ruling will be binding, and the costs of the arbitration itself tend to be high. Second, there is basically no oversight over the arbitrator, so your rights could be trampled on with you basically having no recourse. Finally, since the arbitrator provides a binding ruling, you are basically as likely to have unhappy parties as with a trial - no agreement is ultimately reached with binding arbitration.
Lawyer's Role
Many people seem to think that one of the biggest advantages of ADR is the ability to save even more money by not having an attorney. This is a huge mistake. An attorney is necessary even in mediation to make sure your rights are protected. All three forms of ADR contemplate attorneys being involved and participating in the process, albeit to varying degrees. At a mediation an attorney is likely to say nothing unless his client is being trampled on, or he is meeting with his client in a private session. In either arbitration, however, the attorney will generally be the one presenting the case. It is very easy to be told that "this is how it is" by the other side in an ADR setting if you do not have an attorney, and I would never recommend going into an ADR setting without an attorney.
My Preference
So, you might be wondering reading all of this what I think about ADR. Personally, I'm a big fan of it. I think avoiding trial is something to aim for where possible. I will say I generally don't like binding arbitration. I think if you are going to go through all that trouble, you should just go ahead with a trial. Arbitration tends to favor the "big guy" over the "little guy" because there are fewer protections for the "little guy" in binding arbitration. For those reasons, I tend to prefer trial over binding arbitration.
Non-binding arbitration and mediation, however, are great in my opinion. I do not have a preference between the two, as I've seen many cases where mediation is probably the better choice, but a number also where non-binding arbitration seemed better. I can think of one case in particular where both my client and the other side were being clearly unreasonable, yet their positions were actually not that far apart. A mediation would have been useless because they were both absolutely dug in, so we convinced them to do a non-binding arbitration. The arbitrator made a ruling that was between their positions (not in the middle, mind you, but still between them) and they both reluctantly agreed. Sometimes being told "if you go to trial, this is what will happen, so save yourself the trouble" by a neutral third party can really help.
Conclusion
Alternative Dispute Resolution is growing in popularity as the cost of litigation continues to rise. There are many cases where one form or another of ADR is the right choice, and hiring an attorney willing to go through ADR with you can be very important. If you are involved in litigation but would like to consider an ADR option, please feel free to call (703)281-0134 or e-mail me at SLeven@thebaldwinlawfirm.com to set up a consultation. Our initial consultations are free for up to half an hour!
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