THE ADVANTAGES AND DISADVANTAGES OF ADR
By G. Mark Albright, Esq.
Advantages to Arbitration:
1. More flexibility. In the case of arbitration, the parties have far more flexibility to select what procedural and discovery rules will apply to their dispute (they can choose to apply relevant industry standards, domestic law, the law of a foreign country, etc.).
2. Select your own Arbitrator or Mediator. The parties can often select the arbitrator or mediator that will hear their case, typically selecting someone with expertise in the substantive field involved in the dispute. The arbitrator (or panel members) need not even be an attorney. In this way the focus can be on the substantive issues involved rather than on technical procedural rules. In normal litigation, the parties cannot select the judge, and the judge and/or jury may often need expert witnesses to explain extremely complex issues. The greater the expertise of the arbitrator, the less time that needs to be spent bringing him up to speed.
3. A jury is not involved. Juries are unpredictable and often damage awards are based solely on whether they like the parties or are upset at one party because of some piece of evidence such as a photo that inflames the passion of the jury. Juries have awarded claimants damages that are well above what they would have received through alternative dispute resolution; and they have also done the opposite.
4. Expenses are reduced. Attorneys and expert witnesses are very expensive. Litigating a case can easily run into the tens of thousands of dollars. Alternative dispute resolution offers the benefit of getting the issue resolved quicker than would occur at trial – and that means less fees incurred by all parties.
5. ADR is speedy. Trials are lengthy, and in many states and counties it could take years to have a case heard by a judge or jury. Appeals can then last months or years after that. In a matter of hours, an arbitrator often can often hear a case that otherwise may take a week in court to try with live witnesses. With arbitration, the evidence can be submitted by documents rather than by testimony presented through witnesses. ADR can be scheduled by the parties and the panelist as soon as they are all able to meet together.
6. The results can be kept confidential. The parties can agree that information disclosed during negotiations or arbitration hearings cannot be used later even if litigation ensues. The final outcome can also be made private if the parties so stipulate and agree. On the other hand, most trials and related proceedings are open to the public and the press.
7. Party participation. ADR permits more participation by the litigants. ADR allows the parties the opportunity to tell their side of the story and have more control over the outcome than normal trials overseen by a judge. Many parties desire the opportunity to speak their piece and tell their side of the story in their own words rather than just through counsel.
8. Fosters cooperation. ADR allows the parties to work together with the neutral arbitrator or mediator to resolve the dispute and come to a mutually acceptable remedy.
9. Less stress. ADR is often less stressful than expensive and lengthy litigation. Most people have reported a high degree of satisfaction with ADR.
10. Conclusion. Because of these advantages, many parties choose ADR (either mediation or arbitration) to resolve disputes instead of filing or even proceeding with a lawsuit after it has been filed. It is not uncommon after a lawsuit has been filed for the court to refer the dispute to a neutral before the lawsuit becomes too costly. ADR has also been used to resolve disputes even after trial, while an appeal is pending.
11. Sample subject matters. Some examples of disputes that can be settled by ADR include but are not limited to:
Business disputes- contracts, partnerships, ownership
Property / Land use disputes- property transfers, boundaries, easements
Family disputes- divorce, property, custody, visitation, support issues
Consumer / Collection disputes- repairs, services, warranties, debts, loans
Employment disputes- employment contracts, terminations, non-compete
Landlord/tenant disputes- evictions, rent, repairs, security deposits
Neighborhood disputes / Relational disputes or other civil or personal conflicts
Personal Injury disputes / Insurance disputes- accidents, coverage, liability issues
Disadvantages of ADR:
1. There is no guaranteed resolution. With the exception of arbitration, alternative dispute resolution processes do not always lead to a resolution. That means it is possible that you could invest the time and money in trying to resolve the dispute out-of-court and still end up having to proceed with litigation and trial before a judge or jury. However, you will certainly better understand the other side’s position!
2. Arbitration decisions are final. With very few exceptions, the decision of a neutral arbitrator cannot be appealed, with fraud being an obvious exception. Additionally, some states will not enforce decisions of arbitrators that are patently unfair, a high standard to meet. Another ground for setting aside an award is if the arbitrator’s decision exceeded the scope of the arbitration clause or agreement. Some arbitration clauses are broad, others are narrowly limited to specific disputes. Decisions of a court, on the other hand, usually can be appealed to an appellate court for a variety of legal grounds and for numerous alleged procedural errors.
3. Limits on Arbitration Awards. Arbitrators can only resolve disputes that involve money. They cannot issue orders compelling one party to do something, or refrain from doing something (also known as injunctions). For example, Arbitrators generally cannot change title to real property. Of course this is subject to the specific language of the arbitration clause.
4. Discovery limitations. Some of the procedural safeguards designed to protect parties in court may not be present in ADR, such as the liberal discovery rules used in U.S. courts, which make it relatively easy to obtain evidence from the other party in a lawsuit.
5. Fee for the Neutral. The neutral mediator or arbitrator charges a fee for his or her services. Depending on the arbitrator or mediator selected, the fees can be substantial (of course the parties typically agree to divide the fees between themselves). Depending on the contract language and state law, a prevailing party can be awarded fees and costs. A judge on the other hand, charges no fees for his services.
6. May have no choice. Often the contract in dispute contains a broadly worded mandatory arbitration clause. Many lease agreements and employment contracts, for example, contain mandatory arbitration provisions, as do operating agreements and other types of business contracts. Unless both parties waive arbitration, most states will compel arbitration at the request of any party.
7. Non-binding arbitration. Sometimes the court may order nonbinding or Judicial Arbitration. This means that if a party is not satisfied with the decision of the arbitrator, they can file a request for trial with the court within a specified time period after the arbitration award. Depending on the process ordered, if that party does not receive a more favorable result at trial, they may have to pay a penalty or fees to the other side.
8. Warning. The parties pursing ADR must be careful not to let a Statute of Limitation run while a dispute is in any ADR process. Once the statute expires, judicial remedies may no longer be available.
In mediation, the mediator (a neutral) assists the parties to come to a mutually acceptable resolution of their dispute. The parties may meet altogether in the same room, or often stay in separate offices and the mediator moves back and forth between the parties. Unlike a judge at a trial or an arbitrator at an arbitration hearing, the mediator does not decide how to resolve the dispute. The parties themselves decide how best to resolve or settle their own dispute. The parties work together to come to a mutually acceptable compromise that satisfies everyone, instead of working against each other. Mediation often leads to better communication between the parties and lasting resolutions. This can be particularly important when parties have a continuing relationship with each other, such as neighbors or businesses. It can also be effective where personal feelings are getting in the way of a resolution and a professional mediator can be brought in to act as a go-between. Mediation normally gives the parties a chance to express their concerns in a voluntary, confidential process while working towards a resolution and compromise. Mediation can provide the greatest level of flexibility for parties. It’s a good sign when everyone leaves the mediation feeling like they gave up something. This type of resolution is particularly helpful in high stakes litigation when a run away jury could break a business.
There is no single answer as to whether to pursue litigation or ADR. Instead, the circumstances of each case need to be weighed and carefully analyzed by all concerned parties. Knowing all the options is an important first step. This can be done by considering the advantages and disadvantages of each proposed ADR method and discussing it with trusted and experienced legal counsel.
About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on litigation and dispute resolution, including representing clients in all forms of alternative dispute resolution and serving as mediators in private dispute resolutions for third parties.
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