Corporate Legal Advisors SM


Only a lawyer could coin a term such as "alternative dispute resolution" to define various forms of mediation and arbitration. To the rest of the world, especially those of you with a historical bent, the term conjures up images of dueling at sunrise in an open field or the toss of a coin (or worse, revolvers with some empty chambers?). What I am addressing in this newsletter is, however, more relevant and more boring than such historical definitions of "alternative dispute resolution." The spiraling costs in time and money of resolving business disputes through traditional litigation in the court systems has continued to push "aggrieved" parties to seek more cost-effective solutions for resolution of contractual, employee, domain name and many other disputes. Here follows my attempt to make some sense of this movement away from the traditional approach of lawyers fighting for your rights to your last dollar.

  1. Litigation: Summons, Complaint, Interrogatories, Document Production, Depositions, Negotiations, Trial Preparation and then you settle the case. Only now most court systems require the parties to also at least go through the motions of pursuing alternative dispute resolution before going to trial. Ironically, the court mandated alternative dispute resolution requirement is, as many argue, too little, too late and just adds expense and time delay to the whole process. The reality is that only a few percent of filed civil lawsuits go to trial. And, many of these civil cases involve personal injury or family law matters.

  2. Mediation: Voluntary, Relatively Inexpensive, Maintenance of Control of the Outcome, Low Time Commitment and Speedy Resolution are words that attach to this form of dispute resolution. Very effective for disputes where the parties want to have a continuing relationship - you and a customer, supplier, employee, etc. But, you don't want to wait for the lawsuit to start first. And, the key is to get the solution into a binding written agreement as soon as possible after successful conclusion of the mediation sessions. In fact, I think of the binding written agreement as part of the mediation process.

  3. Mediation - Arbitration: All of the above with the addition that if the parties cannot agree on a solution, they have agreed in advance to submission of the dispute to binding arbitration.

  4. Arbitration: I will only address binding arbitration. You and your business are already subject to arbitration if you have health or vehicle insurance, lease any equipment, etc. It has become the norm for larger businesses to include an arbitration provision in their agreements with customers and suppliers. Disputes are decided by one or more arbitrators selected by the parties. Think of it as an abbreviated trial process without delays and at a fraction of the cost. But all of this assumes the arbitrator is truly independent of the parties.

  5. Capitulation: Examples: (a) Customer in Maine owes you $1,974 and refuses to pay; (b) Supplier has provided shoddy merchandise or services but is financially on the brink. Any effort on your part costs money and time. A written mandatory arbitration in Minneapolis requirement may have given you a chance. But, sometimes, giving up is the best answer.
  1. Litigation: For all of its obvious defects, litigation may be the right answer. If you want to get an injunction to stop another party from doing something, the court system is the only practical answer. Examples: (a) The ex-employee who is violating a non-compete or confidentiality agreement; (b) A competitor who is seriously disparaging you in the marketplace. The best remedy for these actions is only possible through the court system. There may also be situations where you do not want a speedy resolution of the matter. And situations where you want to make an example of how offenders will be treated. But, never forget, litigation has a habit of taking on a life of its own and the legal bills keep rolling in.

  2. Mediation: Works best when the parties want to retain a business relationship after the dispute is settled. It also lets you retain some control over final resolution. But it can just add expense and cause delay if there is more than "normal" animosity between the parties

  3. Mediation/Arbitration: Spending as little as a part of a day trying to "work it out" with the other party can save serious time and money. You do not have to use the same person to be the mediator and arbitrator. Often times, though, the same person will attempt to mediate a solution but will then act as the arbitrator. Either way, you are more involved in the process and know, first hand, what the other side wants and has.

  4. Arbitration: One or more individuals are selected from a panel. One approach is a list of potential arbitrators which is sent back and forth with each party eliminating a name until the appropriate number of arbitrators are left on the list. Various sets of rules exist. The American Arbitration Association rules are fairly straightforward. The process takes less than a third as long as standard litigation and also costs a fraction of standard litigation. But, in most situations, you give up your right to appeal the decision of the arbitrator.

  5. Capitulation: Deciding that no matter how right you are and how wrong the other party is, it is not worth the fight. You have done this more often than you realize. In business disputes, it usually involves decisions based on cost versus benefit.

What to do? It all depends. My general response is to always give serious consideration to mediation-arbitration as the dispute resolution mechanism. And, if possible, require that such mediation-arbitration occur in your geographic area. Including binding agreements to arbitrate disputes at the front end of business and employee transactions is often the right answer. If properly drafted, etc., these provisions will force the other party to arbitrate the dispute. Courts have consistently ruled that parties who agree to arbitrate have necessarily relinquished their right to a jury trial for the arbitrated claims.

But, do not assume mediation/arbitration is always the right answer. Other factors than speed of resolution and cost containment may prevail.

"If the only tool you have is a hammer, every problem starts to look like a nail." Think before you hire an attorney who specializes solely in litigation when you have a dispute and need legal help. What you really need is a lawyer who will use the tool that works best for your case.