It is increasingly common to see Alternative Dispute Resolution (ADR) procedures such as Mediation and/or Arbitration included in contracts of all types. The intention is to avoid litigation. Litigation is the traditional dispute resolution procedure, but it is also the most costly, most time-consuming and most destructive way to resolve a dispute.

For example, anyone who buys or sells a home in Arizona is probably familiar with ADR contract provisions. The Residential Resale Real Estate Purchase Contract used in Arizona contains ADR terms whereby buyer and seller agree to a multi-tiered dispute resolution procedure with each tier increasing in complexity and cost. Buyer and seller:

1. Agree to submit any dispute to mediation.
2. Agree to binding arbitration for any issue that is not resolved by mediation.
3. Agree to preserve the right to litigate by allowing either party to opt out of arbitration.

But the contract does not explain these processes and how they work.

What Is Mediation?

Mediation is a flexible and private process that usually involves private sessions with the mediator. Each side may prepare a mediation memorandum setting forth their positions and including key pieces of evidence, but there is no formal presentation of evidence.

The Mediator is not a judge or decision maker. The mediator’s role is to facilitate difficult conversations to find common ground; to assist the parties to communicate effectively to reach a mutually beneficial solution. The parties retain control. The parties must reach a voluntary agreement for the Mediation to be successful.

What Is Arbitration?

Arbitration is another method of resolving disputes outside the court system. Arbitration was the first process developed to save the time and expense of protracted litigation. It is more formal than Mediation and its procedures appear similar to a lawsuit. The parties present their case to an impartial arbitrator who, in most cases, has been chosen by the parties.

The process is conducted according to formal rules of arbitration administrated by a single arbitrator (or a panel of three arbitrators) whose task is to conduct a formal hearing including testimony by lay and expert witnesses. An Arbitration Hearing can take a week or more. Once testimony is concluded, the arbitrator rules on the evidence and provides a decision. The arbitrator’s decision is binding, providing an end to the dispute. No appeal is available.

What Is Better, Mediation Or Arbitration?

It depends. Both are effective procedures to privately resolve disputes. But experience has shown that one may be preferable to the other under certain circumstances. Mediation may be the better choice when:

• Both parties believe they can reach an understanding.
• It is the first attempt to deal with the conflict and it does not appear likely that it will escalate to arbitration or litigation.
• The parties wish to continue working together and/or to maintain on ongoing relationship despite their disagreement.

The Advantages Of Mediation Are:

• It is faster. Mediation can be completed quickly compared to Arbitration or Litigation. A skilled mediator can often conclude a mediation conference in one or two days and, at its conclusion, will often prepare the needed settlement agreement for signature the same day.
• It is less expensive. Costs and legal fees are much less than for Arbitration or Litigation.
• The mediator is usually selected by the parties for impartiality and for expertise in the area of the dispute as well as in the mediation process, itself.
• The parties maintain control. The mediator guides the discussions for the sole purpose of arriving at a mutually beneficial solution.
• It is a flexible process that allows the parties to go beyond the initial dispute and discuss matters that can lead to a wide range of acceptable settlement outcomes that would not be available in litigation.
• The process is less stressful and emotionally draining. The parties can express their concerns and emotions while working towards a resolution. Each party can hear the opposing parties’ view in a less-confrontational environment.
• The process is the one most likely to preserve the relationship between the parties.
• The process is confidential. Anything discussed during mediation cannot be used as evidence in a subsequent Arbitration or Litigation.
• If a solution cannot be reached, other options are still available.

The Disadvantages Of Mediation Are:

• It is not compulsory.
• No result is guaranteed. All parties must agree to a resolution.
• Either party can withdraw from the process at any time.
• If one party is not dealing in good faith, there is a risk that information will be disclosed during the mediation process that could benefit that party in a subsequent Litigation or Arbitration.

Arbitration may be the preferred option in conflicts that are complex or high stakes matters or when:

• A legal dispute has escalated and become more serious/urgent.
• The parties have been unable to settle despite good faith attempts.

The Advantages Of Arbitration Are:

• It can be faster and less expensive than litigation.
• It can be private. The proceedings are not open to the public as litigation matters are.
• The arbitrator can often be more flexible than a trial judge. The parties can, in consultation with the arbitrator, limit discovery to the legitimate needs of each party, set scheduling, determine the number of witnesses to be deposed and the length of the depositions, determine the date and place of the arbitration hearing and the prehearing procedures that will be used.
• The parties can select their arbitrators giving each party the assurance that the arbitrators have expertise in the area that is the subject of the arbitration. This is not the case with litigation where a judge is assigned.
• Arbitration is binding and final. No appeal is available. If necessary, a judgment can be entered on the award and traditional enforcement procedures can be employed.

The Disadvantages Of Arbitration Are:

• There is often limited discovery.
• There is no right (or only a restricted right) to appeal.
• There is no guarantee of due process consistent with legal precedent.
• The potential for arbitrator bias or lack of experience can make the process less predictable. Arbitrators are not always bound by the same rules of evidence or precedent as a trial judge.

More and more, courts are adopting mandatory requirements for mediation as a first step in resolving civil disputes. Parties can initiate mediation before or after litigation has been filed. This could be done at any one of the following critical junctures in a case:

• In the beginning, after a demand letter has been sent or after a complaint has been filed.
• After a dispositive motion has been filed and while it is pending.
• After completion of critical discovery.
• Just prior to trial following completion of expert discovery.

Many attorneys, clients and courts have a strong preference for mediation, arbitration and other forms of dispute resolution. They offer a less expensive and more efficient option compared to civil litigation.

If you are interested in discussing a new or existing mediation, arbitration, or civil litigation case, contact our office by calling 602-277-4441 or visit www.plattwestby.com to schedule a consultation with one of our experienced attorneys.