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ADR Mediation Vs.

Arbitration - Law360

3/16/11 12:58 PM

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ADR Mediation Vs. Arbitration


Law360, New York (March 16, 2011) -- In todays trying economic times, more and more clients are opting to resolve legal entanglements, including complex and contentious environmental disputes, through alternative dispute resolution methods. Such methods have long been viewed as a faster, better and cheaper way to resolve certain matters. With the ever-rising cost of litigation and extended time frames before a complex case can reach trial, ADR has recently expanded its footprint to the environmental arena. Once the parties have agreed to ADR, the issue becomes what type of ADR should be used; mediation or arbitration. Mediation involves the use of a neutral whose goal is to get the parties to settle, and often is nonbinding in nature. Given these characteristics, mediation best serves parties who are interested in bridging a gap, typically on the perceived value of a case. Arbitration, on the other hand, involves a neutral whose goal is to study the facts and law and make determinations based on the evidence. Arbitration results often are binding, so they come with the risk of no or limited recourse in the event of an unfavorable award. Still however, cases where liability is contested, or where analysis of discovery and legal briefings is desired, are suitable for arbitration. Parties often turn toward ADR for confidentiality related reasons, believing an informal ADR setting is far better suited for such purpose than public court room proceedings. Parties using an ADR process, however, should still carefully negotiate confidentiality and nondisclosure clauses as part of their agreement to mediate or arbitrate. This article will discuss mediation and arbitration processes, their differences, provide some guidance on when to choose one over the other, and touch upon the confidentiality issues that surround them.

Development of Alternative Dispute Resolution


ADR is something which has grown out of necessity and expediency. Shortly following World War I, courts became backlogged with overcrowded dockets. The business community responded, and the American Arbitration Association (AAA) was born. The State of New York took the lead in embracing ADR by becoming the first to enact a modern arbitration statute.[1] The statute provided for the enforcement of agreements to arbitrate.[2] Over the past 75 years, the AAA and other arbitration organizations have built nationwide networks of arbitrators equipped to handle any kind of dispute, ranging from insurance coverage to CERCLA contribution. To this end, arbitrators and mediators on the AAA roster, for example, are well regarded industry practitioners, litigators, corporate counsel and former judges, each with their own special expertise.
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ADR providers have, over time, developed special panels to afford participants the best, most informed and knowledgeable neutral possible. For example, beginning in 1997 the AAA formed a national Mass Torts Panel to resolve complex, multiparty disputes involving major tort cases (e.g., asbestos, breast implant, and toxic tort cases). The neutrals on the Mass Torts Panel, in addition to drawing upon their past practice and experience in the mass tort litigation arena, underwent intensive training on mass tort models and successful methods of resolution.[3] Today, more disputes are resolved through the ADR process than through trials in courtrooms throughout the United States. Indeed, many courts require litigants, as part of the litigation process, to engage in some form of ADR process (court-sponsored or private) before a jury is ever empaneled.[4] The success rate of ADR processes is undeniable. For example, in a Northwestern survey of 450 cases which went to ADR in a given time period, 78 percent of them settled. Of those same 450 cases, 83 percent of the participants stated that they favored mediation over other ADR Techniques.[5]

Mediation :
Mediation is a favored ADR technique because it avoids some of the most unattractive or detrimental elements of litigation. The focus is to move the parties toward settlement through compromise and negotiation. In litigation, tension and emotions loom large as witnesses are questioned on the stand, conflicting evidence is submitted, and a jury sitting in judgment of the facts is often thinking about such incidental things as what a particular witness or the attorney is wearing. In mediation, the setting is informal and the combative element is essentially removed. Indeed, the adverse parties often may not utter a word to each other or in each others presence. The informality of the mediation session and lack of direct confrontation over the facts and law neutralizes the emotional element which often stands in the way of reasoned business judgment. The mediator is not always a lawyer, but can be a person from the pertinent industry. He or she considers and uses the facts and laws as negotiation tools only and generally suspends personal judgment on which side is in the right. The neutral third party often makes introductions and hears a short version of the facts and issues while all participants are present. Beyond that, however, the participants are generally sequestered as the negotiation process begins, with the mediator being the consummate middle man trying to broker a deal. Of course, the law and the facts play a role, but generally they only do so to the extent the mediator leans more heavily on one party over another in who should move more in their offer or demand. The goal, however, is always the same; come to a compromised deal where no one walks away happy, but at the same time no one walks away feeling like they were just taken to the cleaners. Instead of having a judge and jury who decide a case on the law and the facts respectively without compromise, which can and often does lead to one-sided results, the entire goal of mediation is to use a neutral to come to a compromised deal. To this end then, mediators generally do not provide their opinions on who is right and who is wrong, but instead help parties identify perceived strengths and weaknesses in their case that can impact case value.

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This only works if the parties to the mediation process are not firmly entrenched in their position, want to fight based on principle, or have a strong sense that complete victory through the litigation process is likely. Thus, mediation only works where the parties are ready to compromise in the interest of transactional cost avoidance and quantification of a palatable loss or gain.

Arbitration
Arbitration is a favored ADR technique where the parties want to avoid the inordinate time and monetary cost of litigation, but at the same time want reasoned decisions and results based on traditional principals of facts and evidence. The focus is to provide a streamlined alternative to litigation while reaching the same fair and just decision based on the facts, evidence and law. Since, unlike mediation, compromise and getting to a deal is not the paramount goal of arbitration, there can be true winners and losers. To this end, arbitration is the middle ground between the strictures of a court room and the informality of mediation. While the setting may be the same as a mediation (e.g., a neutrals conference room), the atmosphere of an arbitration is very different. The arbiter is there to hear arguments, gather evidence and judge, not just to facilitate a resolution. An arbitration is essentially a mini court proceeding, with accelerated discovery, limited briefing and legal arguments, and condensed testimony and evidentiary submissions. The arbitrator is usually a lawyer, often a former judge. He or she is governed by where the facts and law takes him or her, and acts as a judge and jury, with the purpose of deciding who is in the right. In this environment, there is little open conversation or ex parte communication with the neutral. Indeed, the parties generally speak through sworn testimony, much like in the litigation process.[6] The benefit to arbitration over full bore litigation however, is alluded to above. Arbitration proceedings have relaxed and flexible discovery, procedural and even evidentiary rules. This can and does greatly cut down on such things as the amount of discovery exchanged between the parties, the number of depositions permitted, time frames for completing discovery, the number of experts used in a case, the number of and opportunities for briefing on legal issues; in short many of the things which cause court cases to drag on and on. Add to this streamlined process the fact that many courts now have mandatory furloughs and arbitration becomes an attractive alternative to two, three, or four years of litigation. As a substitute for a judge and jury, the goal of an arbitrator is simple: gather the facts; understand the law, judge the evidence; and issue a fair and reasoned judgment. To this end then, selection of a competent arbitrator (or panel of arbitrators) is key.

Choosing Between Arbitration and Mediation


Whether arbitration or mediation is the better form of ADR generally is an issue resolved on a case-by-case basis. There are different schools of thought on when counsel should, where there is a choice, recommend one over the other. One school of thought is that a party which believes it has the far better position based on facts and law in a complex case are better served by arbitration since a competent arbitrator will study the facts and law, come to the same conclusion, and issue a decision based not on compromise but rather on the merits. Similarly, a party who does not have a strong case or defense may be better served through a mediation process, where compromise is more the order of the day and where the ultimate result, if unfavorable, can often be later challenged
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through future arbitration or litigation processes. Another school or thought focuses on the sophistication level of the parties, opining that the less sophisticated party may opt for arbitration because the arbiter carries the responsibility of studying the law and facts and making fair and just awards, and can thus fill in for sophistication or competency shortcomings of that party or their counsel.[7] Other important factors to consider in deciding between mediation or arbitration are the amount in controversy and the clients ultimate goals.[8] Mediation is obviously less onerous, time consuming and expensive than arbitration. Thus, it is far better suited to cases where the amount in controversy simply do not justify the cost of arbitration. After all, one of the fundamental purposes of choosing ADR over litigation is transactional cost avoidance. Turning to the clients goals, if the client wants to retain some control over the ADR process, or wants to try and make the dispute go away through compromise, mediation again makes the most sense.

Confidentiality
Federal and state courts, as well as the ADR institutions themselves, have adopted confidentiality rules relating to settlement negotiations in general and ADR processes in particular. Parties are encouraged to negotiate and supplement existing confidentiality terms prior to commencing arbitration or mediation. On a federal level, Federal Rule 408 protects against the use of settlement negotiations to show liability or invalidity of a claim, and 28 USC 657 protects against otherwise inadmissible consideration of arbitration awards or proceedings in a trial de novo situation.[9] On a state level, different states have adopted ADR-specific statutes containing expressed confidentiality provisions. For example, Texas has adopted the Texas Alternative Dispute Resolution Act. That act has a provision that affords confidentiality protection to any statement or communication made during the ADR proceedings relating to the subject matter of the dispute.[10] The AAA has several confidentiality provisions in their governing procedural rules. For example, Article 20.4 provides, that hearings are private unless the parties agree otherwise or the law provides to the contrary. Article 27.4 provides that awards may be made public, only with the consent of all parties or as required by law. Article 34 provides that confidential information disclosed during the proceedings by the parties or by witnesses shall not be divulged by an arbitrator or by the administrator. Except as provided in Article 27, unless otherwise agreed by the parties, or required by applicable law, the members of the tribunal and the administrator shall keep confidential all maters relating to the arbitration or the award.[11] To this end though, the duty of confidentiality is imposed on the arbitrator, but not necessarily on the parties. Thus, the parties to any ADR proceeding are well served and advised to include confidentiality and nondisclosure provisions in their agreement to arbitrate or mediate. For example, in a mediation context, the parties can agree, among other things, that: (1) the mediation and the statements as confidential so far as the law permits; (2) all statements made in mediation shall be privileged against use at any future arbitration or trial relating to the dispute; (3) the mediators notes and party notes will be destroyed at the conclusion of the
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mediation; and (4) the mediator may not be called as a witness or otherwise involved in future arbitration or litigation should settlement fail.[12] No matter what the terms of the confidentiality agreement, however, parties should be cautioned that much like in court, total confidentially cannot be accomplished as information or evidence that would otherwise be discoverable or admissible in a subsequent trial does not lose that admissibility status merely because it was raised during an ADR process.

Conclusion
ADR has always been an attractive alternative to courtroom litigation. In todays economic climate, it has become even more attractive, and often is the only feasible way for parties to resolve their legal disputes. Litigation often costs too much or takes too long, Thus, where there is an option to do so, ADR should be considered as a viable alternative to litigation, even in a complex environmental or toxic tort case. Weighing and considering whether a particular dispute is better suited for arbitration or mediation will depend on a number of factors, but it is an analysis worth posing to and exploring with your clients. --By Warren A. Koshofer, Michelman & Robinson LLP Warren Kosofer is a partner at Michelman & Robinson in the firm's Encino, Calif., office and a member of the firms commercial and business litigation department. The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or Portfolio Media, publisher of Law360. This article is for general information purposes and is not intended to be and should not be taken as legal advice. [1] Public Service at the American Arbitration Association. 3/10/04, rev 4/13/04 at p. 2. American Arbitration Association (2004), www.adr.org/si.asp?id=3448. [2] Id. [3] Id. at p. 8. [4] Thomas O Main, ADR: The New Equity, at p 341. 74 U. Cin. L. Rev. 329, Vol. 74 (20052006); see also Failing Faith in Litigation? at p. 60. Harvard Negotiation L. Rev, Vol 3:1 (Spring 1998). [5] Vicki Bonnington, Bypassing Traditional Litigation: Fighting Smarter, Spending LessOne Companys Experience with Early Dispute Resolution, at p. 3: ALI-ABA Course of Study Materials, Alternative Dispute Resolution, How to Use it to Your Advantage! October 2000 [6] Jeffrey G. Kichaven, Using Alternative Dispute Resolution, at p. 7. ALI-ABA Course of Study Materials, Alternative Dispute Resolution, How to Use it to Your Advantage! March 19-20, 1998. [7] Mediation Outline: A Practical How-To Guide For Mediators and Attorneys at pg. 3. ALI-ABA Course of Study Materials, Alternative Dispute Resolution,: How to Use it to Your Advantage Vol. II Dec. 15-16, 1994. [8] Jeffrey G. Kichaven, Using Alternative Dispute Resolution, at p.12. ALI-ABA Course of Study Materials, Alternative Dispute Resolution, How to Use it to Your Advantage! March 19-20, 1998.
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[9] Tom Arnold, Mediator Ethics Issues in Mediation, at p 15-16. ALI-ABA Course Study Materials, Alternative Dispute Resolution, How to Use it to Your Advantage! Vol. II Dec. 15-16, 1994. [10] Texas Civil Practice & Remedies Code 154.073 (2009). [11] International Arbitration Rules, April 1, 1997, American Arbitration Association. [12] Tom Arnold, Contract of Confidentiality in Mediation, at p.1-2. ALI-ABA Course of Study Materials, Alternative Dispute Resolution,: How to Use it to Your Advantage! Vol. II Dec. 15-16, 1994.
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