ADRMediationVs.arbitration Law360

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ADR Mediation Vs. Arbitration

Law360, New York (March 16, 2011) -- In todays trying economic times, more and more clie

are opting to resolve legal entanglements, including complex and contentious environmental

disputes, through alternative dispute resolution methods. Such methods have long been view

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 i

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 a

make determinations based on the evidence. Arbitration results often are binding, so they co

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 usingan 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 th

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 Yortook the lead in embracing ADR by becoming the first to enact a modern arbitration statute.[

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 cover

to CERCLA contribution. To this end, arbitrators and mediators on the AAA roster, for examp

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, mos

informed and knowledgeable neutral possible. For example, beginning in 1997 the AAA forme

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

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 courtroomthroughout 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 i

ever empaneled.[4]

The success rate of ADR processes is undeniable. For example, in a Northwestern survey of 4

cases which went to ADR in a given time period, 78 percent of them settled. Of those same 4

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 ordetrimental elements of litigation. The focus is to move the parties toward settlement throug

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 la

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

considers and uses the facts and laws as negotiation tools only and generally suspends perso

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 t

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 wher

no one walks away happy, but at the same time no one walks away feeling like they were justaken 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 throu

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 lo

or gain.

Arbitration

Arbitration is a favored ADR technique where the parties want to avoid the inordinate time anmonetary cost of litigation, but at the same time want reasoned decisions and results based

traditional principals of facts and evidence. The focus is to provide a streamlined alternative t

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 groun

between the strictures of a court room and the informality of mediation. While the setting ma

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 judg

not just to facilitate a resolution.

An arbitration is essentially a mini court proceeding, with accelerated discovery, limited briefiand 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 tak

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 neutra

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

and does greatly cut down on such things as the amount of discovery exchanged between th

parties, the number of depositions permitted, time frames for completing discovery, the num

of experts used in a case, the number of and opportunities for briefing on legal issues; in shomany 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; understa

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

case-by-case basis. There are different schools of thought on when counsel should, where this 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 fa

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

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 amo

in controversy and the clients ultimate goals.[8] Mediation is obviously less onerous, timeconsuming 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,

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 inparticular. 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 sh

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 stateme

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 examp

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

consent of all parties or as required by law.

Article 34 provides that confidential information disclosed during the proceedings by the part

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,

members of the tribunal and the administrator shall keep confidential all maters relating to t

arbitration or the award.[11]

To this end though, the duty of confidentiality is imposed on the arbitrator, but not necessari

on the parties. Thus, the parties to any ADR proceeding are well served and advised to includ

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 m

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 futu

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

evidence that would otherwise be discoverable or admissible in a subsequent trial does not lo

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 whet

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 th

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 (2005-

2006); see also Failing Faith in Litigation? at p. 60. Harvard Negotiation L. Rev, Vol 3:1 (Spri

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 StudMaterials, Alternative Dispute Resolution, How to Use it to Your Advantage! March 19-20, 19

[7] Mediation Outline: A Practical How-To Guide For Mediators and Attorneys at pg. 3. ALI-AB

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 Stu

Materials, Alternative Dispute Resolution, How to Use it to Your Advantage! March 19-20, 19
http://www.mrllp.com/attorneys-individual.asp?ID=77


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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. 15-1

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-

1994.

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