Avenues of Alternative Dispute Resolution (ADR)

ADR can afford businesses many benefits especially within the context of a backlogged court system.

By George N. Saliba, Contributing Writer On May 6, 2024

Two forms of Alternative Dispute Resolution (ADR) – mediation and arbitration – are increasingly popular not just because the court systems have enormous backlogs that are significantly delaying trials, but for other reasons including confidentiality and cost-savings advantages. Both mediation and arbitration have their benefits, and although they remain distinct from each other under the ADR umbrella, companies are opting for them.

Arbitration 

Expediency and confidentiality are key in the ADR sphere. Some businesses are building arbitration clauses into their shareholder and operating agreements so that if a legal dispute later arises, the parties will not find themselves in a courtroom, but instead in front of an experienced arbitrator (often a retired judge). Even without a prior contract, parties can always agree to arbitration. Proceedings are, again, confidential, and thus keep the public’s and industry competitors’ prying eyes away from sensitive business methods/processes, intellectual property, and the overall bad-press negativity associated with corporate disputes. 

Having legal matters heard by subject matter experts is yet another arbitration advantage: While court trials are overseen by judges who handle a variety of cases, arbitrators can be selected for specialized knowledge. 

“Law is becoming more complicated,” The Hon. Noel L. Hillman (Ret.), former US District Court judge for the District of New Jersey, who now chairs the ADR practice at the law firm of Gibbons, P.C. tells New Jersey Business Magazine. “[Lawyers] have become hyperspecialized in the [legal] areas that they [practice], and cryptocurrency is a good example. The average lawyer doesn’t know anything about cryptocurrency, but there are lawyers who spend their whole practice day dealing with emerging issues in that area.” He similarly explains that people want to “be in a place where they can choose the adjudicator who understands their business, understands their market sector, and [will] be able to resolve the dispute in a way that adds a level of expertise.”

Cost-savings via arbitration can, again, be a benefit, but it’s not always a clear-cut win. Many retired judges sometimes charge more than $1,000 an hour, and there may be perhaps three mandatory arbitrators for a case. Even if the $3,000 per hour fee is split by the disputing parties to $1,500 an hour, each side’s additional legal counsel fees apply. That said, a study by Micronomics cited by the American Arbitration Association showed that arbitration generally accelerates dispute resolution and saves resources when compared to the often years longer time it takes for a court trial to commence.

Arbitration is also binding, which is good for resolving a dispute in finality, but it could be challenge for the losing party. Short of proving that an arbitrator engaged in fraud or corruption (such as in the extremely rare case of accepting a bribe), the outcome cannot be overturned. 

As Michael A. Saffer, co-chair of the litigation department at Mandelbaum Barrett, P.C., explains, “The difficulty is [when] the arbitrator or arbitrators make a decision that you know is just flat-out wrong, factually. You can’t appeal that because the arbitrators didn’t engage in fraud or corruption. So, you’re stuck. That’s a real, legitimate … downside/negative to engaging in arbitration. If the arbitrator makes a good faith mistake, you can’t appeal his or her decision.” Other attorneys offer caution, but some note that the American Arbitration Association, for example, vettes its arbitrators extremely carefully, and that these individuals often have decades of experience. 

Judge Hillman concludes, “Ultimately, businesses want to put their disputes behind them and make money, and any litigation can be a diversion from that. [However], I think a concern is that mandatory arbitration provisions, [put in place] by rote or automatically for every contract, are not a smart choice. You really have to think about transactional lawyers, and think about the nature of the agreement before entering into binding arbitration as a contractual matter.”

Another arbitration caveat is the potential for limited discovery, meaning that in the name of expediency, only a certain number of witnesses and/or information may be permitted for consideration – a downside for complex litigation. 

Mediation

Another form of ADR – mediation – is mostly more flexible and retains many of the benefits of arbitration, including, for example, confidentiality, cost-savings, the ability to select a specific mediator, and time efficiency. 

Suzanne B. English, president of the New Jersey Association of Professional Mediators (NJAPM), tells New Jersey Business Magazine, “… It is important to remember that mediation is a voluntary process; even when court ordered, the participants must be there voluntarily. When the parties come together voluntarily, then the mediator is there to act as a guide. Mediation is a much less formal, more congenial process, whereby each of the parties has an opportunity to express and address their concerns. When this happens, it opens the door for the parties to produce their own solution. Hopefully and ideally, this results in generating a written and signed agreement.”

English also says, “When someone utilizes mediation, they can explore greater flexibility and innovative outcomes to a dispute. As the parties mediating work together towards creating an agreeable outcome, most people leave mediation under amicable circumstances because they both have ownership of the resolution. This leaves an opportunity to continue having a future relationship, which is a further benefit to a small business seeking to protect their brand and reputation.” 

Several experts note that if mediation does not result in an outcome to which both parties can agree, then a court trial can be undertaken. 

Peter J. Smith, partner at the law firm of Connell Foley, says, “Mediation is available [at any time], whether the ultimate dispute resolution form is arbitration, or whether the dispute resolution forum is left to our judicial system – and by that, I mean [mediation is available] even before an arbitration demand is filed, or before a court proceeding is filed, and at any point up until and through a court proceeding.”

Conclusion

Experts generally agree that the US legal system has only become more litigious and complicated with increased statutes and remedies … and more attorneys. Smith concludes, “I see alternative dispute resolution as only growing in the years to come. I don’t see it slowing down. I think [intelligent] business people think about how disputes are going to be resolved at different stages of their business relationships as disputes arise, or after disputes are formalized in court, or in arbitration. There should always be an evaluation as to how disputes can be resolved efficiently and economically.”

Arbitration and Mediation, Defined

ARBITRATION: Arbitration is referral of a dispute to one or more impartial persons for final and binding determination. Private and confidential, it is designed for quick, practical, and economical dispute resolution. Parties can exercise additional control over the arbitration process by adding specific provisions to their contracts’ arbitration clauses or, when a dispute arises, through the modification of certain aspects of the arbitration rules to suit a particular dispute. Stipulations may be made regarding confidentiality of proprietary information used; evidence, locale, number of arbitrators; and issues subject to arbitration, for example…”

MEDIATION: Mediation is a meeting among disputants, their representatives, and a mediator to discuss settlement. The mediator’s role is to help the disputants explore issues, needs, and settlement options. The mediator may offer suggestions and point out issues that the disputants may have overlooked, but resolution of the dispute rests with the disputants themselves…

SOURCE: “A Guide to Commercial Mediation and Arbitration for Business People,” American Arbitration Association

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