Opinion: Alternative Dispute Resolution - Is it Right for You?

By Dwayne Singleton

Given today’s economy and business climate, we all are looking for ways to cut costs and increase efficiencies. Alternative Dispute Resolution is an effective way to trim litigation costs and resolve disputes.

Alternative Dispute Resolution refers to any means of settling lawsuits outside of court. The most common types of ADR are mediation and arbitration.

Mediation is a nonbinding process in which a neutral third party, the mediator, helps the parties achieve a resolution. The mediator doesn’t decide the dispute but guides the parties in reaching their own resolution. Mediations, unlike trials, usually only last one day or in some instances only a few hours. Mediation can be used at any point in the litigation process. It is normally best to have enough discovery completed so that each side can evaluate its case.

To be successful, the mediation must be attended by someone in full authority to settle the claim. Mediation generally begins with all parties in the same room. Often this is the first time the parties have met. Each side states its case. Each side has an opportunity to listen to the other side’s position. Sometimes this in and of itself is helpful, as each party has an opportunity to hear the issues from a different perspective.

After the initial session, the parties break into separate groups in separate rooms. They likely won’t see each other again until after the mediation has concluded. The mediator goes back and forth between the groups with offers and demands and acts as a catalyst for a successful mediation.

Compared to lawsuits, mediation is swift, low cost and fair. In most cases the process is confidential. What was said in mediation can’t be used in court; nor can the mediator be called to testify. In some states the parties agree, in writing, that they will not subpoena the mediator to testify about the mediation proceedings. This confidentiality allows both sides to be completely honest with the mediator without fear that the information will be used against them.

There are some drawbacks to mediation. In cases where you have a clear legal right based on statute or precedent there is little or no reason to mediate. If no compromise is called for, why bother? If either party uses mediation as a delay tactic or comes into the session with no intention of negotiating, the process then becomes burdensome and unnecessary. Lastly, if either party has not developed its negotiation strategy and isn’t prepared to adequately present its case, then mediation becomes a waste of time and money.

Arbitration is a second type of ADR. It is very similar to mediation in that both sides present their case. Factual as well as legal arguments are made directly to a panel of arbitrators. The arbitrators, usually three, must decide the dispute. Prior to the arbitration the parties can agree to make the arbitrators’ decision binding. If binding arbitration is agreed on then obviously the arbitrators’ decision is final. One way to increase the chances that the case will be settled with the arbitrators’ decision is for the parties to agree to a “high–low.” This is done without the arbitrators’ knowledge and basically sets the settlement range. The high–low agreement guarantees each party parameters in which both have previously said they can live. High-low works like this example: The plaintiff believes the case is worth $25,000 but would take $18,000 on the low end. The defendant would be willing to pay $25,000, but thinks the case is closer to $18,000 in value. With a high-low agreement, each side now knows the case will settle, as well as the parameters. This agreement eliminates the possibility that the arbitrators’ decision will be rejected and guarantees a settlement.

In the alternative, the arbitrators’ decision can be nonbinding with trial still an option. Nonbinding arbitration is worthwhile as it gives both parties an opportunity to learn what a neutral third party may think of their case. Often the arbitrators’ decision is one that both parties can live with.

Reports indicate that ADR has a success rate of 75% to 80%. If you wish to avoid the high cost of litigation, trials, lost productivity and unwanted publicity for your company, make Alternative Dispute Resolution a part of your litigation plan.

The writer is director of risk management at Cardinal Logistics Management, described as an integrated transportation solutions provider, with headquarters in Concord, N.C.