Monday, July 13, 2009

Did You Know? How Mediation and Arbitration Help and Hurt the Legal Process.

Litigation is time-consuming and expensive. The alternative is to try to settle out of court through alternative dispute resolution (ADR). There are many kinds of ADR. The two most common are mediation and arbitration. .

Mediation. In mediation, the disputing parties ask a neutral third party to help them reach a settlement of some or all of their issues. Most Wisconsin residents encounter mediation in small claims suits or divorce. In Winnebago county, all small claims disputes and many larger civil cases are referred to mediation. Mediation is often successful. For example, the Winnebago County Conflict Resolution Center settles about 90% of all small claims cases through mediation. To encourage parties to settle, mediators emphasize the three advantages of ADR.

A. Certainty of settlement compared with the risk and expense of trial.
B. Savings of time and legal fees.
C. The ability to find solutions a court would be unlikely to reach. (Courts award money and property rights. They do not negotiate payment plans.)

Arbitration. In Wisconsin, arbitration is used to settle disputes between unions and employers. Unlike a mediator, an arbitrator makes the final decision.. Credit cards companies and other financial institutions like stock brokers, mutual fund companies, health care insurers and retirement plans may require arbitration of disputes. Chances are that if you or your family do business with a regional or national company, your agreement contains an arbitration clause.

Sometimes these arbitration agreements are helpful. Sometimes not. ADR can deny relief for smaller claims because the cost of mediation and arbitration is higher than court fees. Arbitration of small claims may not include a hearing and may not be required to follow the law. So many employers and financial institutions are requiring disputes be arbitrated, we will soon need to decide if employees and consumers should have a right to their day in court.

Our tradition of open courts helps keep both judges and law accountable to the public. Private settlements are usually confidential. The public has no rights and public opinion is irrelevant in ADR. While this may have advantages, it also means that neither the public or the courts have the opportunity to understand how establish legal precedents fit - or fail to fit - disputes arising form changes in business, culture and society.

Any change in society raises issues. The Saga of Burnt Njal recounts the fate of a wise man living in Iceland in the middle ages. Nhal success at settling disputes eventually interfered with royal politics and prerogatives. One night, Njal is burned alive in his home. Today the story would be a little different. Njal would be CEO of the Fortune 100 company, Global ADR, Inc. Njal is tossed out of the company when the ADR bubble bursts, but his golden parachute allows him to live well after a soft landing. It is individual members of the public and society as a whole who get burned when Global ADR arbitrates all private disputes.

1 comment:

Richard said...

Great article, Ken. I always advise my clients to avoid committing to arbitration, such as when signing contracts. Unfortunately, many form contracts, especially the AIA (Amercain Institute of Architects) forms alawys provide that disputes will be arbitrated.
In my experience,the "trial" of an arbitration claim, and the arbitrator's decsion, and not alway faster and cheaper than a court proceeding. Sometimes, an arbitration can be slower, depending on the arbitrator's schedule and work habits.
There is no standards for or review of an arbitrator's decision. An arbitrator may or may not follow established precedent. An arbitrator may make a decision on his or her own idiosyncratic view of the law. Whatever the decision, the parties are stuck with it, since there is no appeal. Thus, an arbitrator's decision is final and beyond review.
So unless your client wants to keep his or her disputes private regardless of consequence, I would sugget avoiding arbitratiaon.