Alternative Dispute Resolution

ALTERNATIVE DISPUTE RESOLUTION
FROM A PRACTITIONER'S POINT OF VIEW

Alternative dispute resolution has been a hot topic for several years. It grew out of the desire of corporate America to get control of escalating attorneys' fees in the late 1980s and early 1990s. Corporate America observed attorneys' fees increasing at an accelerating rate that exceeded the rate of growth of most corporations. An effort was made by the Committee on Corporate Counsel and the American Corporate Counsel Association, now known as ACC, to standardize and to make uniform procedures for billing and budgeting of legal services, principally litigation.

Faced with these increasing fees and efforts by corporation to stem the flood tide of rising legal expenses, lawyers and professional organization sought viable alternatives to the costly process of litigation. Alternatives to the traditional judicial process took hold and have been, and continue to be, the subject of great debate. 

Alternative dispute resolution is, as its name implies, an alternative method of resolving disputes without resort to the judicial process. Chief among these alternatives is arbitration and mediation. Both take a variety of forms. There is both binding and non-binding arbitration. Mediation is typically non-binding until the parties agree and, at least under the Florida rules, sign a settlement agreement that embodies their settlement. No one method of alternative dispute resolution is preferable to the others. Some methods are more desirable than others depending upon the circumstances. Alternative dispute resolution is not a panacea for all the criticisms of litigation, chiefly the cost and the time involved, but it can go a long way in reducing each if managed properly.

Arbitration, widely used in international transactions to resolve disputes, has taken hold in Florida since the mid-1990s. Arbitration can be before a formal body such as the American Arbitration Association, JAMS Dispute Resolution or the International Chamber of Commerce, the latter of which is very popular for international transactions. Otherwise, parties can select their own arbitrator or arbitrators and establish their own rules to resolve their dispute. The point to be made is arbitration is consensual (as is mediation), and unless both parties agree to arbitration, it cannot be had. If both parties have agreed to arbitration before the dispute, and one seeks to renege on the agreement to arbitrate after the dispute has arisen and a demand for arbitration has been made by the opposing party, a court will enforce the arbitration agreement and compel the recalcitrant party to arbitrate.

Arbitration was designed to be efficient, economical and expedient. It was designed to be more cost-effective than litigation. Anecdotal evidence reveals that arbitration does not always proceed as it was intended. Filing fees can vary greatly between the formal arbitration bodies. In classic arbitration, discovery, if it existed at all, was extremely limited. Arbitration has grown in instances to be as time-consuming and expensive as litigation when the arbitrator or arbitration panel permits a full range of discovery as though the parties were proceeding according to the rules of civil procedure. In such instances, while the parties have the full benefit of pre-hearing discovery, they do not have the benefit of an appeal from an adverse decision unless they can demonstrate prejudice, bias, fraud or other defect in the proceeding. If arbitration will be as expensive as a judicial proceeding, and if it will provide the same range of discovery as if it were judicial proceeding, one can question the advisability of tendering the dispute to an arbitration panel and waiving the right of an appeal from an error of law or a finding against the manifest weight of the evidence.

Arbitration is available to the parties to a written agreement that expressly provides for arbitration, or, where the parties have not previously agreed to arbitration but do so voluntarily after recognizing the existence of a dispute. Addressing the former scenario, arbitration is frequently provided as a remedy in contracts negotiated between parties of comparable strength and in pre-printed consumer contracts of major business organizations. All too often, the arbitration provisions are lacking sufficient detail to result in efficient, economical and expedient arbitration in the face of a recalcitrant party.

Transactional lawyers should review the forms and provisions for arbitration offered by the arbitration bodies. The provisions often overlooked in negotiated contracts but that are available through the organizations offering arbitration services involve a requirement that a party upon whom a demand for arbitration has been made respond within a set period of time, matters pertaining to discovery (whether to have discovery and, if so, how much and what kind), choice of law (if the parties are from different jurisdictions), remedies available, character of damages, application of the rules of evidence (or not), the language in which the arbitration will be conducted and myriad other matters that affect the rights of the parties and the conduct of the arbitration. Parties to an agreement that provides the remedy of arbitration should take as much care in drafting the provisions for arbitration as they take in drafting the transaction and the standards of performance.

The issue frequently overlooked in arbitration provisions is whether the arbitration will be conducted by one or more arbitrators and, if more than one, it is typically a panel of three. This can be determined by the size of the matter in dispute and some arbitration services, by their rules, make that determination and present a panel for selection accordingly. When selecting a three-person panel, I question the advisability of each side selecting their own arbitrator, known as a "party arbitrator," and the two-party arbitrators selecting a neutral third arbitrator. It would seem that if the parties wanted a panel of three arbitrators, that they would want three neutrals, and the only reason for each side selecting a "party arbitrator" is in the hope that person is so strong that he or she will overcome the neutral on the panel to arrive at an award favorable to the party who selected him or her. The real risk in this situation is on the party whose "party arbitrator" is not so persuasive.

Mediation in Florida has been mandatory for several years. No party can proceed to trial without having first mediated his or her dispute. All mediation in Florida is confidential and anything said by a party at mediation can never be offered in evidence against the party in a judicial proceeding. Mediation is an opportunity for the parties to come face-to-face with their adversary and to learn about the case through their adversary's eyes. This is "free discovery." Mediation at the hands of a skilled mediator can be an effective way to resolve a business dispute where the parties have realistic expectations of the probability of success and probability of failure and the cost of proceeding through trial. Mediation is non-binding. It is not a substitute for arbitration, but it may be a prelude to arbitration if the mediation fails. Likewise, it may be an inexpensive way to resolve a dispute if it is successful.

No one scenario is best for all disputes. Parties to a transaction should give care and thought to what kind of forum they would like, or which forum is best suited to resolving a dispute that may arise between them. It is not unusual to require mediation as a prelude to arbitration or litigation. Likewise, it is not unusual to arbitrate a dispute under a dollar amount of liability, and litigate all disputes over that amount, or even allow the parties to opt to arbitrate a dispute whose damages exceed the litigation floor.

Whatever form of alternative dispute resolution the parties to a commercial transaction decide upon, they should take as much care in determining how they want to resolve their disputes as they take in negotiating and drafting the commercial terms of their agreements.

Payton & Associates, LLC - Litigation