FAQ About Arbitration and Mediation - Arbitration vs. Litigation vs. Mediation, What’s The Difference - by Erica Garay



Arbitration vs. Litigation vs. Mediation, What’s The Difference? - New York

April 7, 2011

Written By: Erica Garay

Q: What is arbitration?

Arbitration is a common, private dispute resolution mechanism. Generally, parties choose arbitration over litigation because arbitration is usually faster, more efficient and less expensive than litigating a dispute in court. Sometimes it is referred to as “ADR,” which means “alternative dispute resolution.” Arbitrators are paid to decide the parties’ dispute. Arbitrators are usually trained to handle disputes. They can be lawyers, former judges, and even have no legal training, such as accountants, architects and engineers.

Q: What is the difference between arbitration and litigation?

Litigation is a lawsuit that is heard in court by a judge (and/or jury). Litigation can be in a state court or federal court. You have rights of appeal in litigation. Arbitration, on the other hand, is a creature of contract. That means that you have whatever rights are provided in an agreement to arbitrate. The part of a contract authorizing arbitration is often called “the arbitration clause.” Under law, the rights of appeal are extremely limited after receiving an award from an arbitrator or panel of arbitrators. Before agreeing to arbitrate a dispute, or to put an arbitration clause into an agreement, a party should consider the pros and cons of arbitration.

Q: How do I know if I can arbitrate?

To find out if you have the right to arbitrate, you need to look at the particular agreement. For example, a shareholder agreement can have an arbitration clause, which would describe what disputes the parties have agreed to arbitrate.

Q: I want to have the ability to arbitrate a dispute, what do I do?

The parties can agree to arbitrate their dispute and put the arbitration clause into an agreement, or amend an agreement to add an arbitration clause, or even enter into an agreement to resolve a specific dispute by arbitration.

An agreement to arbitrate generally includes provisions dealing with the selection of the locale of the arbitration (i.e., county of Nassau), the number of arbitrators (1 or 3), the availability of discovery in the arbitration process (if silent then you only get the discovery that the ADR company’s rules provide, which usually means that it is streamlined), and even choose a specific arbitrator or specific arbitration company to handle the arbitration. There are many different forms of arbitration clauses that the parties can use.

Q: What kind of arbitrator do you want?

The parties usually will tell an arbitration provider what type of arbitrator they want or his or her background. For example, in a construction dispute, you might want an architect or engineer to be the sole arbitrator, or a member of a 3-arbitrator panel. In a commercial dispute, you might want an accountant or a lawyer to be the arbitrator(s). You also might want to consider what substantive experience the arbitrators should have (such as experience in employment law, or construction, or shareholder disputes or in a particular industry).

Since your case will be decided by the arbitrator or panel of arbitrators you select, it is important to give a great deal of thought to the identity, experience, and qualifications of the arbitrator(s). The arbitration provider will attempt to find the specific qualifications that you are looking for. An arbitrator from an arbitration provider will have received specialized training in arbitration - what is called “alternative dispute resolution.” The provider typically will give you a list of arbitrators to choose from, including their experience, biographical information and hourly (or daily) rates.

Q: I have an arbitration clause, now what?

The arbitration clause will be enforced by a court. That means that if the other side starts a lawsuit, and the parties, in their arbitration clause, had agreed to arbitrate that dispute, then a court will direct the parties to arbitrate the dispute, and will “stay” - that is, put a halt to - the litigation.

Q: How do I get to arbitration?

Under New York law, a party demands arbitration and then proceeds with setting up the arbitration under the auspices of the particular arbitration company that is mentioned in the arbitration clause. (Certain rights spring from serving a “notice of intent to arbitrate.”) If no particular arbitration company is mentioned in the agreement, then the parties are free to choose a company. You then follow that company’s rules, including paying the required filing fees. The administrator from the company will then direct the parties and assist in choosing an arbitrator (or arbitration panel) to decide the dispute. Jams, NAM, and the American Arbitration Association are frequently chosen by parties (and can be designated in an arbitration clause) to hear the arbitration. (Please See PDF)

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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