There are a variety of reasons why parties may choose alternative dispute resolution, or ADR, over litigation. Both mediation and arbitration offer advantages over taking a case to court for resolution by a judge or jury, so it’s not surprising that the ADR field continues to grow. There is a new option available as well — hybrid mediation/arbitration, using the same ADR professional, or “neutral,” for both proceedings. Read on for a closer look at it and why you may want to consider this ADR strategy.
Advantages of Mediation Versus Litigation
One of the advantages of mediation is that it can give parties new perspectives on the merits of their cases. Attorneys can also use mediation to help their client appreciate the true risk of litigation as well as more fully understand their opponent’s evaluation of a claim. This should encourage settlement, but even if a case doesn’t settle, this perspective can change how parties decide to present a case at trial often narrowing issues, time, and costs for the parties.
Mediation also gives parties an opportunity to be heard and to present “their side” of the story, which can help provide closure or comfort to a party resulting in settlement. The statistics show that most cases do settle at mediation and those that don’t settle at mediation usually settle shortly thereafter or before trial.
Advantages of Arbitration Versus Litigation
Arbitration also offers advantages over litigation. It’s much easier and faster to schedule an arbitration than to secure a court date, and an arbitration is usually less complicated than a trial. While arbitrations have procedural and evidentiary rules, typically they are not as strict as those at trial, which means that less time is spent admitting evidence, or arguing over the admissibility of evidence. Many evidentiary issues, like identifying the documents that should be produced or witnesses who should testify at arbitration, are quickly resolved ahead of time.
Privacy is another benefit of arbitration as the proceedings are kept confidential. Because the parties usually agree on the arbitrator, there may be fewer concerns about bias on the part of a judge or jury as well. And because preparing for and conducting an arbitration takes less time than a trial, it’s usually much less expensive than a trial. If an arbitration is binding, there are limited appeal opportunities.
Hybrid Mediation/Arbitration Versus Litigation
While each of these two ADR techniques has its own advantages, there is a growing trend of a third ADR option — combined mediation/arbitration, or hybrid mediation/arbitration. A hybrid mediation/arbitration gives you two bites at the closure apple but without the costs and time constraints of full-blown litigation.
Another advantage is that if the parties settle some issues during the mediation while others remain unresolved, the arbitration can be used to address those specific issues. A mediator who also is an arbitrator can assume both roles; in other instances, the parties may have to secure both a mediator and an arbitrator. (It’s smart to look for a neutral who is experienced with both ADR techniques.)
Hybrid mediation/arbitration is not a foreign concept. Many AIA (American Institute of Architects) contracts, which are widely used in the construction industry, include a mediation provision, and further provide that if mediation fails, the parties may proceed to arbitration or litigation. Making it possible to mediate and arbitrate, if necessary, can save parties significant amounts of time and legal expenses.
But can hybrid ADR pose problems? One potential issue relates to information the parties may want to hold in confidence. In mediation, parties may tell the mediator that certain information must be held in confidence by the mediator. However, in arbitration, nothing is told to or held by the arbitrator in confidence.
As a mediator, you don’t want parties to be guarded in what they disclose to you during mediation because that can interfere with settlement. The whole purpose of the mediator agreeing to hold certain information in confidence is so the mediator can help settle the case without sharing information to the advantage/disadvantage of a particular party should the case proceed to trial or arbitration. The neutral who may be selected to serve as both mediator and arbitrator must be clear about the fact that the parties can ask the neutral to hold some information in confidence during meditation, but from the beginning of arbitration nothing from that point will be held in confidence by the neutral.
Obviously, the confidential information told to the neutral during the mediation is still held in confidence by the neutral. The concern for the parties and the neutral then becomes how the neutral mediator turned arbitrator deals with that confidential information when rendering the arbitration award.
I personally don’t see any issues as long as you clearly delineate when you’re moving from one stage of the process to another, and as long as the neutral remains impartial throughout the process and does not use the confidential information to render the arbitration award. The neutral should reiterate his or her commitment to impartiality as a hybrid neutral, and that confidential information shared during mediation will not affect any arbitration award.
Mediation is, in part, helping the parties reach a settlement based on calculated percentages of risk benefit of proceeding to litigation/arbitration, emotional impact, and costs. Arbitration, however, is a quasi-judicial proceeding based purely on the facts and law presented by the parties during the arbitration proceeding. In my view, these are completely different neutral roles that do not conflict.
An Effective Strategy
These potential drawbacks or concerns do have some solutions. One idea is to hold arbitration before mediation. The parties can present their arbitration case to the neutral, who then withholds the arbitration decision. The neutral can put the award in a sealed envelope to show the parties that he or she has made the award before the mediation begins.
That way the parties are confident that anything that happens during the mediation will not affect the arbitration itself. The parties can then mediate without worrying that mediation will affect the arbitration award. If the parties fail to settle during mediation, the neutral can then reveal the award. If they settle during mediation, the neutral can rip up the envelope without disclosing the award to the parties.
My advice is to ask the parties for their documents and citations in advance and make your arbitration decision beforehand. That allows you to mediate without actual or perceived risk of bias or use of confidential information during the arbitration itself.
As both a mediator and an arbitrator, I believe that hybrid mediation/arbitration is an idea whose time has come. It can be an effective option for parties who want to settle cases instead of litigating them and believe that more attorneys will begin to opt for it as one more tool in the ADR arsenal.