Dispute Resolution Methods: Uses of Alternative Dispute Resolution

Adam Waks | Davis Wright Tremaine

Family businesses are full of dynamics that are not present in other business types. While there are many benefits to the familial relationships present in family businesses, it can also mean that disagreements can feel more personal and issues that stem from outside of the business can lead to internal disagreements.

This article is the first in our “Dispute Resolution Methods” series, an introduction on how to resolve issues that arise in a family business setting. While these conflict resolution processes and techniques are not unique to family business environments, the nature of a family business lends itself strongly to the need to find solutions to conflicts outside of traditional legal proceedings.

Here we begin by giving an overview of the benefits of Alternative Dispute Resolution (ADR). ADR refers to any method of conflict resolution that takes place outside of the courtroom. It involves processes and techniques of conflict resolution without litigation and empowers parties to work together using a framework to amicably settle complex issues. The most common ADR methods are negotiation, mediation, conciliation, arbitration, and private judging.

Negotiation

Negotiation is usually the first approach to take before resorting to other ADR methods. It is more informal and affords the parties flexibility. Essentially, negotiation is simply parties identifying an issue and meeting to fix it—they control the process and the solution.

This may seem obvious, as negotiating relationships and disagreements is something that business owners do all day, every day. However, when a problem gets serious enough, it can sometimes be helpful to recognize an informal negotiation as the first stage in a potential ADR process.

One of the fundamental aspects of a successful negotiation is transparency. Personal or relational family tensions can cloud the negotiations. It is essential to be clear about the potential challenges and problems that might come up during the negotiations. Addressing the intense family tensions might feel overwhelming, but it will prevent you from feeling stuck during the process.

Mediation

Mediation is a type of assisted negotiation. During mediation, parties obtain the help of a neutral third party (the mediator) to help them resolve the dispute. Importantly, mediation requires a lot of involvement from both sides.

Mediation can be informal, where the mediator is a friend, family member, or trusted advisor. In the case of an informal mediation, it is key to select a person who both parties can agree on and who brings some form of expertise to bear on the situation.

The process can also be formal, where the parties hire a professional, neutral third party. Formal mediators are trained in negotiations and help parties solve the issue to satisfy both sides. In either case, the purpose of a mediator is not to decide whether a party is wrong or right—the goal is to help the parties find a mutually acceptable resolution.

While conversations during mediation are confidential, it is usually possible for the written agreement that results from mediation to be made legally binding. Mediation is particularly useful if parties believe that they cannot resolve a dispute on their own.

Conciliation

Conciliation, like mediation, is confidential, voluntary, and flexible. It is also facilitated by a neutral third party (a conciliator) and focused on reaching a dispute resolution that both parties consider satisfactory.

Unlike in mediation, the conciliator provides parties with a proposal to resolve the issue, and the parties work from there. The presented proposal is non-binding—although, like in mediation, any formal agreements struck after conciliation can be made legally binding.

Arbitration

Arbitration is more formal than negotiation, mediation, or conciliation, and can look more like litigation. Parties submit their dispute to an arbitrator who renders a decision following the process. Parties can agree to arbitrate before or after a conflict occurs.

The real benefit over formal litigation (in addition to cost and efficiency) is that the parties in an arbitration have the freedom to set the rules of arbitration, which can be much more flexible than formal civil procedure required in court. For example, parties can select the number of arbitrators, the forum, and fees.

Arbitrators also have a great deal of flexibility to work with the parties in front of them in a way even a judge may not. This type of process can help parties save time and expense associated with litigation.

Private Judging

In private judging, parties authorize an expert in their legal dispute to resolve the issue. The parties hire a private judge, often a former judge or an attorney. The parties take turns presenting their case to the judge, after which the judge issues a legally binding decision.

The court appoints a private judge. A private judge can help move the case along faster and enable parties to avoid airing their family business matters publicly.

Conclusion

Parties often use multiple ADR methods to meet their needs, and the methods can be more efficient and less expensive than litigation. In addition to the economic benefits of ADR, it can help family members who are deeply invested in the issue find solutions amicably. That being said, ADR still requires parties to voluntarily examine the disputes and work together to arrive at a solution.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Arbitration Clauses Should Work For You, Not Against You

Jihee Ahn | Harris Bricken

Most people who are (luckily) not familiar with litigation believe alternative dispute resolution (or “ADR”) clauses in their contracts are essentially boilerplate language that’s recycled again and again in every contract. However, well-drafted ADR clauses can not only give you a huge advantage if an issue comes up, they may also cause your counterparty to back away from litigation completely. If done right, arbitration clauses should work for you, not against you.

Backing up – ADR provisions usually state that if an issue or dispute arises, the parties need to first work in good faith to find a solution, mediate, and/or arbitrate before or instead of filing a lawsuit. And our team of litigators agree: the ADR provisions we’ve been seeing in recent years are getting more creative and sometimes, more difficult to abide by for our clients. Unfortunately, we’ve seen some clauses that are really awful for our clients in that it requires a process that can be dragged out for years before an arbitration proceeding or lawsuit can even be filed. This is a problem because arbitration clauses should work for you if done right. Some common examples we’re seeing are:

  1. The provision requires that the parties try to resolve any disputes on their own. Sometimes, we see language like “in good faith” to indicate the parties shouldn’t be using this as a delay tactic, but that kind of language is vague and very hard to enforce. Other times, we see language indicating how long the parties need to do this, but it can vary from 30 days to as long as 1 year – and trust us, if you’re not making much progress on working through your issue in 30-60 days, the chances of you making much more progress in 1 year is slim to none. Our recommendation here: if you’re going to include this step, make sure a short timeline is included.
  2. The provision requires that if the parties can’t resolve the issue on their own, they’re required to mediate. In one of the most egregious examples, a client brought me a contract that required him to mediate 3 separate times before he could file a lawsuit. Remember, mediation can be a great option, but it can also be expensive. A mediator also has no authority or power to make parties settle – the best a mediator can do is get the parties to see as much common ground as possible, see the flaws in their positions, and realize that settling the case early (but at a discount) may still make the most economic sense. Our recommendation here: again, if you’re going to include this step, make sure you’re not committing yourself to numerous mediations and make sure the forum, steps for initiation, etc. are all spelled out.
  3. The provision requires arbitration but is super vague on the mechanics of the arbitration. Arbitration is also a great option to consider instead of initiating a public lawsuit, but arbitration can also be a very expensive process. In arbitration, you’re not only paying for attorney time, you’re also paying for arbitrator time (and additional costs to the forum that’s running the arbitration, which typically does include an initiation fee). Our recommendation here: make sure the agreement spells out exactly how to initiate an arbitration, where it’s going to be held, how many arbitrators you’re going to use, etc.

The bottom line is, don’t skirt over the ADR clause when drafting your contracts. Nobody wants to think about their business or partnership going awry in the future, but the more you consider how you’re going to handle potential disputes down the line, the more you’re protecting yourself and potentially saving tons of money down the line. And because we’re increasingly seeing ADR provisions that are designed to make the process confusing and impractical, it’s more important than ever to make sure your ADR clauses work for you, not against you.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Alternative Dispute Resolution: Mediation, Arbitration, and Appraisal

Tom Oster | Harris Bricken

Over the years, “Alternative Dispute Resolution” (ADR) has become more and more prevelant in both contract drafting as well as litigation. Far from being an “alternative,” most disputes at some point will involve some degree of ADR, whether required by contract, by the courts, or driven by the costs of litigation. Despite the name “alternative,” ADR is very much a key component of the litigation battlefield, and the conduct and outcome of ADR can shape the course of a dispute that ultimately winds up in court.

Even sophisticated businesspeople often fail to fully understand the ADR process and how it relates to litigation. This blog post is intended to explain ADR by outlining the three prevalent forums for ADR: mediation, arbitration, and appraisal, and how they relate to disputes.

Mediation

Though often thought of as an informal process undertaken by parties to a dispute in lieu of litigating, mediation has increasingly become a formalized process that plays a key role even in cases undergoing active litigation. Increasingly, courts in many states and particularly in the federal system, at both the trial court and appellate levels, require the parties to participate in mediation as part of the litigation process, including potentially engaging through a court-appointed mediation department. Additionally, many commercial contracts which contain mandatory arbitration clauses may require the parties to attempt mediation before commencing arbitration. However, even where required by court orders or rules, or by the terms of a contract, mediation offers the parties the advantage of maintaining the most control over the process and its structure.

In mediation, the parties agree to the selection and appointment of a neutral mediator, and most often split the mediator’s fee between them. Often, mediators in many jurisdictions are retired judges or experienced litigation attorneys. In disputes involving complex or specialized areas of law or business, the parties may select a mediator who is known to have particular experience and expertise in the area, and who can bring an informed perspective to the dispute and the issues involved. While mediation is strictly confidential, and what is revealed to the mediator cannot be disclosed or used in court, a well-chosen mediator will be able to give a realistic and informed perspective, where necessary, as to how the courts or other relevant forums are likely to view and address particular issues and claims. Additionally, the involvement of a respected mediator is often looked upon favorably by courts.

The ideal goal of a mediation will usually be a settlement agreed to between the parties, though even where a complete settlement is not reached, mediation often provides an early opportunity, sometimes the first opportunity, for the parties to set forth their positions as well as hear out the positions of the opposing side. Mediation also may allow resolution of particular issues while reserving other issues for further litigation or may allow the parties to get an idea of the potential value of their dispute in order to determine whether the case is worth further litigation and expense. Even where a settlement is not immediately reached, mediation may be the first step in beginning productive settlement negotiations, and a professional mediator will often offer their assistance in follow up sessions, calls, or other communications between the parties, which might allow a later breakthrough in negotiations.

Arbitration

In contrast to mediation, which is a less-formal, party-driven process in which the parties are not required to reach a resolution, arbitration is a more formal process in which the end result will normally be a binding decision. The arbitrator has the power to hear witness testimony under oath, examine evidence, issue orders and rulings while the proceedings are ongoing, and make final factual and legal determinations, typically called arbitration awards, which are binding on the parties, and which can be confirmed by a court and enforced as a judgment.

Most often, arbitration is provided for by the terms of a contract, and many form contracts used in consumer and commercial transactions contain mandatory arbitration clauses (although there has been a recent trend in several industries towards removing arbitration clauses). Several states, including Washington and Oregon, also have laws providing for mandatory arbitration of disputes originally filed as cases in their court systems that fall under a certain monetary value. Typically, in a court-mandated arbitration system, either party can elect to remove the case to mandatory arbitration.

At the conclusion of court mandatory arbitration, either party has the right to appeal the outcome for reconsideration de novo as a regular court case, though the appealing party is liable for the other side’s litigation costs if they fail to achieve a better outcome than was reached in arbitration. In contrast to court-mandated arbitration however, a contractually mandated arbitration award may be very difficult to challenge, unless there is alleged irregularity or misconduct in the arbitration proceedings.

Most arbitrations follow rules established or inspired by the American Arbitration Association, which has multiple published sets of rules for arbitration of disputes in various subject-matter areas (e.g., commercial, consumer, construction, employment, and international disputes). Typically, each side pays an arbitration fee at the outset of the process. The parties may mutually agree to have the case heard by a particular arbitrator (particularly if the dispute involves unique or complex issues calling for an arbitrator with subject-matter experience). Otherwise, most often, a list of five to ten potential arbitrators, known as a “strike list,” is provided to the parties, who each have a limited number of challenges (strikes) to the names on the list.

An arbitrator is then chosen at random from the remaining names on the list. Arbitrators typically have broad discretion to control the proceedings, with a stated goal of achieving a “fair, efficient, and economical resolution” of the dispute, including making rules for disclosures and discovery of information, setting hearings, and considering evidence (usually without being bound by typical rules of evidence as would apply in court). Arbitrations nonetheless usually otherwise proceed on a similar course to court litigation, with a filing of complaints, answers, and counterclaims, an exchange of information and/or authorized discovery, dispositive motions (including summary judgment), and one or more hearings before the arbitrator at which witnesses may be examined and evidence may be exhibited.

One variation on both mediation and arbitration is sometimes referred to as mediation-arbitration, or “med-arb.” In this case, the parties agree to mediation and, if the dispute is not resolved, agree that the mediator may then serve as an arbitrator over the dispute. The combination of these roles allows the parties to retain the advantages of each type of process: the control over the process that mediation provides, with the certainty and finality of arbitration.

Appraisal

The third common form of ADR, though the one least encountered and least well-understood, is appraisal. Appraisal is used when the dispute involves the monetary amount of potential recoverable claims or damages, rather than the establishment of liability, though an appraisal could be conducted to determine potential damages, with liability being reserved for determination by other proceedings (i.e., litigation). As with arbitration, appraisal is typically provided for by contract, is a binding process, may be invoked by either party, and is most commonly encountered in property insurance claims.

Appraisal typically proceeds by each side selecting and hiring a professional appraiser (who may be retained on a contingency basis in exchange for a percentage of the ultimate appraisal award), who (as with mediators and arbitrators) preferably will have relevant subject-matter experience in the property or claim to be appraised. A third appraiser, known as an umpire, is selected either by agreement of each side’s appraisers or by court order (if the dispute has reached the stage of litigation). The appraisers will evaluate the claim(s), loss, or dispute, conduct inspections, obtain quotes, write estimates, engage third-party experts where necessary, and will each present their respective appraisals of the claim or portions of the claim. Agreement of any two appraisers (either each side’s retained appraisers or one appraiser plus the umpire) is sufficient to enter a binding appraisal award as to the claim.

When facing a dispute in which ADR may play a role, it’s important to consult experienced litigation counsel who can guide you through the process in a cost-effective way that preserves the goal of ADR, namely, to resolve disputes efficiently and economically, while still protecting your interests and options through the process.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Dispute Resolution in Your Construction Contract

David Adelstein | Florida Construction Legal Updates

There are important provisions in your construction contract that are geared towards dispute resolution.  These are provisions you want to understand – not when a dispute arises, but BEFORE the dispute ever occurs.

Many times, dispute resolution provisions are cast aside or not appreciated until a dispute rears its ugly head.  This can put you in a reactive stance versus a proactive stance, which you want to be in, because you want to proactively make sure all rights are preserved relative to the dispute.  You want to proactively make strategic decisions based on the dispute resolution provisions and process in your contract.

Before your contract even gets signed, you may want to negotiate aspects of the dispute resolution process for many reasons.  The process could be one-sided.  It could be onerous.  It could be complex.  It could be unfavorable or costly with respect to how you want to progress a dispute.   If you appreciate the dispute resolution process from the get-go, you will be in a more effective position to navigate the process while ensuring you are preserving your rights moving forward

Here are considerations when negotiating and entering a construction contract when it comes to dispute resolution that should not be overlooked:

(i) How does the contract address the submission and resolution of claims for additional money and/or time?

(ii) Is their an initial decision maker or dispute resolution board serving as the person/board that resolves claims, and who is this person/board?

(iii) Is there a time period to submit claims; if so, what is that time period and is it reasonable?

(iv) What happens if a claim is denied and/or the initial decision maker/board denies the claim?

(v) Does the contract require mediation as a condition precedent to litigation or arbitration?

(vi) Does the contract require anything prior to mediation as an initial step in the dispute resolution process, such as a meeting with principals to occur within a set time period?

(vii) Does the contract require litigation or binding arbitration (and if arbitration, is there a body to administer the arbitration such as the American Arbitration Association)?

(viii) If litigation, does the contract specify an exclusive venue to file the dispute?

(ix) If litigation, does the contract include a waiver of jury trial?

(x) If binding arbitration, does the contract specify the number of arbitrators and/or the expected qualifications of the arbitrator(s)?

(xi) If binding arbitration, does the contract specify whether the arbitrator(s) can decide the arbitrability of any dispute?

(xii) Does the contract include a prevailing party attorney’s fees provision?

(xiii) Does the contract include a provision that would promote a stay of a dispute pending the outcome of another dispute or claim with another party?

(xiv) Is there a choice of law provision in the contract to reflect the law that governs the contract (and the dispute)?

(xv) Does the contract include a joinder provision that would allow you to be joined in disputes with others, regardless of the venue or the forum for the dispute?

There is no one-size-fits-all model when it comes to dispute resolution and a dispute resolution process.  The goal is to understand the process and negotiate those aspects of the process that are not in your interests and/or, at a minimum, factor that process into your strategic decisions moving forward in case you encounter a dispute.

Please make sure to work with experienced construction counsel if you need assistance with your construction contract, whether it is understanding the dispute resolution process, negotiating the dispute resolution process, or simply working on an equitable contract for your project or business.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Arbitration v. Litigation: Dispute Resolution Considerations for Construction Professionals

Nicolas Bohorquez | Freeman Mathis & Gary

An often-overlooked side effect of litigation, particularly in the construction industry, is the impact that it has on day-to-day operations. The more involved and protracted the litigation, the more your company must reallocate its resources (i.e. time and money) to tend to the litigation instead of focusing on projects that generate revenue.  

Despite the headache, litigation serves a necessary purpose to protect what owners and their employees have built. However, going to court is not always the best or even the most economical method of litigation; enter arbitration

What Is Arbitration? 

In short, arbitration is a mechanism that allows parties to resolve their dispute outside of the court system through a neutral arbitrator selected by the parties.  

Arbitration of disputes will occur only if the parties have agreed to arbitrate in writing. In the construction industry, many contracts include arbitration clauses that predetermine the parties’ arbitration rights prior to any dispute. As such, whether drafting or executing a contract, construction professionals should weigh certain considerations before committing to arbitration of potential disputes.  

What are the Benefits of Arbitration? 

  • Efficiency – Strict, drawn-out procedural timelines and a judge’s need to tend to a vast number of other cases can result in court proceedings going unresolved for years. Arbitration offers a far more streamlined approach and allows the parties to quickly schedule when they will resolve their dispute. 
  • Choice of Arbitrator – In court, a judge is assigned to a case with an extremely limited ability to object by the parties. However, arbitration allows the parties to mutually select their arbitrator. This is particularly beneficial in the construction context, as the parties can select an arbitrator familiar with the specific type of construction dispute at issue. 
  • Cost – The speed at which the parties can schedule and conduct an arbitration means they can often bypass some of the costs associated with conducting discovery and exchanging motions synonymous with court proceedings. This typically translates into the attorney billing less time and a significant reduction in overall cost. 
  • Finality – When a judge decides a case, the non-prevailing party has a right to seek an appeal of that decision. Appeals significantly increase the time and cost of litigation. Decisions of the arbitrator, on the other hand, are final and not appealable. There are very limited grounds for asking a court to vacate an arbitration award. In other words, the arbitrator has the final say in deciding the dispute, period. 
  • Confidentiality – Construction professionals, like many service-oriented industries, are established and knocked down by their reputation. Disputes can result in damaging allegations that, if filed in court, become public record for anyone to view. Arbitration, however, is confidential and allows the parties to freely explore the dispute without outward scrutiny.  

What are the Disadvantages of Arbitration? 

  • Finality – As mentioned above, the arbitrator’s word on the matter is final. As such, a party that feels aggrieved by the arbitrator’s decision often has no other recourse and must live with it. 
  • Unpredictable Decisions – Arbitration uses much less stringent rules for evidence. As such, unfavorable evidence that would otherwise be kept out of court may be permitted in arbitration. Also, because arbitration skips many of the fact-finding procedures of litigation, parties may be unable to gather all the evidence needed to support their position before arbitration.  
  • Cost – Yes, arbitration is generally more cost-effective than litigation. However, there are exceptions. Litigation requires that the parties pay their costs and attorneys’ fees. Arbitration, in addition to those costs, requires that the parties also pay the arbitrator for their services. Arbitrators set their rates, and the cost of highly specialized arbitrators can balloon quickly. As such, the parties should exercise caution in choosing an arbitrator that will fairly judge the case but will also resolve the dispute cost-effectively.  

Have More Questions? Consult a Lawyer to Weigh the Options. 

When considering whether to litigate or arbitrate a dispute, remember that no two scenarios are identical. What may appear to be a garden variety construction dispute, may involve more nuance better suited for review by a specialized arbitrator. A skilled attorney can assist in navigating that decision with the business’s interests in mind.