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.

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.

JAMS Announces Updated Construction Rules

JAMS

JAMS, the largest private provider of alternative dispute resolution (ADR) services worldwide, is pleased to announce it has revised and updated its Construction Arbitration Rules & Procedures and Expedited Construction Arbitration Rules & Procedures, effective June 1. These Rules were updated to reflect the latest developments and trends in construction arbitration.

In response to the transition to virtual and hybrid proceedings, Rule 22 makes explicit the arbitrator’s full authority to conduct the hearing in person, virtually or in a combined form, as well as with participants in more than one geographic location. To support access to case documents throughout the proceedings, Rule 8 aligns electronic filing and service with the functionality of JAMS Access, a centralized, secure online case management platform.

Additional rules were created or revised to clarify and strengthen the authority of the arbitrator. Key changes include allowing an arbitrator to withhold approval of any intended change in party representation that could compromise the proceedings or the final award, to set a hearing without consulting a party that he or she reasonably believes will not participate and to permit a party to file a motion for summary disposition of a claim if the arbitrator believes that party has demonstrated the motion is likely to succeed.

Summaries of the key changes to each set of Rules, as well as the complete rules, can be viewed on the Construction Arbitration Rules & Procedures and Expedited Construction Arbitration Rules & Procedures pages on the JAMS website.

Try Med-Arb as an Alternative to the Typical Alternative Dispute Resolution

Brian Gaudet | Kilpatrick Townsend & Stockton

An alternative to traditional alternative dispute resolution called med-arb, a combination of mediation and arbitration, should be strongly considered in small and uncomplicated cases.

Alternative dispute resolution in the construction context typically means arbitration and mediation. Dispute review boards and executive negotiations are some others, but those are far less frequently used. There are alternatives to traditional alternative dispute resolution (hi low arbitration, baseball arbitration, med-arbs, neutral case evaluation, and other creative variations of trying to figure out who gets what from whom). One such method that I would ask folks to consider is the med-arb, a combination of mediation and arbitration. The parties first try to mediate the case to resolution and in the event the mediation is unsuccessful, the mediator turns into an arbitrator and renders a decision. Depending on the facts and complexity of the case, there may be nothing more needed after the mediation in order for the arbitrator to make a decision. Occasionally, additional documentation or witness testimony is required. A variation (called arb-med) is having a short arbitration first with the arbitrator putting a decision in a sealed envelope; the arbitrator then tries to mediate the parties to a mutually agreeable resolution in lieu of the decision. If the case is resolved in the mediation, then the arbitrator simply throws away the proposed award.

Med-arb should be strongly considered in small and uncomplicated cases. Parties usually do a pretty good job of setting out their position and the law during a mediation. With several back and forth trips of the mediator, the dispute is usually fairly well understood. After investing half a day talking about the facts and legal issues, it seems wasteful to repeat that process in court or an arbitration. A med-arb should start with the parties exchanging a position paper rather than a confidential mediation memo so that the mediator/arbitrator (“facilitator”) and the other party have an opportunity to understand the other sides position on the pertinent facts and the law.

One concern of the facilitator is whether the parties have agreed going into a mediation that it will be a med-arb. There may be reluctance to turn a mediation into a med-arb at the end of the day. Accordingly, this should be discussed in advance. The main criticism of the med-arb is the idea that parties may not be candid with the mediator during mediation (i.e. especially in disclosing weaknesses in their case), thereby preventing the mediation process from working appropriately and making an arbitration result much more likely. Theoretically that is possible, but one must question how vulnerable and candid parties become during a construction mediation to begin with. One criticism of mediation is sometimes parties do not attend with the intention of trying hard to resolve the case at mediation, but rather to find out more about the opposing parties case or to try to set up a resolution down the road. The benefit of the med-arb is that the parties last chance to resolve the matter themselves IS during the mediation… there is no tomorrow or later. The med-arb can be useful in making sure both parties are committed to trying hard to resolve the case in that moment. When the dollar amounts are lower and the issues are not complex, significant efficiencies in resolving the matter can be gained by trying a med-arb.

I have participated in a number of med-arbs as a party representative. In all but one case a mediated settlement agreement was reached. In the one instance it went to arbitration, the facilitator did not require any additional information from the parties and rendered a decision that was reasonable based on the evidence presented. Admittedly, there was some evidence not gathered that could have helped inform the decision, such as a site visit that would have taken a full day and/or several depositions. If the parties engaged in those activities, a mediated settlement would not have been a possibility, and the outcome of the arbitration may have differed. Or it may not have, but in either event both parties would have spent significantly more in legal fees than what the value of the dispute supported. In this instance, the legal expense was relatively low, the dispute was over even though the process was a little imperfect, and, in that sense, both parties got a great outcome overall.

Mediation: Investing in the Solution

Kent B. Scott | Babcock Scott & Babcock

Mediation is an effective alternative dispute resolution method that empowers the parties to resolve their dispute while preserving their resources in terms of time, money and effort.  Mediation is a dispute resolution process where the opposing parties meet with a neutral third party to find a better option to a litigated result. Any resolution requires both parties to consent to the terms thereof before the agreement is finalized. The signed agreement binds both parties and can be enforced by the courts.

Why Use Mediation?

Owners in today’s economy expect completed construction projects faster and cheaper than before. These challenges often lead to misunderstandings and disputes that may require legal action. A drawn out legal dispute diverts resources and time away from the project while reducing the profit margin for contractors, design professionals, and owners. Mediation is designed and is intended to reduce costs and time spent on the dispute resolution process. This article will examine and discuss the mediation process and its ability to efficiently and effectively resolve disputes.  

Limited Discovery. One of the most expensive parts of a legal dispute is the discovery process where the courts require both parties to produce documents, files, or other information relevant to the dispute. The discovery process may require considerable time and effort by both parties in a dispute. In mediation both parties simply agree to exchange the relevant information used to support each side’s case.

Faster Results. There are many rules and procedures involved with the legal system that require following a set time frame and court calendar. Mediation allows the two parties to meet on their own schedule at an agreed upon time and place that also fits the mediator’s schedule. Often both parties hope for a fast resolution to the dispute, so an agreement is typically reached faster than going through the courts. A faster agreement means a faster return to normal business routines.

More Efficient Legal Strategy. Mediation requires the disputing parties to focus on solving the dispute. The legal strategy shifts from building a case with supporting facts and legal authorities to focusing on a resolution that is a better option to a litigated result. Mediation does not require the preparation and filing of motions and supporting materials. The written motion process requires valuable resources spent on attorney’s fees while mediation typically requires shorter and more focused summaries of the dispute that are submitted to the mediator. Successful mediation includes attorneys and advocates, but the amount of time and effort needed by attorneys in the dispute can be significantly reduced.

Confidentiality & Privacy. Mediation is conducted privately which can help protect parties from potential embarrassment and lost business if a supplier or customer learns about a lawsuit. Disputes resolved in Court are published, potentially putting one or both parties in an un-favorable light. Before mediation begins both parties will sign a confidentiality agreement and submit it to the mediator. If the mediation is conducted after a legal dispute has been filed, the judge and jury are not entitled to hear any information exchanged during the mediation. What is done in mediation stays in mediation?

Preserve Business Relationships. Many parties in mediation find a way to move on from the dispute and return to a business relationship with each other. Resolution through mediation will help to avoid a long and drawn out adversarial litigation battle that will often hurt the business relationship past the point of future cooperation.

Mediation retains the power of choice with the parties. It  is the only dispute resolution method that, through the facilitation of the mediator, allows the parties to choose the final agreement. The options available to resolve a dispute are far more numerous than legally define remedies which a court is restricted to use. The mediation success rate is roughly 80%. Even if the mediation process fails to result in an agreement, parties can still benefit from narrowing the issues in dispute or possibly reaching a partial settlement.

Contract Documents Requiring Mediation.  The parties may consent to conduct a mediation of their dispute in advance by including a mediation clause in their contract. A number of construction project contracts such as the AIA and Consensus Docs forms require mediation if there is a dispute. The parties may be better off if they can agree on the timing of mediation before the legal system gets too involved. If the contract requires arbitration or litigation, mediation is still an option if both parties agree to the timing, location, and mediator.

What to Expect in Mediation

When and Where. One of the most appealing aspects of mediation is that parties can agree to mediation at any time before a jury reaches a verdict, a judge issues a ruling, or an arbitrator declares a reward. Mediation often starts after a claim has been filed and some limited discovery has taken place. However, mediation can be conducted before any legal action is taken. Most design and construction contract contain mediation clauses requiring the mediation of any dispute arising under or relating to the contract. The contract may reference an upper tier prime contract and incorporate the terms its terms that may include a mediation provision.  The parties should plan on either a half-day or a full day. Mediation may require more time depending on the complexity of the claim or the difficulty of reaching an agreement.

Dealing with the Opposing Party. Typically a brief opening statement allows for both sides to tell their side of the story with the other party and mediator present. If this creates an uncomfortable setting for one or both parties, the mediator can change the format of the meeting and meet privately in caucuses with each of the parties. The mediator should have enough information and communication at this point to, along with consultation with counsel, make the best judgment call on how much interaction the parties should have in order to accomplish a successful mediation. To increase the chances of a smooth mediation proceeding, both parties should bring any concerns to the attention of the mediator about interacting with the opposing party.

Party Participation. The parties should bring their attorneys and a very limited number of employees or persons with relevant information regarding the dispute. Usually this requires no more than two employees or witnesses for each side. Scientific and technical disputes sometimes require an expert, but this should be the exception and not the rule.  In any event, the most important participants are the decision makers from each side. A decision maker is anyone who has authority to agree to mediation terms. There may be some situations where there are multiple decision makers for each side. Having a decision maker for each side is crucial for an efficient and binding mediation.

Day of Mediation. There is no hard and fast rule, but a typical mediation starts with an opening joint session followed by private caucuses with each party until either an agreement is reached or the mediation is suspended or terminated. The mediator starts by setting out the ground rules and expectations for civil and professional conduct. Each party will direct an opening statement to the opposing decision maker that briefly describes the dispute and their ideal resolution terms. After opening statements the parties separate and the mediator caucuses with both sides. Private caucuses allow the mediator to gather information in a comfortable and confidential setting. Candid and complete information exchange is a critical component in reaching a settlement.  The mediator will discuss strengths and weaknesses of positions, and if needed, will help parties re-evaluate their position. During the caucuses the mediator will keep in mind the desired outcome for both parties while working towards a solution.

Settlement, Recess or Termination. Once a settlement is reached, the main terms of the agreement are summarized and signed before either party leaves mediation. This agreement is enforceable by any court of appropriate jurisdiction. If mediation fails to produce an agreement, the mediator can help determine if another meeting will potentially achieve an agreement or if the mediation should be terminated and the dispute sent  back to litigation.

The Recipe for a Successful Mediation

  • The attendance of  a decision maker.
  • A strong commitment from both parties to resolve the dispute.
  • Choosing a reputable and skilled mediator.
  • Willing parties who keep an open mind.
  • Hard work and willingness find a better option to a litigate result

Conclusion

Mediation will cut down the necessary resources spent on disputes while increasing the chances of moving on from a dispute with a business relationship intact. The mediation process allows for a private setting and direct input by the parties in the final outcome of an agreement. Mediation, which provides the disputing parties with the opportunity to find a resolution that represents a better alternative to a litigated result, will allow the parties to invest in the solution rather than litigate through the problem.  Mediation empowers the parties to be responsible for the resolution they have crafted rather than having a litigated resolution imposed upon them by a judge or jury.  The mediation process, in short, provides disputing parties with a better option to resolve their differences. Happy mediating to all!