Alternative dispute resolution

In the legal world, alternative dispute resolution (“ADR”) is any means of settling disputes outside the courtroom. Because of overcrowded court dockets in many states, both mandatory and voluntary ADR programs are becoming more common.

The two most frequently used forms of ADR are arbitration and mediation. Arbitration is a simplified version of a trial. Either both sides agree on one arbitrator, or each side selects one arbitrator, and the two arbitrators elect a third to its panel. Arbitration hearings can take a few hours or a couple of weeks. The opinions are not public record. Mediation is less formal. It’s used for resolving a wide gamut of case types.

“The size of a dispute does not say whether it’s going to court or mediation,” notes Tom Allen, a partner and head of the Reinsurance Practice Group at White and Williams. “For instance, mediation played a very big role in huge cases between various governments and Microsoft.”

Smart Business asked Allen more about alternative dispute resolution, and here’s what he said.

In your experience, what are the most common kind of disputes that corporate managers seem to face?

Any kind of a dispute involving contracts, ranging from a contract to sell something or a contract to buy a business — which is always very dicey — to a contract of insurance. Corporations are also involved in employment disputes of all kinds.

What are the most common ways of settling those disputes?

If it’s enough of a dispute, the most common way is to go to court. That gets you involved in a very formal process that is a pathway to resolution. However, courts are expensive; they can take a long time; and there is a bit of uncertainty about whether you’ll really get a knowledgeable resolution.

What are “alternative dispute resolutions”?

Many court systems use alternative dispute resolution as part of their bag of tricks. The most common forms of ADR are arbitration and mediation. Arbitration is a binding process that should be faster, more economical and better than going to court. When you go to arbitration, you try your case in front of one or three arbitrators, and they issue a binding decision. In the mediation process, both sides present their cases to a mediator who tries to work a resolution in the form of a compromise. There is now an industry of capable and experienced mediators who are very, very good at working out disputes.

Are mediators and arbiters lawyers?

Most of the mediators are lawyers.

Arbiters sometimes come from the industry that is involved, so you should get a more knowledgeable fact-finder than a judge or a jury. For instance, if an arbitration clause is written into a reinsurance contract, the arbiter is likely to be involved in the reinsurance industry. Arbitration has a huge advantage over litigation, because it’s more efficient.

How often are contract or corporate lawyers needed for ADRs?

In arbitration, it’s pretty common for both the outside lawyer and inside (corporate) lawyer to be heavily engaged and to take part, just as they would for a lawsuit in court. For mediation, companies often use outside lawyers, too; but sometimes the dispute is less elaborate and formal, so an in-house lawyer or even the businesspeople themselves can handle it.

How do you determine what kind of dispute resolution is the best?

Whether a matter should go into mediation really depends on an assessment whether the parties to the dispute have a substantial overlap of shared interests. If they do, you can capitalize on those interests and work out a resolution. If the relationship between them doesn’t matter — if they’ll never see each other or do business with each other again — then mediation is less likely to be chosen.

With ADR, can both parties come away happy?

If a lawsuit or arbitration goes all the way to verdict, I’d say there’s usually a happy and an unhappy side. A judge simply doesn’t have the power to issue a verdict that’s a sensible compromise. In the litigation and even in the arbitration system, there are lots of pressures to settle.

Mediation is a little bit of a different animal, because the mediator is trying to capitalize on the shared interests of the parties. Some of those professional mediators have a bag of tricks that is dazzling when they employ them. The key is that the mediator is free to be creative to put together a solution. Very often, both sides walk away from a mediation feeling that it was a good process.

TOM ALLEN is a partner at White and Williams LLP and head of the firm’s Reinsurance Practice Group. Reach him at (215) 864-7001 or [email protected].