Sometimes, lawsuits are the only avenue
to resolving a dispute. But litigation can
oftentimes be avoided through alternative dispute resolution (ADR).
ADR offers several advantages over the traditional adversarial process, says Damany
Ransom, an associate in Baker Donelson’s
Atlanta office who concentrates his practice
in the area of business litigation.
Smart Business spoke with Ransom about
the advantages and disadvantages of ADR
over litigation and its growing popularity.
Why is ADR becoming more popular?
Businesses are increasingly recognizing
that while disputes are inevitable, litigation is
not. There are several ADRs. The most common include arbitration, mediation, settlement negotiations, early neutral evaluation,
conciliation, facilitation, mini-trials and summary jury trials. While these methods aren’t
always appropriate, they each offer advantages over the traditional adversarial process.
What are the advantages of arbitration over
litigation?
Arbitration is a private, adversarial dispute
resolution process in which the parties
choose one or more arbitrators to hear their
dispute and render a decision or an award
after a hearing. Arbitrations can be binding or
nonbinding depending on the terms of the
parties’ business agreement. Also, arbitration
agreements can provide, among other things,
who will hear and decide the dispute.
Therefore, when the subject matter is highly
technical, arbitrators with an appropriate
degree of expertise can be selected.
Arbitrations are also desirable because
they’re less formal than litigation and often
include streamlined procedures and rules of
evidence. For instance, arbitration may begin
with a simple letter to the arbitrator explaining the dispute and referring to the contract’s
arbitration provision. Technical pleading
requirements aren’t an issue, there’s no
requirement for transcripts and the proceedings aren’t public record. Moreover, although
the arbitrator can require the production of
relevant documents and depositions of witnesses, discovery isn’t extensive. In certain
types of disputes, such as those involving securities, the arbitration process is more
involved and may be lengthy and expensive.
However, in comparison to formal court litigation, arbitration generally provides a more
economical and efficient method of dispute
resolution.
What are the disadvantages?
One disadvantage is that arbitrators often
charge for their services. Their fees can be
high, but vary depending on the arbitrator.
There are also filing fees associated with arbitrations. Depending on the rules applicable to
the dispute, those fees can be higher than
court filing fees. Additionally, review of arbitration awards is extremely limited. In fact, if
arbitration is binding, the parties normally
give up most court protections, including the
right to trial by jury. Also, pre-hearing discovery in arbitration is far less broad than pretrial discovery in litigation. This avoids expensive and burdensome discovery, but there
generally is less opportunity to obtain information about the other side’s case. Thus,
arbitration may not be suitable where one
party wants to pursue extensive discovery
and conduct a thorough investigation of the facts. Similarly, because arbitration rulings
don’t create law, a party may not want to submit to arbitration where it seeks to establish
legal guidelines for future conduct.
What is the difference between arbitration
and mediation?
Mediation is an even less formal alternative
to litigation and is one of the most preferred
forms of ADR. The objective of mediation is
to reach a voluntary agreement between the
parties, rather than to determine their respective rights and liabilities. In its simplest terms,
mediation is a flexible, nonbinding process in
which parties submit their dispute to a neutral third party who helps negotiate a settlement. The mediator who is trained in negotiations facilitates communication between
the parties but has no power to impose a
solution. The mediator helps to identify
issues, explore solutions and negotiate an
amicable agreement for all or part of the dispute. The mediator is not the decision-maker,
and so, unlike arbitration, mediation leaves
control of the outcome with the parties.
How does a company know if its case is more
suitable for arbitration or mediation?
Determining which is most appropriate is a
fact-specific exercise. For instance, mediation may be preferable where the parties
have important relationships they want to
maintain (i.e., business partners, supplier-distributor, licensor-licensee, etc). It may also be
beneficial where they want to control the
outcome and the risk of an unfavorable court
decision or adverse precedent is high.
Mediation may not be useful, however,
where one party is unwilling to compromise.
Arbitration may be appropriate where the
parties want a decision-maker with training
in a particular area to decide the dispute and
would like to avoid the time and costs of litigation. However, it may not be proper where
the parties want to maintain control over
how their dispute is resolved or want to win
in litigation to send a deterrent message to
potential adversaries.
DAMANY RANSOM is an associate in Baker Donelson’s Atlanta office who concentrates his practice in the area of business litigation.
Reach him at (678) 406-8734 or [email protected].
