Staying out of court Featured

8:00pm EDT July 26, 2008

When a dispute arises between businesses, it is not uncommon for one of the parties involved to look to the court system for resolution by filing a lawsuit. However, there is an alternative method available to resolving legal problems before going to court.

“Alternative dispute resolution, or ADR as it is commonly called, is a process where legal disputes are removed from the court system and resolved by trained mediators or arbitrators independent of the court system,” says Daniel P. Makarski, senior partner at Secrest Wardle.

Under the right circumstances, ADR can be used to settle disputes faster and less expensively than if the dispute were processed in the court system. In addition to saving time and legal expenses, ADR provides parties with greater privacy than is afforded in a public courtroom and can permit valued relationships among parties to be preserved.

Smart Business spoke with Makarski about ADR, the benefits it provides and how ADR costs compare to cases processed in the court system.

How can a company benefit from using ADR?

The primary benefits of ADR are expedited resolution of issues, cost savings and finality. It is faster and less expensive to engage a mediator or arbitrator to resolve a dispute than it is to proceed with protracted litigation in the courtroom that may not be finally resolved for many years because of delays and appeals.

What are the most commonly used forms of ADR?

The most common form of ADR today is mediation. With this process, the parties select a mediator, usually an experienced attorney with expertise in the area of the dispute, either prior to the commencement of litigation or early on in the case. The mediator convenes in a conference or conferences with all of the parties involved as well as their counsel and attempts to amicably resolve all outstanding issues.

Arbitration, another form of ADR, is increasingly being contractually mandated.

Many business contracts require that the case be decided by an arbitrator or arbitration panel. The selection of the arbitrator or arbitrators and the rules governing how the arbitration will proceed are either included in the contractual language mandating arbitration or delegated to an entity such as the American Arbitration Association. All parties are bound by the decision of the arbitrator or arbitration panel.

Under what scenarios is it most appropriate to use ADR?

An appropriate scenario for ADR is a dispute between businesses that they cannot resolve themselves. Instead of filing suit, or continuing an existing lawsuit, parties can retain a mediator to try to bring them together and resolve any outstanding issues. If this is not possible, parties can select an arbitrator or multi-person arbitration panel that will decide all issues in an expedited manner.

How should a business go about selecting the appropriate ADR process?

Since all ADR processes involve some legal issues, it is my recommendation that businesses should rely upon the trusted advice of their counsel to decide which ADR process is appropriate for them.

How do ADR costs compare to cases processed in the court system?

ADR has significant cost-savings potential in comparison to litigating in the court system. Business disputes are usually handled by attorneys on an hourly fee basis. The more complicated, contentious and protracted the dispute, the more expensive attorney fees and costs will be. If a dispute can be resolved by a trained mediator or arbitrator prior to or early on in a case, these costs and fees can be eliminated or significantly reduced. Generally, the mediator’s or arbitrator’s fee is paid pro rata by the parties and will be a fraction of what it would cost to proceed with a fully litigated case.

DANIEL MAKARSKI is senior partner at Secrest Wardle. In 2002, he was awarded the prestigious Respected Advocate Award from the Michigan Trial Lawyers Association. In 2003, he received the Civility Award from the Macomb County Bar Association. Reach him at (586) 465-7180 or dmakarski@secrestwardle.com.