1. Alternative Dispute Resolution

Alternative Dispute Resolution

Playlist: 18 Videos: 45 Minutes


Topics: Learning Material

Introduction to Alternative Dispute Resolution (ADR)
This chapter explores the resolution of disputes between individuals. More specifically, it explores the methods that individuals use to resolve disputes without resorting to civil litigation. Alternative dispute resolution includes any method or procedure for achieving this purpose; however, there are two commonly recognized processes - arbitration and mediation. Employing these resolution methods may be mandatory or voluntary. Further, these methods may not be exclusive. That is, the parties may employ mediation, arbitration, and litigation, all within the realm of a single dispute. This chapter will explore the procedures and general legal principles applicable to these processes. For further written and video explanation, discussion and practice questions, see Alternative Dispute Resolution (Intro)

What is a “Settlement”?
Settlement means that the parties to a legal dispute work out their differences and enter into an agreement to resolve the situation. The benefit of a settlement is that the parties maintain control over the outcome of the dispute. The parties are not subjected to a ruling, judgment, or award of a third-party decision maker. Businesses often settle legal disputes to avoid the high cost of litigation, maintain privacy, and to preserve the professional relationship with the other party. Also, juries tend to show favor to individual plaintiffs to the detriment of businesses. Individuals, on the other hand, settle disputes to avoid the long, tenuous litigation process and to make certain of some level of recovery. Achieving a settlement is a core objective of mediation, which is discussed in a separate section. For further written and video explanation, discussion and practice questions, see What is a "Settlement"?

What is “Alternative Dispute Resolution”?
ADR, as the name implies, is an alternative to resorting to litigation to resolve a legal dispute between parties. The most common forms of ADR are: Mediation and Arbitration. Since ADR is an alternative to litigation, disputing parties do not have to begin a lawsuit prior to using any form of ADR. Also, filling a lawsuit does not preclude the use of ADR in conjunction with the litigation. Some courts, such a family court, often encourage or require parties to undertake some form of ADR prior to moving forward with litigation. For further written and video explanation, discussion and practice questions, see What is "Alternative Dispute Resolution"?

Advantages and Disadvantages of ADR
The effective use of ADR offers several distinct advantages: Costs - ADR may reduce the costs associated with litigation for the disputing parties. This is probably the most common reason for including an ADR clause in a contract or agreeing separately to submit a dispute to ADR. No Jury - Businesses generally prefer ADR to litigation because it avoids allowing a jury to decide a dispute. ADR, unlike a jury trial, generally involves the use of one or more knowledgeable professionals to either decide or assist in resolving the dispute. This is far more practical than letting a random group of jurors resolve the issue. Privacy - Another reason to use ADR is that it is a private process; whereas, litigation and court records are open to the public. Individuals concerned with public knowledge of the dispute harming the company’s brand or reputation strongly prefer the use of ADR to resolve disputes. Business Relationship - ADR can preserve the on-going business relationship between the parties, where litigation often destroys the relationship. For further written and video explanation, discussion and practice questions, see What are the Advantages and Disadvantages of ADR?

What is “Mediation”?
Mediation is the process by which parties to a legal dispute employ a third party, called a “mediator”, to assist in resolving the dispute. The mediator is an unbiased and disinterested third party. She generally has undergone special training in dispute resolution and possesses in-depth knowledge of the subject matter of the dispute. In most instances, a mediator is a licensed attorney who has mediator training. This is important, as the mediator should understand the legal principles that will apply to the dispute and be able to explain those legal principles to the parties. The mediator can honestly communicate with each party the process and possible results if the parties cannot resolve the dispute and decide to move forward with litigation. Mutual understanding of the parties is import in resolution of the dispute. For further written and video explanation, discussion and practice questions, see What is "Mediation"?

Advantages and Disadvantages of Mediation
There are numerous advantages and a few disadvantages to mediating a dispute, as follows: These factors generally include: Costs, Control, Privacy, Relationships. For further written and video explanation, discussion and practice questions, see What are the advantages and disadvantages of Mediation?

How to initiate a Mediation
Mediation can be either mandatory or voluntary. General principles applicable to each are below: "Mandatory Mediation" and "Voluntary Mediation". People often confuse mandatory and voluntary mediation by assuming that mediation is mandatory because there is a mediation clause in a contract. Even though a contract contains a mediation clause, it was still a voluntary decision to enter into that contract. As such, this is voluntary mediation. Mandatory mediation only arises pursuant to law or judicial procedure. For further written and video explanation, discussion and practice questions, see How Do Parties Initiate Mediation?

Mediation Process
The voluntary mediation process is far less rigid than that of mandatory mediation. Involuntary mediation is somewhat of an informal process. The mediator may employ any number of techniques to help the parties arrive at a negotiated settlement. Mandatory mediation procedure may be subject to law or court order. The most common format for carrying out voluntary or mandatory mediation of a legal dispute with or between businesses is as follows: Delivery of Evidence, Introduction, Initial Statements, Private Sessions, Formalization of Agreements. Involuntary mediation may follow the same or similar steps, but the process is more closely dictated by court procedure, statute, or regulation. For further written and video explanation, discussion and practice questions, see What is the process for carrying out a mediation?

Challenging a Mediation
A successful mediation results in a negotiated settlement between the parties. This is a formal contract that memorializes the agreed-upon resolution of the legal dispute. Once the parties enter into this agreement, it takes the place of the underlying dispute. The parties can no longer pursue litigation for the underlying dispute without breaching this contract. If, after the settlement agreement is signed, the parties wish to dispute the agreement, they must bring a contract action in court attacking the validity of the agreement. In this situation, however, the suing party is not suing regarding the underlying dispute but is arguing that the settlement agreement is not valid based upon some contract law principle. If the party is successful in rescinding (doing away with) the mediation agreement, the parties would be free to litigate the underlying dispute or pursue other forms of ADR. For further written and video explanation, discussion and practice questions, see What is the process for challenging a mediation agreement?

What is “Arbitration”?
Arbitration is a form of ADR in which the parties choose to forgo litigation and solve their problems through a third-party decision maker, known as an “arbitrator”. The key characteristic of arbitration is that the parties are hiring one or more unrelated and unbiased third parties to decide the legal dispute. Basically, the arbitrator(s) acts as judge and jury in deciding the dispute. Unlike in mediation, the arbitrators are decision makers. Arbitration yields a final resolution of the dispute in the form of an arbitrator’s “award”. The award generally consists of monetary damages, but may include equitable remedies as necessary. Parties may generally enforce an arbitrator’s award similarly to a judgment. For further written and video explanation, discussion and practice questions, see What is "Arbitration"?

Advantages of Arbitration
There are numerous advantages and a few disadvantages of arbitration, as follows: Expertise, Resolution, Costs, Privacy, and Relationships. These aspects of arbitration may be seen by a party as an advantage or disadvantage. For example, a party may hope to sway jurors by appealing to their emotions. This is not as easy when dealing with expert arbitrators who are more likely to apply the law without regard to personal emotions. Further, arbitration will lead to a decision on the dispute. One party may see this finality as a benefit, while other parties may want to retain the ability to continue negotiating a settlement. For further written and video explanation, discussion and practice questions, see What are the Advantages of Arbitration

Voluntary vs Mandatory Arbitration
Arbitration can be either voluntary or mandatory. "Voluntary Arbitration", as the name indicates, means that the parties voluntarily agree to submit a dispute (or any dispute) to arbitration. This is also known as “arbitration at common law”. This is normally done through a formal, written agreement entered into between the parties. Voluntary arbitration generally takes two forms: "Pre-dispute Arbitration" and "Post-dispute Arbitration". Mandatory Arbitration is when a state or federal laws require parties to arbitrate specific types of disputes. When a statute or court requires the parties to arbitrate a matter, this is known as “mandatory arbitration”. This is common in some very technical areas of law, such as alleged violations of rules put forward by the Financial Industry Regulatory Authority (FINRA). The requirement to arbitrate may be tied either to the type of dispute or the amount in controversy in the dispute. When the law requires arbitration, there is also a procedure in place for the identification and hiring of certified arbitrators. For further written and video explanation, discussion and practice questions, see Initiating Arbitration - Voluntary and Statutorily Mandated Arbitration?

Arbitration Procedure
The rules and procedures applicable to an arbitration depend on the jurisdiction. Some jurisdictions rely upon common law to supply the rules applicable to arbitrations. In these jurisdictions, judges often draw heavily upon model laws or other influential sources in the development of the law. Historically, common law arbitration jurisdictions have far less developed procedural rules. Notably, these jurisdictions vary in the degree to which they support the arbitration process. Other jurisdictions pass statutes controlling the arbitration process. In such jurisdictions, the general procedure for carrying out an arbitration proceeding is as follows: Subject Matter of the Arbitration; Choosing Arbitrators; Submit to Arbitration; Agreement with Arbitrators; Arbitration Proceeding; Award; Enforcement. For further written and video explanation, discussion and practice questions, see What is the procedure for carrying out an arbitration?

Federal Arbitration Act

The rules governing an arbitration vary depending upon whether the arbitration is voluntary or mandatory. In a voluntary arbitration, the parties may agree upon the rules to govern the proceeding. It is rare that the parties will specifically state all of the governing provisions; rather, the agreement to arbitrate will agree that statutory provisions or a set of model rules will govern the arbitration proceeding. In a mandatory arbitration, state law, federal law, or court order dictates the rules governing the arbitration. Notably, in 1925, Congress passed the Federal Arbitration Act (FAA) to encourage the use of arbitration to resolve conflicts. The FAA provides the process and procedure for carrying out the arbitration. The FAA applies when the dispute is subject to mandatory federal arbitration or when there is an voluntary arbitration agreement and the dispute involves federal law. Of course, the parties to voluntary arbitration may agree to a different set of laws, but applying FAA standards may affect a party’s ability to enforce the arbitrator’s award through the court system. Importantly, the FAA requires that where the parties have agreed to arbitrate, they must do so in lieu of going to court. For further written and video explanation, discussion and practice questions, see Rules governing the arbitration - Federal Arbitration Act

Judicial Review of Voluntary Arbitration
An arbitration is a non-judicial process. As such, there is no appeal available. There is, however, a limited ability to challenge an arbitration award in an Art. III court. The standard for challenging an arbitration award differs for voluntary and mandatory arbitrations. Review of Voluntary Arbitration Awards - Parties may challenge an arbitration award based upon the arbitrator exceeding her authority or based upon a contractual defense to the validity of the arbitration agreement. That is, the court will not disturb an arbitrator’s award based upon an error in the application of law or determination of a fact. The challenging party must file a legal action attacking the validity of the arbitration agreement or the authority of the arbitrator. For example, the arbitrator may have issued an award that affected property that was not subject to the original contract. In general, arbitration clauses are liberally interpreted when a party contests the scope of the clause. If the scope is debatable or reasonably in doubt, the clause is construed in favor of arbitration. In summary, the fact that the arbitrator made an erroneous ruling or reached erroneous findings of fact are not grounds for setting aside the award. Of course, an error of law may render the award void when it requires the parties to commit a crime or otherwise to violate a positive mandate of the law. In any event, judicial review of the arbitration award may correct fraudulent or arbitrary actions by an arbitrator. For further written and video explanation, discussion and practice questions, see What is the Judicial Review of Voluntary Arbitration?

Judicial Review of Mandatory Arbitration
An arbitration is a non-judicial process. As such, there is no appeal available. There is, however, a limited ability to challenge an arbitration award in an Art. III court. The standard for challenging an arbitration award differs for voluntary and mandatory arbitrations. Review of Mandatory Arbitration - Mandatory arbitration effectively cuts off the parties’ access to a trial court. Many courts have held that mandatory arbitration statutes that close the courts to litigants are void as against public policy and are unconstitutional. The arguments against enforcing mandatory arbitration statutes include: they deprive one of property and liberty of contract without due process of law; they violate the litigant’s 7th Amendment right to a jury trial and or state’s constitutional access to courts; and they result in the unconstitutional delegation of legislative or judicial power in violation of state constitutional separation of powers provisions. Mandatory arbitration is generally deemed constitutional if fair procedures are provided by the legislature and ultimate judicial review is available. As such, statutorily mandated arbitration requires a higher level of access to judicial review of the awards by the court. If a party can reject the arbitrator’s award and seek de novo judicial review, mandatory arbitration is generally considered constitutional. The right to reject the award and to proceed to trial is the sole remedy of the parties. If a party rejects an arbitrator’s award and challenges the case at trial, the court may impose sanctions on the party who fails to improve its position. Also, failing to attend the arbitration could forfeit the right of a party to reject the award and proceed to trial. For further written and video explanation, discussion and practice questions, see What is the Judicial Review of Mandatory Arbitration?

Judicial Review under FAA
In cases involving federal matters, the Federal Administration Act controls the procedures. The procedures of the FAA are binding upon both state and federal courts when called upon to review an arbitration. Once an award is entered by an arbitrator or arbitration panel, it must be "confirmed" in a court of law. Per the FAA, awards must be confirmed within one year. A losing party must object and challenge the award within three months. For further written and video explanation, discussion and practice questions, see What is Review under the Federal Arbitration Act?

Enforcing Arbitration Awards
The method of enforcing an arbitration award will vary depending upon the jurisdiction. In a common-law arbitration jurisdiction, a party must generally initiate a legal action to enforce an arbitration award as a contract. Most statutory-arbitration jurisdictions establish a process for enforcing arbitration awards. This may include seeking court recognition and approval of the award. Many jurisdictions require arbitration awards be registered with the court system to receive judicial assistance in enforcement. Generally, the holder of the award will file the award with the Clerk of Court’s office. The clerk will prepare a certification of judgment order for a judge’s signature. Once a judge signs and certifies the order, it may be enforced in the same manner as a judgment. Once confirmed, the award is then reduced to an enforceable judgment, which may be enforced by the winning party in court, like any other judgment. For further written and video explanation, discussion and practice questions, see How are Arbitration Awards enforced?


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