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Mediation, Arbitration, and Litigation – What You Need to Know

Sterling Miller

During the course of your career as a modern general counsel, you will inevitably find yourself and the company involved in some type of dispute.  It will most likely involve some type of commercial matter, like a breach of contract.  Regardless of the nature of the dispute, small business attorneys need to find a way to resolve it.  The most likely are mediation, arbitration, or litigation.  This article discusses all three along with key resources available through Practical Law that help the busy modern GCs quickly get up to speed while saving time and money via forms, checklists, and up-to-date summaries.

Mediation

Mediation is a semi-formal method of dispute resolution.  Some contracts require mediation as part of a mandated dispute resolution process, i.e., a required step before litigation or arbitration can proceed. Many courts require litigants to attempt at least one business dispute mediation session before going to trial. And, of course, the parties can always voluntarily take their matter to a mediator.  A mediator is simply a neutral third party whose job is to try to bring the parties together to resolve their dispute. Most mediators are lawyers or retired judges, but they do not have to be.  A simple web search will reveal dozens of mediation services.  In-house lawyers should ask around for recommendations about good mediators (outside counsel can be helpful here).  Sticking with a reputable dispute resolution service, like JAMS, is another way to find a good mediator.

The beauty of mediation is its low cost, speed, and confidentiality (and the discussions cannot later be used in court).  Since most litigation settles without going to trial, business dispute mediation is a way to skip the costly litigation process and move right to resolving the dispute.  (See Practical Law, US Mediation Agreement). Once a mediator is selected, the parties submit confidential briefs outlining the dispute, including key documents or other evidence and, often, what they are looking for in terms of a resolution.  Sometimes, the parties agree to share parts of these briefs with each other.  Before the mediation session, the mediator often speaks with each side before the mediation session to become more educated about the dispute.  At the mediation session (usually one day but more complex matters may require several sessions), the parties typically give opening statements outlining their positions for the other side and retire to separate rooms.  The mediator then begins something like “shuttle diplomacy,” going back and forth between the parties, relaying proposals, or simply discussing the merits of each side’s position.  Hearing the thoughts of a neutral third party can get one side (or both) to reevaluate how they see the case. (See Practical Law, Questions for In-House Lawyers to Ask Litigation Counsel About Mediation (US) Checklist).

The mediator may ask the business principals to meet alone with her to discuss potential resolutions.  Likewise, she may ask the lawyers (in-house and outside counsel) to meet.  Regardless of the format, the mediator is working hard to use her knowledge of both sides’ positions - including settlement ranges - to bring them together.  Regardless, mediators will only reveal what each party permits them to reveal to the other side.  Mediation is typically successful if both sides come prepared to try to settle in good faith (it is not something you can wing at the last moment – preparation is key).  Even if the first session is not successful, the mediator will continue to work with the parties to resolve the matter, including hosting additional sessions (even if the matter proceeds to litigation or arbitration).  But, nothing requires either party to agree to settle;it is completely voluntary.

Arbitration

Sometimes parties cannot informally resolve their matter and need someone to hear the evidence and make a binding decision.  There are lots of downsides to litigation, including cost, time, and lack of confidentiality.  Business dispute arbitration is designed to avoid all of these (though it is not always successful).  It is a creature of contract, i.e., something parties have contractually agreed to do in the event of a dispute between them. Therefore, in-house counsel drafting a fulsome arbitration provision is critical to ensuring the process proceeds as the parties envision.  Otherwise, the arbitration process can quickly come to look a lot like litigation.  (See Practical Law, US: Ad Hoc Arbitration Clause).

In a nutshell, arbitration is a private litigation process.  There are rules, discovery, “judges” (arbitrators), a “trial” (hearing), witnesses, motion practice, and more.  Final decisions of the arbitrators can generally be enforced in any court in the United States and over 150 countries that have signed the New York Convention. To get the process started, either party submits a claim to the agreed arbitral body, e.g., the International Chamber of Commerce).  From there the process follows the rules of that body and any specific rules set out in the contract.  There may be one or multiple arbitrators, usually lawyers or retired judges, but sometimes “experts” in the subject matter of the dispute.  There is the possibility of a summary disposition, but most arbitrations go to hearing unless settled.  The hearing process is like a trial in a court but is held at a private location and the proceedings are usually confidential.  After the hearing, the arbitrator(s) will issue a decision (but have far more discretion in terms of deciding the case than a judge has).  Unlike litigation, there is no automatic right to appeal.  The other big downside is the cost of paying the arbitration body, the arbitrator(s), and for the hearing location. 

An arbitration clause can be very simple and state only that the parties will arbitrate all disputes before one of the recognized arbitration bodies and rely on its rules.  The preferable option is to select an arbitration body but add contractual terms that govern how the arbitration will proceed, such as the confidentiality, time frame, types of damages that may be awarded, whether a “reasoned” decision is required, limits on discovery, and appellate rights. (See Practical Law, Standard Recommended Institutional and Industry Arbitration Clauses). If the parties do not agree on limits to discovery, they often find themselves in a process that operates like litigation – with all the cost and pain – while having to pay out of pocket for the privilege of suffering through it.

Litigation

Sometimes in-house counsel cannot settle a matter and the other side is not interested in arbitration (or the contract does not provide for it).  If so, you are left with a messy, intrusive, uncertain, and expensive process – litigation.  (See Practical Law, In-House Litigation Management Center). Like arbitration, litigation starts when someone files a complaint with a court.  Unlike arbitration, doing so is not confidential and it kicks off a process that is likely to take years to resolve and is guaranteed to be costly because the rules (civil procedure) provide for open discovery of all the facts, documents, and witnesses who may provide relevant evidence.  (See Practical Law, E-Discovery Toolkit).  Likewise, in only rare circumstances is any of this information kept private.  Meaning, every embarrassing email, confidential document, or unflattering report may end up in the newspaper or online.  And, you may have a jury deciding issues of fact and punitive damages may be on the table, further complicating the process (and adding risk).  (See Practical Law, Arbitration vs. Litigation in the US).  Additionally, once both parties enter the litigation maelstrom, it usually negatively affects their business relationship for years.

On the plus side, there is no cost to use the litigation system (other than the fee to file the complaint or counterclaims), there is a summary judgment process that can often dispose of the matter before trial, and there are multiple levels of appeal.  There are also large databases of written decisions to analyze, and it is usually straightforward to find out the inclinations of your specific judge or juries in the jurisdiction.  And, if you have the money, sophisticated jury research is available to help you shape the themes and evidence to better appeal to the jurors hearing your case.  (See Practical Law, Mock Jury Exercises).

For most in-house lawyers, litigation is the choice of last resort.  If the parties can quickly resolve a dispute between themselves or with the help of a mediator, that is likely the better path.  If not, and if discretion is key, arbitration can be a confidential and speedy way to reach a binding decision on who is right.  If the parties agree to arbitrate, their contract should contain an appropriately detailed arbitration clause to keep any disputes from just becoming a more expensive – and less satisfactory - path to litigation.  Fortunately, Practical law can help modern GCschoose the right path and properly arm them for whatever comes next.  (See Practical Law, Avoiding and Managing Commercial Disputes in the US: An Overview).

Handling more litigation in house?

If you’re like most modern GCs, the answer to this question is “Yes”. See how Practical Law can help.