Arbitration and Mediation: What’s the Difference? What to Expect.


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Mediation
Mediation is a process in which a neutral person or persons facilitate communication between the disputants to assist them in reaching a mutually acceptable settlement agreement. During this process, a neutral third party, with no decision-making power, intervenes in the dispute to help the litigants voluntarily reach their own agreement. Through a series of discussions, statements and private caucuses between the parties and the mediator, the process lets both parties negotiate and agree to a resolution with which everyone can abide. It is an excellent method of bringing a dispute to a conclusion without the further uncertainty and expense of litigation.

Arbitration
Arbitration, in addition to mediation, is one of the most common methods of alternative dispute resolution (“ADR”), whereby the parties bring a dispute before a disinterested third party who is typically selected by both parties. An arbitrator hears evidence presented by the parties, makes legal rulings, determines facts and makes an arbitration award. Arbitration awards may be entered as judgments in accordance with the agreement of the parties or, where there is no agreement, in accordance with California statutes. Arbitrations can be binding or non-binding, as agreed by the parties in writing. In most cases, the arbitrator’s decision is binding and final.

When is it Appropriate to Engage in Mediation and/or Arbitration?
Mediation can be held at any time, before or during a lawsuit. It is a voluntary process, where both sides simply agree to go to mediation in an effort to get the case settled. Sometimes, it is a contractually required process for the parties to complete prior to going to litigation or arbitration. Typically, in this situation, if a party ignores this requirement and fails to participate in a contractually mandated mediation, they will lose their rights to recover attorneys’ fees and costs – even if they ultimately prevail. Other times, mediation is strongly encouraged by the judge if a lawsuit has already been filed, and some would even say, ordered by the court (though it is typically not called “mediation” but something very similar like a “Dispute Resolution Conference” or “Mandatory Settlement Conference”).

Arbitration is held for one of several reasons. The most common reason is that the parties have already agreed to submit the matter to arbitration because they had a pre-existing contract providing for such. In that case, one of the parties will make an arbitration demand and the parties (typically, through their attorneys) will either agree on an arbitrator, or they will submit their arbitration claim to an ADR service provider such as the American Arbitration Association (“AAA”) or JAMS, which may result in them having to choose an arbitrator from a list of qualified neutrals.

Another reason that the parties end up in arbitration is because they have agreed to arbitrate the matter despite not having a contractually mandated arbitration clause. In such instance, the parties can agree whether it will be binding or not. Binding means that the arbitrator’s award can be enforced by the court. Non-binding arbitration means that the participants in the case are not required to accept the arbitrator’s award and may return to the court as if arbitration had not occurred. In the event parties wish to go to non-binding arbitration, its practical effect is to get an early neutral case evaluation. However, most of the time, parties will insist that the arbitration be binding, so as to give the case some finality.

Less frequently, parties will end up in judicial arbitration. This is a program under which certain court cases are assigned to an attorney, sitting as an impartial arbitrator, to conduct an informal “mini-trial.” Depending on the type of case, a Plaintiff may elect, the parties may stipulate, or the judge may order the case to judicial arbitration. These types of arbitrations may be binding or non-binding depending on what the parties agree to before beginning the process.

Where Are Arbitrations and Mediations Held?
Both are usually held at the office of the mediator or arbitrator. In most cases, a mediator will meet with the parties and/or their representatives prior to the joint mediation session. Then, the parties typically meet altogether in one conference room at the start, and then the mediator separates the parties and their counsel so that each side has their own conference room, which allows the mediator to go back and forth between the parties and discuss each party’s positions in a confidential setting.

Arbitration is more like a court proceeding (i.e. a trial), however, rather than taking place in a courtroom, the evidence is usually presented with everyone together in the arbitrator’s conference room and is less formal than a courtroom proceeding.

As with all types of ADR, the general concept allows the parties involved to resolve their issues outside of federal or state courts, avoiding potentially long and costly trials.

Advantages and Disadvantages
ADR can have a number of advantages over traditional court litigation:

  • ADR can save time and money. Lawsuits can take years to resolve (and when you factor in the appeal process, you can anticipate at least 5+ years). Whereas, a dispute can be resolved through ADR in a matter of hours (e.g. a half-day mediation), weeks, or maybe a few months for arbitration, depending on the type of ADR employed and the complexity of the dispute. Also, by producing earlier settlements, ADR can save the parties and courts time and money that might otherwise be spent on litigation costs (attorney’s fees and court expenses).
  • ADR provides more participation and can allow more opportunity to get creative with how to resolve a dispute. Even if a case does not settle at mediation, it is still a productive process that can allow the parties to: (i) agree on some things, (ii) get a better idea of the damages at issue, and (iii) narrow discovery.
  • ADR can be flexible. Parties can choose the ADR process most appropriate for their particular situation and that will best serve their particular needs. For example, in a successful mediation, the parties control of the outcome of their dispute, versus placing the matter in the hands of an unknown third party (i.e. a judge or jury) to decide it for them.
  • ADR can reduce stress and provide greater satisfaction. ADR encourages cooperation and communication, while discouraging the adversarial atmosphere found in litigation. Surveys of disputants who have gone through ADR have found that satisfaction with ADR is generally high, especially among those with extensive ADR experience.
  • Confidentiality. While mediation is generally a confidential process, when it comes to arbitration, there are some ADR providers who have rules specifying that proceedings will remain confidential—with this obligation binding on both the parties and the arbitrators.

ADR can also have some disadvantages over traditional litigation:

  • A badly managed arbitration can be costly. (But litigation can be costly also.)
  • Appealing the arbitrator’s decision is rarely an option. With limited exceptions, a neutral arbitrator’s decision is very difficult to appeal unless the ADR service provider has a program that gives the parties an appellate arbitral procedure.
  • In most cases, there are no broad rights to discovery (however, since arbitration is usually a contractual creation, such a clause may provide for the same discovery rights as are available in traditional litigation).
  • Potential conflict of interest. Private arbitration is usually a paid-for process. The arbitrator is getting paid for his/her services. Some say that this gives arbitrators the tendency to “split the baby” because their reputation and past decisions may influence whether, and by whom, they get hired in the future.
  • Mediation can be a costly “waste of time.” While it is true that mediation does not always result in settlement, if the parties are both committed, in good faith, to resolving the dispute, mediation can be a great way to reach a settlement.

What Can Be Expected at the End of a Mediation or Arbitration?
An arbitrator’s decision is rendered within a few weeks after the close of the hearing (the arbitration “trial”). In most cases, there will be a “reasoned award” – particularly if the parties ask for it. This will be much like a judicial opinion where the arbitrator summarizes the facts and the law and explains in his or her analysis why they were more persuaded by one side or the other, with an explanation of the damages awarded.

At the end of a mediation, the parties will either have settled their case, or not. If they have settled, then (if they did not sign a settlement agreement at the end of the mediation) a formalized written settlement agreement will be executed in the ensuing days following the mediation. If they did not settle at the mediation, then the case will continue. In many cases, however, even if the case did not settle at the mediation, a common outcome is that “we got very close to a settlement” which could mean that the parties will continue to negotiate informally over the next few weeks or months and ultimately reach a settlement.

Whichever ADR method is used, a typical response given by disputants is that they were satisfied with the ADR process. Most cases settle before they reach trial, in large part, because of ADR. While it may not be right for everyone, on the whole, it is an effective tool for conflict resolution.

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