Handling Legal Disputes Through Mandatory Mediation and Arbitration Efforts

I would be interested to hear other opinions and considerations in deciding whether to agree to mandatory mediation and arbitration (outside of an injunction context). Thank you!

Wisdom of the Crowd:

Response #1: I strongly recommend this process as long as Intellectual Property (IP) is not an issue, especially where courts could be essential to resolving long term rights. Also, you could use fast track commercial mediation and arbitration services through an organization with an excellent reputation. Unless controlled by process rules, time limits, limited discovery and a fast track arbitrator, the alternate dispute resolution process may be as expensive as litigation, so be sure to specify the process boundaries with care. But the key benefit here is that commercial parties can engage in dispute efforts in a private, more informal setting and in an environment where a good mediator or arbitrator can help discover a win-win solution.¹

Response #2: I would consider mandatory arbitration if the goal is to avoid potential class action lawsuits. Otherwise, I would avoid mandatory arbitration for the following reasons. First, it is not necessarily a cheaper course of action. Also, it can be much more unpredictable than courtroom litigation, with significantly constricted avenues for post-arbitration relief. Generally, you may prefer to have a jurist presiding over a dispute, with set procedures (court rules) and appellate rights. You might want to consider a mutual jury trial waiver instead of arbitration. 

 

As to mandatory mediation, it is a fine concept in theory, but mediation is almost always an option if the parties feel it would be beneficial to dispute resolution. Thus making it mandatory may not have much upside. If the parties to a dispute are unlikely to resolve it by early mediation, having mediation as a mandatory action is likely to add cost and delay. However, having said that, even if early mediation fails, it may be helpful to have a mediator to go back to if or when it becomes time to revisit settlement terms.²

 

Response #3: I was a civil trial lawyer for 16 1/2 years before transitioning to in-house. Unlike most lawyers that write arbitration clauses into contracts, I actually have tried many civil disputes to juries, judges, administrative law judges (ALJs) and arbitrators. In summary, the only reason that I would ever recommend mandatory arbitration is if the client had a significant concern for confidentiality. Arbitration proceedings are usually not a matter of public record. That being said, mandatory arbitration is not cheaper than litigation in court. My experience has been that it often is more expensive, particularly if you use American Arbitration Association (AAA) insurance, which charges very high case fees. You also have to factor in the cost of the three arbitrator panel members.

 

Furthermore, arbitrators are less aggressive about case scheduling and they tend to allow voluminous discovery and basically any evidence to be offered. Arbitration is less predictable, arbitrators know they are not on the record and appellate review is basically non-existent, which can lead to unorthodox actions that a seasoned trial judge would never consider doing.

 

Finally, my experience has been that arbitrator ethical issues are harder to police, perhaps because they are not public officials like judges, and these issues are not subjected to appellate review.³