Alternative Dispute Resolutions Primer – ADR 101
Learn about Alternative Dispute Resolution
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A short primer on Alternative Dispute Resolution.
The Judicial System: Statutory Arbitration
There is the judicial system that is funded by tax dollars; that is, “going to court.” Although this process is subsidized by tax dollars, it tends to tak years of lawyer fees, countless motions, risks of luck with emotional jury verdicts, and costs of appeal with remands to start all over again.
“Small” cases (sometimes less than $25K or $50K), as defined by each court, often have “statutory arbitration,” an extra-first-step that requires that the small claims first be presented to an “arbitration” panel of attorneys for a ruling, and then, either party can “appeal” to get to the trial court and it proceeds just like any other court case. If no “appeal” to the trial court is made by a party, then the statutory arbitration panel’s ruling is final. This arbitration process is a part of the judicial system, even though reviewed by a non-judge panel of attorneys.
Remember the term “statutory” for this type of arbitration, and remember that statutory arbitration is part of the judicial process and system; that is, this statutory arbitration is not an “alternative” (ADR) to anything, because statutory arbitration is part of the “actual thing itself,” being part of the baseline judicial system. The rules of procedure for statutory arbitration are governed by the state rule laws and rules of civil procedure. Other than pro se human beings (self-represented), only attorneys may represent others and business entities like corporations and limited liability companies; that is, e.g., as a general rule, therefore, the President of the company cannot “represent” the company. In addressing arbitration in the following text of this post, we not addressing statutory arbitration, but only common law arbitration, so all additional references to arbitration means common law arbitration.
The Non-Judicial System: Common Law Arbitration
There is another kind of arbitration, “common law arbitration.” Common law arbitration is the subject of ADR, being an alternative to the judicial process and system, thus its name as an “alternative” method of dispute resolution, “alternative dispute resolution.”
The court system encourages resolving disputes outside of the court system, because it saves public resources, and can often be much more cost-efficient for the parties. Some people say that common law arbitration is a “forced settlement.”
Now, we know that, if we go to court and win, we can enforce the judgment. But what about common law arbitration? That is a great question.
To give common law arbitration “teeth” for collection, there is usually one law that says something like, “If the parties agree to common law arbitration, whoever wins the case can file that award as a judgment with the court system to enforce collection.”
Therefore, common law arbitration is an out-of-court alternative to arrive at the bottom-line ruling, but enforcement by the winner can still be enforced through the court system. Perhaps the best of both worlds: avoiding the cost and time of court to get a judgment, and having the power of court to enforce it.
As a general rule, when people speak of “arbitration” in a commercial setting, the tendency is to “common law arbitration.”
How the Common Law Arbitration Process Works
Let’s start with an existing dispute that will go to (common law) arbitration. Except for something so rare as to not be analytically material here, arbitration decisions and awards are not appealable to a higher court, well, because arbitrations are outside of the judicial system. This almost always means the claimants get to a decision more efficiently. But you want to hold your options open in court for appeal? Maybe that’s not a good thing, because, even if you win on appeal, you often have to start over, and there’s no assurance that’s going to be a helpful cycle or get any better.
The arbitration is usually heard by one attorney or a panel of three attorneys, depending upon how the arbitration is selected. And here is the cost-benefit of arbitration versus the court system: tailored experience. In arbitration, the “audience” is a group of professional, not a lay-jury. Therefore, it’s a higher cost, since it is not subsidized with tax dollars, but it tends to be a more sophisticated listener. Moreover, the claimants pick from a list of suitable panelists that could be attorneys or CPAs, or engineers, or construction lay people, or any or all of those on on panel.
Ways to Get to Arbitration.
There are basically two ways to get to common law arbitration, both by consent, but at different times. Think of it this way: everyone has a right to force someone else into court regarding a dispute, but what right is there to force someone out of court into an alternative procedure? Therefore, one way is to agree to arbitrate disputes, if they occur, in a contract (consent); the other way is simply to agree at any time to take a dispute to arbitration, even after the dispute occurs. If a contract creates a duty to arbitrate, then a claiming party files for arbitration by demand. If there is not contractual duty to arbitrate, the parties can voluntarily file for arbitration at any time by submission.
Depending upon how the dispute gets to arbitration, it will determine the flexibility at the time of filing to tailor the proceeding. For example, if the contract provides for arbitration with a three-member panel, using the Federal Rules of Evidence, with one of the three panelists being a former judge, one being a CPA and one being an industry business person, these constraints are required for the arbitration unless all parties agree otherwise. Even if the agreement to arbitrate requires something specific, the parties can always agree to tailor the proceeding otherwise, which cannot be done in court processes.
A Transfer to ADR.
Even if an agreement to arbitrate provides for arbitration (or any other alternative dispute resolution procedure) in a company that is too disconnected, complicated, or expensive, the parties can always agree to transfer the arbitration clause at ADR.
Other Alternative Dispute Mechanisms.
As a general rule, the U.S. Federal Courts require alternative dispute resolution as a preliminary step in the judicial process. Yes, the court system, as part of its system, tells the parties to engage outside talent to try amicably to work out a deal without further litigation. ADR can supply this talent.
Different Forms of Alternative Dispute Resolution.
Arbitration has the connotation of binding finality. But there is also “mediation,” which is a process of having a neutral mediator “mediate” a settlement. A mediator is trained not to take sides but to neutrally broker toward a settlement. An Early Neutral Evaluation allows the neutral “Evaluator” to state candidly thoughts on the merits of the respective claims. All of the alternative dispute resolution methods offer various ways for the parties to address a dispute outside of the court system in an effort to reach a more effective result.