Dispute Resolution Basics: Mediation, Arbitration, and Litigation

By Andy Jones

As businesses go about their work—hiring and firing employees, purchasing products and services from vendors, forming strategic partnerships, and buying and leasing real estate, among many other activities—disputes between parties will inevitably arise. Like several others at the Forrest Firm, I focus a significant portion of my business practice on helping the firm’s clients resolve such disputes.

When many people think about businesses addressing a dispute, they associate terms like “lawsuits” and phrases like “going to court” with a process of going down to the local courthouse and having their dispute adjudicated by a judge or a jury. In reality, there’s a variety of methods for resolving legal disputes among people and entities. Let’s take a look at the three most commonly used methods that utilize a neutral third party (beyond normal negotiations, either between company leaders or their respective counsel):  mediation, arbitration, and litigation.

Mediation

Sometimes, companies arguing over a dispute will choose mediation to resolve it. With mediation, the goal is for the parties to come to a consensus with the neutral third party—in this case, a mediator—guiding the process.

Mediators will typically look beyond the symptoms of the dispute to see the root causes, which are the interests the respective companies are trying to protect. Unlike courtroom situations, mediators will meet with the parties in a relatively informal setting, both together and separately, which gives each party a chance to air their grievances in what can feel like an extended conversation or negotiation.

In the end, the desired outcome of mediation is a voluntary resolution, a settlement of the disagreement, that is hopefully sustained, even though unlike a judgement in court, it’s non-binding.

There are multiple advantages to pursuing mediation as a method of dispute resolution. Mediation typically moves more quickly toward an outcome, limiting the client’s time away from its respective corporate operations, in addition to usually limiting the size of legal bills, since attorneys will more than likely spend less time on the matter.

The disadvantage of mediation is that the outcomes are non-binding and sometimes unravel, leading the participants down alternate, costlier routes like arbitration and litigation, where they have less control over the results.

Arbitration

In some instances, companies will realize that the level of dispute is not appropriate for mediation and mutually agree to select arbitration as their method of resolution after the dispute has arisen. In other cases, the disputed agreement requires the parties to submit to binding arbitration.

Like in mediation, there’s a neutral third party involved. In arbitration, a lawyer, retired judge, or other qualified third party serves as an arbitrator to resolve the dispute. The arbitrator can have the authority to hold hearings at which the parties’ lawyers present evidence and argue their points in a process more formal than mediation but generally less formal than trial.

In the end, the arbitrator, after listening to each side argue its case and present relevant evidence according to agreed-upon standards, will render a binding decision that is often confidential and can’t be appealed by the parties involved.

There are some advantages to using arbitration to resolve a dispute. First, the opposing parties have more control over the process than with litigation, since they make the rules of engagement and choose their referee as the first orders of business. Second, unlike mediation, the parties achieve a binding result and get true closure on the matter. Also, like mediation and unlike litigation, arbitration is private.

Finally, as with mediation, arbitration is typically a more economical option, with more limited legal fees and time away from the work of the company.

Litigation

The third common method of dispute resolution is what most people consider THE way to resolve disputes: litigation. In civil litigation, a plaintiff will file suit against a defendant. The neutral third parties may be individual judges, panels of judges (in appeal situations), and sometimes (depending on the type of suit) juries. The litigation will proceed in accordance with the applicable rules of civil procedure, in conjunction with the applicable court’s local rules and preferences.

In litigation situations, judges (or juries) are responsible for weighing evidence presented according to standards set by the court and enforced by the judge. Cases often settle before going to trial, since the first phases involve each side showing its hand through discovery and preparation.

The advantages of litigation are that parties can achieve a binding result and can force the opposing party’s hand before trial, resulting in a settlement that’s either lucrative or protects the company’s interest moving forward. Disadvantages are many. Don’t kid yourself—lawyers are the star of the litigation show, and compared to arbitration and mediation, the legal bills can really add up, even when you’re able to settle before trial. Also, you’re guaranteed to air the dirty laundry of your contract disputes, so it better be worth the risk of litigation, since you’ll be a part of the public record.  Finally, with litigation you’ll have the least amount of control over the result. Things can get hairy, and fast.

There’s a time and place for each method of dispute resolution. Competent attorneys will advise clients to try to negotiate their disagreements outside of the mediation or arbitration room, much less the courtroom. We stand ready to assist you and determine which route is your best option for working out disputes of any kind.  We offer vigorous representation to clients in these situations every day. Contact me today if we can be of assistance.