While often marketed as a faster and cheaper savior to the traditional court system, Alternative Dispute Resolution can become a “snake pit” of unchecked discretion and limited appeals if you don’t understand the risks before diving in.
One of the most daunting hurdles in pursuing or defending lawsuits is the cost. Attorneys’ billing rates vary, but are rarely less than $300 an hour, and, in big cities, hourly rates can approach or exceed $1500. Even a simple lawsuit can cost $10,000, and more complex cases can cost tens if not hundreds of thousands of dollars.
Another impediment to resorting to the court system for dispute resolution is the time factor. It can easily take two years to get to trial on a relatively uncontested matter, more if there are multiple parties and counterclaims. Appeals can add another one to two years to the process.
Make you think twice about filing suit to collect an unpaid lease or loan obligation of, say, $25,000 doesn’t it? Especially when you add in the headache of having to spend valuable time preparing discovery responses or attending your deposition.
Enter the great savior of Alternative Dispute Resolution, often called ADR. According to the American Bar Association:
Dispute resolution processes have several advantages. For instance, many dispute resolution processes are cheaper and faster than the traditional legal process. Certain processes can provide the parties involved with greater participation in reaching a solution, as well as more control over the outcome of the dispute. In addition, dispute resolution processes are less formal and have more flexible rules than the trial courts.
That may be wishful thinking.
There are essentially three kinds of ADR- mediation, non-binding arbitration, and arbitration. A court may order the parties to pursue any one of these, although this may require the parties’ consent.
The simplest, easiest and least expensive ADR method is mediation, in which a neutral third party hears arguments and attempts to effectuate a binding settlement. The procedure is often relatively informal, utilizing few or no rules or procedure or evidence. Arbitration, on the other hand, is often more formal. Non-binding arbitration allows the parties to present their cases to a neutral third party to render a decision. However, that decision is merely advisory and either party is free to disregard it. The hope is that the parties will learn from the process and accept the arbitrator’s determination which, although non-binding, could be a harbinger of any subsequent judicial decision.
Mediation and non-binding arbitration can be extremely helpful or a waste of time. Binding arbitration is a different story. Depending upon the arbitrator, the proceedings can be relatively quick and informal or can so closely resemble a judicial proceeding as to be virtually indistinguishable. Some arbitrators allow just about every kind of motion and/or discovery available, though those are the very bugaboos that make litigation excessively time consuming and expensive. An upside of arbitration is that many arbitrators will relax the rules of procedure and evidence, and even limit pretrial shenanigans, thereby streamlining the process. It is almost entirely within the arbitrator’s discretion to do that.
Discretion. Ah, there’s the rub. Not only to arbitrator’s have sweeping authority to dictate the rules of arbitration, but they also have greater impunity than trial judges if a party is unhappy with a ruling. An aggrieved party in litigation almost always has a right to appeal to a higher court. Absent exigent circumstance, such as corruption, fraud, misconduct, or manifest disregard for the law, an arbitrator’s award is immune from attack.
Bottom line, in this lawyer’s opinion, beware the lure of ADR and proceed carefully before jumping into that potential snake pit. Before saying yes to binding arbitration, make sure you are aware of the risks and the benefits.
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