Most parties know that litigation, while sometimes necessary, is often the path of last, and least desirable, resort. Intuitively, many also know there are other methods used to resolve disputes that are less expensive, less time-consuming, and better suited to achieving an outcome. Less clear, however, are the differences between those methods. This alert removes some of the mystery around three common alternative dispute resolution devices: arbitration, mediation, and settlement conferences.
Arbitration
Of the three, arbitration most closely resembles litigation. It is the most expensive and the most rule-oriented, and it provides the parties with the least amount of control over the outcome. Arbitration can be (and usually is) binding, which substantially limits the ability to challenge an arbitrator’s decision with a court, or non-binding arbitration, which is often considered to be more similar to mediation. Unlike mediation and settlement conferences, the decision to arbitrate a claim is usually made long before a dispute even arises. Arbitration may be required as part of a contract (commercial and otherwise) before a party can invoke litigation or, in the case of binding arbitration, the circumstances under which litigation can be pursued at all. Arbitration is generally a private process (although there are sometimes court facilitated programs) in which a third party (an arbitrator, or sometimes a panel of arbitrators) chosen by the parties hears evidence and renders a decision. The process, including its potential confidentiality, is often set forth in the contract specifying that disputes are subject to arbitration (as a matter of practice, however, most arbitrations are confidential).
As the name suggests, in binding arbitration the decision is usually final, with very limited ability to appeal or otherwise challenge the decision in court, and the award is enforceable by the courts, much like a court judgment. For non-binding arbitration, the parties’ ability to appeal or otherwise seek access to the courts is typically determined by the language of the applicable contract designating arbitration. While arbitration resembles a court proceeding and there are rules that govern the process, most arbitration proceedings involve more loose enforcement of the rules, particularly the rules of evidence, and they are substantially less formal than court proceedings. Due to their often-binding nature, the presence of arbitration clauses in many contracts, and the formality of the proceedings, the arbitration process raises a variety of issues in the litigation context as well, some of which will be discussed in a future alert about arbitration clauses in bankruptcy.
Mediation
Unlike arbitration, mediation is usually a process that the parties agree to after a dispute arises in connection with resolving actual or threatened litigation (although, the popularity of mediation clauses in commercial contracts has increased in recent years). Substantially less formal than arbitration and often subject to the idiosyncrasies of the mediator, mediation is generally confidential, and inadmissible in future court proceedings. Mediation is typically a process that the parties agree to voluntarily and whose result only dictates the outcome of the matter if all parties agree to it. Unlike an arbitrator, a mediator does not “decide” but helps guide the parties toward a mutually agreeable outcome. Customarily, while the individual mediator may have some practices as to how best to conduct the proceeding, mediation is also generally not constricted by formal rules, creating a substantially more flexible process that can sometimes lead to more creative solutions. While sometimes offered by the courts, mediation is customarily conducted by private mediators (e.g., retired judges or attorneys who devote a substantial portion of their practice to resolving disputes). Since the proceedings are generally less intensive, with less focus, briefing, and argument on the discrete factual and legal issues in the case, mediation is usually considerably less expensive than arbitration but not as decisive.
Settlement Conferences
Perhaps the most elusive to define is the settlement conference. These conferences frequently lack any formula, usually occur in connection with pending litigation, and their timing and governance are typically subject to the discretion of either the judge presiding over the matter or the judge assigned to the conference. Many courts require settlement conferences (at various points in the litigation process) to attempt to move cases off their dockets or streamline the issues. Many jurisdictions routinely require parties to appear for these conferences, either through formal procedures at pre-appointed times or sometimes “on the spot” at the courthouse when a judge brings the parties into conference to determine whether the case can be resolved. Procedures for settlement conferences vary widely by jurisdiction, and even by judges within the same jurisdiction, but are usually presided over by a judge not assigned to conduct the trial of the matter (in federal court, many times by a federal magistrate judge). If successful, the outcomes of these conferences are often entered as binding orders of the court, although the conferences themselves and the discussions within them are usually confidential and inadmissible in future proceedings other than to enforce a settlement. Unlike arbitrations, however, the parties ultimately have to agree to the outcome for the settlement conference to be successful, and unlike the more voluntary nature of most mediations, settlement conferences are typically imposed by the court to determine whether a case may be resolved.
Conclusion
Each of these three alternative dispute resolution tools have a place in the toolbox of a skilled litigator determining whether a dispute may be resolved and the best way to achieve that goal. The relative strictures of the arbitration process may be appropriate for resolving a case that requires someone to decide an issue of fact or law with some finality. On the other hand, the corresponding lack of relative structure and creativity of the mediation process (particularly with a skilled mediator) can often lead to more innovative resolutions to a dispute that parties want to resolve but are unable to do so on their own. Similarly, settlement conferences (which are often conducted under the auspices of the judge that might decide or try the case) carry a certain judicial weight to them that can encourage otherwise recalcitrant parties to come to the table. Settlement efforts that carefully consider the availability and relative advantages of each of these alternative dispute resolution methods are likely to be more successful.
The Thought Leadership Committee of Barclay Damon’s Restructuring, Bankruptcy & Creditors’ Rights Practice Area issues alerts and blogs on an ongoing basis to keep clients, colleagues, and friends up to date on important developments in the insolvency space. If you have any questions regarding the content of this alert, please contact the author, Brian Rich, partner, at brich@barclaydamon.com; Janice Grubin or Jeff Dove, Restructuring, Bankruptcy & Creditors’ Rights Practices Area co-chairs, at jgrubin@barclaydamon.com and jdove@barclaydamon.com; or Robert Wonneberger, Thought Leadership Committee chair, at rwonneberger@barclaydamon.com.