Orange County Litigation Attorney Shares Key Considerations in Dispute Resolution Provisions

June 7, 2017

THE DIFFERENCE BETWEEN A MEDIATION, ARBITRATION AND CIVIL LAWSUIT

WHY SHOULD I CARE IF AN AGREEMENT REQUIRES A MEDIATION OR ARBITRATION INSTEAD OF A LAWSUIT?

MEDIATION is a nonbinding, confidential and informal process through which parties to a dispute submit the matter to a third party who assists in attempting to resolve the dispute. Mediation can be conducted before or after the commencement of a lawsuit or arbitration. Many contracts require that the parties to the agreement submit a dispute to mediation before the filing of a lawsuit or commencement of an arbitration. Such provisions are enforceable if properly drafted. Since a mediation is confidential, neither party is bound to any position asserted in the mediation. If a compromise is reached in the mediation, once properly documented and signed by the mediating parties, the settlement is binding and enforceable. Exceptions to the pre-litigation timing of mediation may be included in the agreement (such as seeking a restraining order or other equitable relief). If a mediation provision is included in an agreement, the parties to the dispute will, in most instances, be required to mediate before commencing an arbitration or lawsuit unless all parties agree to waive the mediation. 

ARBITRATION is a proceeding through which two or more parties to a dispute agree to submit the matter to an impartial third party, whose decision the contending parties agree to be bound by. As with a mediation, where the arbitration provision is included in a commercial or business agreement, it will generally be enforced by a court. In consumer and labor agreements, Courts may, if challenged, review the arbitration provision with substantial scrutiny.

CIVIL LITIGATION is the more traditional form of dispute resolution conducted within the established governmental court system.

WHY SHOULD I CARE IF AN AGREEMENT REQUIRES A MEDIATION OR ARBITRATION INSTEAD OF A LAWSUIT?

COST: Mediation and Arbitration can be significantly more expensive than a court proceeding. This is because a judge in a civil proceeding is paid by taxpayers, but the parties to the mediation or arbitration must advance the fees of the arbitrator or mediator and associated administrative fees. Such costs can easily range from $450 to $1000/hour or more.  Of course, if the parties in dispute can compromise the dispute in a mediation and avoid further proceedings, the cost savings can be significant. Moreover, some governmental agencies and courts have free or low cost mediation and arbitration programs available to parties in litigation who wish to attempt to resolve the litigation before trial. 

TIME: The court system can be extremely slow. This is often because of limitations in the number of available judges, and because certain types of cases, including criminal cases, have priority over most civil cases. In many instances, an arbitration can be decided in less than half the time required to complete a civil trial.

JURY TRIALS: One or both parties to most disputes can select to have the dispute decided by a jury in a civil lawsuit. However, in matters in which the right to a jury is available by law, that right can be waived in an agreement before the lawsuit commences. The most common form of pre-litigation jury waiver is an agreement to submit certain disputes to arbitration. There is no jury in a mediation or arbitration.  Consumers and employees generally want to reserve the right to a jury trial because damage awards by juries can sometimes be far greater than arbitration awards. Employers and large companies, generally will favor an arbitration to avoid the risk of potential jury prejudice.

SELECTION OF A JUDGE/ARBITRATOR: In Court actions, the parties have very limited, if any, right to select the Judge to be assigned to the dispute. The Judge in most instances is assigned on a random basis to a lawsuit. However, in mediations and arbitrations, the parties have far broader rights as to the selection of the mediator/arbitrator, and therefore, can look to the prospective mediator/arbitrator’s experience, temperament, affiliations and background in making a selection. An arbitration provision in a contract often defines the qualifications that must be met by an arbitrator if a dispute arises.

DISCOVERY: Discovery consists of written inquires and demands to the opponent, third party subpoenas and depositions. The right to conduct discovery in a civil lawsuit is generally far broader and more inclusive than in an arbitration. An arbitration provision agreement often defines what discovery will be allowed in an arbitration should a dispute arise.

APPEAL RIGHTS:  A party who views the results of a civil lawsuit as being in error, has a broad array of motions and appeal rights under which a jury verdict or court judgment can be contested. However, in an arbitration, the right to challenge the decision of an arbitrator is extremely limited. The scope of appellate rights is generally set forth in the rules of the arbitration forum selected by the parties. For example, under the rules of American Arbitration Association, the sole grounds for an appeal are that the underlying award is based upon (1) an error of law that is material and prejudicial, or (2) determinations of fact that are clearly erroneous. In addition, applicable law provides that an arbitration award is subjected to appeal where the arbitration was corrupt, evidently partial, engaged in misconduct regarding evidence or scheduling, or exceeded his or her powers. Mistakes made by the arbitrator in the arbitration or in the award are not basis to challenge an arbitration.

THE BOTTOM LINE

Dispute Resolution Provisions are almost always at the end of a contract. These provisions are often not carefully considered by the parties when negotiating the agreement. This is because they often do not expect a dispute to arise, and view the terms of the proposed agreement to be advantageous. Often the Dispute Resolution Provisions are not even reviewed or discussed until a dispute actually arises between the parties. Once a dispute arises, more often than not, the Dispute Resolution Provisions in the Agreement will have dramatic impact on the outcome of the dispute and the expenses in resolving the dispute. It is, therefore, critical that when entering into an agreement, the Dispute Resolution Provisions of the Agreement is both carefully reviewed and crafted.

QUESTIONS? SPEAK TO AN ORANGE COUNTY LITIGATION ATTORNEY TODAY

If you have questions about mediation or arbitration, contact Fitzgerald Yap Kreditor LLP today at (949) 788-8900.

Disclaimer:  This article is solely intended to provide information for consideration only. It is not legal advice and is intended solely to raise broad and general possible topics of concern for further consideration, and therefore, should not be relied on. A reader who has concerns related to the topics addressed in this article should consult his/her own advisors and not act based on the content of this article.

About by Author 
Eric Dean is an honor graduate of UCLA School of Law. He has over 30 years’ experience representing clients in all facets of commercial real estate, hospitality and secured lending. Eric served as an in-house counsel for 7 years with a national developer and operator of office buildings and branded hotels; he also acted as chair of real estate departments in both regional and national law firms. He regularly publishes articles and participates in panel discussions as a presenter on commercial real estate, hospitality and secured lending topics.