Over the past twenty to thirty years, alternative dispute resolution (commonly referred to as “ADR”) has played an increasingly important role in resolving most business disputes. To understand why and how ADR could be beneficial to your business when you find yourself faced with actual or potential litigation, you have to start by understanding what ADR is an alternative to. Simply put, it is an alternative to a fully developed lawsuit tried before a judge or jury. In the late 1980’s the Texas Legislature passed statutes officially sanctioning several types of ADR procedures and providing protections for those parties and professionals who chose to participate in them. The procedures officially sanctioned by Texas Statutes include mediation, mini-trial, moderated settlement conference, summary trial, and arbitration. More recently, a process generally referred to as collaborative law has become increasing popular, but primarily in divorce cases. Of these procedures, the most often utilized are mediation and arbitration followed, in my experience, in a distant third place by collaborative law.
Since it became officially sanctioned by the Legislature, mediation has become, by far, the most common form of ADR. This is largely because of its effectiveness. Judged from a trial court’s perspective, mediation is successful when a case is resolved and thus off the court’s docket. Measured this way, mediation is successful eighty to ninety percent of the time. Because of this overwhelming success rate, most courts require a mediation before they will permit a case to go to a jury trial.
Mediation is essentially a settlement meeting that the parties attend in person conducted by a neutral third party, typically a lawyer or retired judge who does not represent either party. The third party mediator has no authority to decide the dispute and whether the parties resolve the suit at the mediation depends completely upon the parties’ mutual agreement to do so. The benefits of mediation are many, but in my opinion, there are three primary benefits. The first of these is focus. Mediation forces the parties to set significant time aside to concentrate on the dispute. It is human nature to defer dealing with difficult problems and bad relationships. Litigation often arises out of one or both of these. Mediation forces the parties to focus on the dispute in spite of the unpleasantness of the task. Second, mediation forces the parties to at least hear a different perspective. Parties to disputes are usually able to better process the other party’s position when they have devoted an extended period of time to focus on the dispute. In litigation, the parties’ discussions and consideration of the dispute, and sometimes even an attorney’s, can become an echo chamber of only likeminded views. Day to day, you may hear what the other side is saying, but, consciously or not, you can quickly move on to other things without really considering or processing whether it has any merit. Mediation, particularly with a good mediator, can help the parties break free from their typically narrow, black and white view of what happened and who is responsible. Finally, because mediation is a forum for settling disputes, it forces the parties to consider what they want. Do they really want to continue with the litigation? Sometimes, the inertia of the decision to bring a lawsuit needs to be broken. Do they want to focus on trying to salvage a business relationship or attempt to maximize a recovery in the lawsuit? If available, do they want to consider alternatives to resolution that a court cannot provide? Surprisingly often, these questions have not been given the attention they deserve and mediation forces the parties to provide answers.
Arbitration differs significantly from mediation. Arbitration replaces the judge or jury with an arbitrator who will decide who wins and who loses in the dispute. Arbitration typically arises out of a prior agreement of the parties. For example, many real estate contracts contain clauses that require the parties to arbitrate any dispute arising from the agreement. Texas courts are extremely differential to such contractual provisions and will typically enforce them if either party requests it. Ten to fifteen years ago, arbitration was a favored forum for many large businesses. This trend has waned. When a dispute has limited scope or requires special expertise, arbitration can be beneficial for both parties. However, it has proven to be more costly than court supervised discovery and litigation. When you arbitrate, you have essentially decided to pay a private judge, and sometimes his court staff, instead of utilizing a court system which is taxpayer funded. In my opinion, when used by big business today, arbitration clauses are used to prevent disputes from being decided, specifically class action lawsuits rather than providing an alternative forum for their resolution. Before voluntarily agreeing to arbitrate, you should carefully consider the costs and anticipated benefits and, if possible, tailor the process to your specific dispute. For instance, using experts in a specialized or technical field to serve as arbitrators can be beneficial in the right circumstances.
Although the legislature sanctions mini-trials, moderated settlement conferences, and summary trials, there has been very limited use of these procedures in business or other litigation in Texas. This is likely a consequence of the success of the mediation process and the relative lack of benefits of these processes relative to the cost and risks associated with using them. Perhaps to fill this void or as a refinement on the idea behind these processes, collaborative law has emerged over the past decade. The collaborative process is party focused and is usually utilized before a lawsuit has been filed. The parties agree not to litigate while they are utilizing the process and the professionals, including lawyers, accountants, or other experts agree they will not participate in future litigation. In the business setting, the collaborative approach can have real utility where the parties have, or wish to have, an ongoing relationship and want to preserve and foster trust. Where there is little trust and no need or desire for an ongoing relationship, the benefits of the collaborative process won’t likely be sufficient to justify use of the process. An early mediation or settlement conference would likely produce the same results.
In business, disputes are evitable. We have an excellent civil justice system, which is the envy of the most of the world. However, as part of that process or separate from it, there are alternatives. When you are confronted with a dispute, I recommend you discuss and consider the alternatives with a lawyer qualified to handle your specific dispute.