The Economics Of ADR

Tuesday, March 31, 2009 - 01:00

Editor: Is ADR still a less expensive alternative to litigation?

Dreier: In short: "Yes" for both mediation and arbitration.

Mediation avoids most discovery, and the expensive, intense and emotional wait for and cost of trial. Results are negotiated, not imposed by a judge or jury or subject to costly appeals. You can obtain innovative results beyond the money judgments that are the hallmark of litigation.

Some cases still require an outside decision. By using arbitration, you can choose the arbitrator without the "luck of the draw" of the local courthouse, limit abusive discovery, and schedule convenient hearings in a private setting. And unless the parties both agree otherwise, there are no appeals.

There are two inexpensive elements to effective ADR: First, engage a well-trained and experienced neutral. Second, commit to the ADR process and realize that a reasonable settlement, without exposure to an imposed judgment or award, is worthwhile. Of all disputes, 97 percent settle prior to trial, but usually after most of the costs of litigation. If this fails, a qualified arbitrator can still bring faster and cheaper closure. In these days of tight money and the need to conserve resources, the ADR route makes business sense.

Hamilton: ADR should be viewed in two contexts - mediation and arbitration. Mediation is still an attractive option in terms of time and cost savings. Because mediation allows the parties to negotiate a settlement, often times with minimal formal discovery and without having to present a case, it is significantly less expensive than gearing for trial. Simple arbitration is also an attractive option, particularly in bodily injury cases where the arbitrator can review medical records, IME's, etc. without having to bring in live expert witnesses. Where the cost of the arbitration is becoming comparable to litigation is in the commercial arena, in which parties often approach arbitration just as they would a bench trial and engage in the same discovery and preparation processes as they would in court. In this scenario, the advantage to arbitration may not be so much on the cost savings, as it is in narrowing of risk and retaining the ability to present their case to a neutral expert in the nature of the dispute before her or him.

Editor: Do particular areas of potential disputes lend themselves better to ADR?

Dreier: There is really no area where people of good will cannot reach an accommodation. The most difficult disputes are (1) those where payment comes from an individual's own pocket; (2) professional breakups, which are so emotional that they take great finesse to resolve; (3) matters where decisions must be made by absent parties who do not participate in the process. But none of these problems are insurmountable. On the other hand, business matters, in which the parties understand the realities of the marketplace, are often easier to mediate, as are matters in which parties are familiar with the process. They usually reach a point of a reasonable demand and offer, after a minimum of posturing. It is more the attitude of the parties than the type of dispute that is the decisive factor. In my many years of conducting commercial mediations I have helped parties to over 95 percent settlements.

Hamilton: ADR is ideally suited to resolve contract disputes. While the complexities and language could make a jury's eyes glaze over, an effective mediator can help the parties focus on common interests and work out a solution that is acceptable to all sides. If the parties elect to put an arbitration clause into their contract, disputes involving hard figures, be they dollars, sales commissions, formulas, product units, etc., are easier to define in arbitration than issues such as "time devoted," interpretation issues, non-compete issues, and so on.