By Nicholas P. Brown, Pierce Atwood, LLP
As the cost of litigation has grown
and the appetite for its attendant risks declined, owners and contractors have
increasingly relied upon mediation and binding arbitration to resolve disputes.
One particularly unique dispute resolution format is the combination
mediation/arbitration (or “med-arb”) where the same neutral serves as both mediator
and, if needed, arbitrator. In the med-arb format, mediation and arbitration
are scheduled concurrently so that the threat of arbitration, and its binding
result, hangs over the mediation like the proverbial Sword of Damocles. The
parties know that if mediation fails, arbitration immediately follows without
delay.
The significant wrinkle in the
med-arb approach is that the neutral mediator also serves as fact-finder and
decision-maker in the event of arbitration. This is not the case in the
traditional mediation/arbitration scenario where the mediator has no role in
the arbitration and decision-making process. Thus, the parties know that their
discussions with the mediator are confidential and will not have any influence
on the arbitrator’s decision. This traditional separation between mediation and
arbitration enables the mediator to encourage a level of candor from the
parties that may be difficult to achieve in the med-arb format.
With the med-arb format, the
parties must recognize that the mediator may learn facts about the dispute or
the parties that might otherwise be inadmissible in arbitration. The mediator
is expected to disregard such information in the event he or she subsequently
sits as arbitrator. But human nature can make it difficult if not impossible
for the mediator to erect the appropriate mental barriers and “forget” what he
or she has heard. As such, parties to the mediation may withhold information
harmful to their case that they might normally share with a traditional neutral
mediator. Where the parties exercise such caution, the likelihood of a mediated
settlement may decline.
By the same token, parties may
disclose to the mediator wholly irrelevant yet harmful information about the
other party in an effort sway the soon-to-be-arbitrator’s impressions of the
case. In this way, the mediation may be used as a means of presenting evidence
that might never have been heard.
Given this dynamic, you may be
wondering about the benefits of the med-arb approach. First and foremost, is
the opportunity for a quick and relatively inexpensive resolution. A recent
dispute I worked on took less than nine months to fully resolve from the moment
the case came through the door. Once the parties agreed to the med-arb format,
it took just four months for the arbitrator to issue her decision and award. Considering
the significant number of issues presented by the parties, litigation likely
would have dragged on for two or more years and likely would have entailed
extensive discovery. Under the circumstances, med-arb offered a tremendous opportunity
to save the time, expense, and aggravation of a prolonged litigation
schedule.
Second, the threat of immediate
arbitration may provide the necessary incentive for the parties to approve a
mediated settlement. With traditional mediation and arbitration, the
arbitration hearings are often not even scheduled at the time of mediation.
Thus, arbitration may seem more theoretical than real to your clients whose
rights and interests will be ultimately be decided should mediation fail. Without
the imminent possibility of loss at arbitration, settlement may remain
out-of-reach until just prior to arbitration.
Ultimately, these benefits must be weighed
against the risk of having the same person serve as mediator and arbitrator.
Attorneys are well advised to consider the relative strength of their case
taking into consideration all facts and circumstances that might be shared with
the mediator by the opposing party. Thus, if you are concerned that your client
may be cast in an unflattering light by the disclosure of otherwise
inadmissible evidence during mediation, the med-arb format may not provide a
benefit to your client. In contrast, if your client has a strong case and you
believe there is little risk that the mediator will be swayed by irrelevant
information, med-arb may offer a cost-effective alternative to litigation.
Regardless, attorneys should assess the strength of their case using a holistic
approach that might not normally be needed.
