Arbitration. Mediation. Settlement conference. The same thing? Different? And the answer is (and, attorneys, be quiet): YES!
With arbitration the parties pay the arbitrator—sometimes there are three—to decide the case, instead of letting the judge—paid with tax dollars—handle things. The decision may or may not be binding; in most instances involving non-binding arbitration, however, the appealing party may be subject to a sanction if the outcome in case #2 is not better by some amount than the arbitrator’s decision. (Some Arizona courts use this system to deal with smaller cases.)
Arbitration clauses show up often in boilerplate consumer contracts. The U.S. Supreme Court loves arbitration, even though—or maybe because—the process costs lots of money and deals poorly with consumer/small business problems. (In theory, arbitration involves limited pre-trial process, and should save money. I’m sure that happens, but not in my experience!)
In addition to the arbitrator the parties may pay an organization like the American Arbitration Association (AAA) to administer the case, i.e., keep the file, find an arbitrator, schedule conference calls, etc. So, if you’re a restaurateur and have a $1000 problem with American Express, you can’t afford the arbitration process you agreed to in the fine print. (I use “agreed to” loosely, for not it’s check-a-box on a web page, mostly.)
So, you think you’ll pull others together with the same problem, and use the economies of scale to get the job done. Nope. In American Express Co. v. Italian Colors Restaurant, in an opinion written by Justice Antonin Scalia, the Court enforced language in the agreements that barred class action arbitration actions. Justice Scalia and the Court majority were unimpressed with “the economics don’t work” arguments, noting that “. . . the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim” and “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” So, tough luck!
Drafting lesson: “Feel good” baggage rides along with arbitration and the AAA. If you are involved with a contract, talk with your attorney about arbitration and the AAA. Too often, language gets included because it’s “standard” when, in fact, one or both parties are disadvantaged.
Mediation is non-binding and does not involve a decision maker. A mediator—usually a judge, retired judge, or attorney—uses persuasion to bring the parties to a resolution which, for them, represents a better alternative than a trial. A settlement conference differs not at all from mediation, although the term “settlement conference” gets used often to describe court-mandated mediation with a sitting judge.
Mediation reduces costs—no more fees—and the parties get certainty, although both sides almost always lose their “best day” outcome. In addition, many cases are “all or nothing” if they get tried, and creative resolutions may not be available to the judge or jury. In such a case mediation may offer what people call a “win/win” outcome.
The mediation process gets insulated from the litigation. If you offer to pay or accept money to settle, and the case does not settle, the judge or jury does not hear about the offers. (Without that form of insulation, no one would ever move toward the middle.) Look for the number 408 and the words “Rules of Evidence” on an offer.
Occasionally, most often in form real estate contracts, the parties will agree to mediate before anyone can sue. Many court settings include a mandatory settlement conference. Sometimes people settle without a mediator, too. And, amazingly, most cases settle, even those that are bitter, bitter, bitter!