Litigation is an unfortunate part of business. Mediation and arbitration are two common ways to end business disputes and save the cost of litigation. Everyone in business should understand the differences and characteristics of mediation or arbitration.
Most mediations occur after a lawsuit is filed. The process is simple: A mediator – usually a lawyer appointed by the parties or a court – meets with the opposing parties and tries to fashion a binding settlement that both parties will accept to end the lawsuit.
In New Mexico’s federal courts, the judges require mediation of most civil lawsuits, usually by a U.S. magistrate. In state courts, many judges require mediation.
The U.S. magistrates who do federal court mediation perform the service as part of their job. In state courts, however, the parties have to pay the mediator. Mediators charge a fee for their service on a per-hour or other basis. What is said in mediation is confidential and not shared with the other side without consent.
Mediators’ styles vary with the person. Some are low key and make few judgments on the merits of the case; others may take a more direct role – informing a party that he or she has a weak case – but the mediator cannot decide the case. Most mediations take a half-day or more.
The cost of the mediation varies by the complexities of the case, but aside from paying the mediator for his mediation and study time, you will pay for your own attorney’s time.
Most mediators require the attorneys to prepare a confidential memorandum to the mediator only, discussing the case in detail. These memorandums can be exhaustive and expensive.
Most mediations start with opening statements by each side, then private back-and-forth meetings with each side and the mediator. If successful, the mediation ends the lawsuit and its expense. If not, the lawsuit goes on.
Arbitration is a substitute for a trial in court. Most arbitration occurs because the parties signed a contract with an “arbitration clause” in it. The arbitration clause usually states the way the arbitrator is to be chosen, what arbitration rules are to be followed and details such as timing, location and dispute notice.
New Mexico has an arbitration act with arbitration rules, but most contracts specify organizations such as the American Arbitration Association. The arbitrator, or occasionally three arbitrators, acts as a judge and decides the dispute.
Even though you pay for the arbitrator, the benefits of arbitration are cost savings and lack of delay. The losing party may pay arbitration costs.
Currently, in state and federal courts, cases may take years to conclude. Most arbitrations can be tried and decided in less than six months, escaping the significant cost of court discovery. Appeals are limited. Rules of evidence are lenient.
These are all reasons some lawyers like arbitration. Many lawyers distrust arbitration because there is no jury, a feeling that arbitrators tend to compromise and the lack of appeal and of strict evidence rules.
Some feel arbitration is too painless and a party may be more likely to file for arbitration rather than negotiate the dispute. The choice may depend on the contract and your bargaining power.
Most brokerage firms require arbitration in customer contracts. Most banks do not. Beauty is in the eye of the beholder.
Attorney Marshall G. Martin is in private practice in Albuquerque. He has experience in complex litigation, including securities, antitrust and lender liability law. He also has represented banks and private and public companies. He can be reached at 505-768-1500 or firstname.lastname@example.org.