Both mediation and arbitration are now familiar and popular ADR processes used to resolve an ever broadening array of disputes. Over the past years, these two processes have literally transformed the legal landscape such that parties and their counsel are viewing ADR as a more appropriate manner of resolving disputes than is offered by Courts.
Less familiar, and to some observers more controversial, is the hybrid ADR process called MED-ARB, where the parties agree in advance to present their case to a mediator and, should that process not result in a final settlement, the case will be submitted to binding arbitration. In its “pure” state, the same neutral is selected to serve as both mediator and arbitrator. As an alternative, a separate neutral can be selected to serve as arbitrator should the matter not fully resolve at mediation.
The Advantages of MED-ARB:
It is our experience at MDRS that MED-ARB offers legal consumers perhaps the most flexible ADR mechanism available, allowing parties to sculpt the resolution process to meet the needs of the specific case. The “best way” to resolve the dispute takes on utmost importance and substance prevails over form. Other advantages of this process include efficiency in time and money, enhanced prospects of settlement at the mediation stage and, most importantly, a process that assures finality. MED-ARB gives the parties the opportunity to engage in the cooperative aspects of mediation, while providing the parties the certainty of a final decision.
If the mediation fails, or should all of the issues not be resolved, the parties do not have to hire another neutral to render an award. Instead they can simply continue with the same neutral who likely already knows most of the information necessary to make a decision. This also means that the arbitration phase has the potential, by agreement, to be streamlined or presented in a summary fashion not possible in a formal arbitration conducted by a different neutral.
A complete mediation can be held and a separate arbitration hearing can be scheduled for a later time. Often however, a MED-ARB is scheduled to run consecutively, with the arbitration stage commencing immediately should the mediation not result in full resolution. The arbitration hearing may be a standard arbitration, with the full presentation of evidence including witness testimony, or it can be a more abbreviated format, subject to agreement by the parties, such as a summary presentation of the case or simply closing arguments. It is very important however to reach agreement on the methodology to be employed and to memorialize that agreement prior to the commencement of the MED-ARB.
Often the parties will narrow the dispute in the mediation phase so that the arbitration phase of MED-ARB will only have to deal with unresolved issues. They can choose to proceed immediately into the arbitration phase. Depending on the nature of the dispute involved, the parties have many options available as to the binding arbitration phase. They can, for example, choose to proceed to a “high low” arbitration based upon progress and/or parameters made at or after the mediation session. They can choose to proceed to a “baseball” type arbitration, where the arbitrator decides only whether the last offer or the last demand made at the mediation stage amount will be the binding arbitration award. This “baseball” process, by definition, limits the discretion of the arbitrator to decide what he or she believes to be the most appropriate solution, one of the most distinctive features of arbitration, since the award must be limited to one of the two offers. In any event the parties achieve significant savings of time and money over separate mediation and arbitration proceedings, and they are also certain to obtain a resolution of their dispute within a reasonable time.
It is our experience at MDRS that the med-arbiter’s authority to arbitrate those issues unresolved in mediation actually decreases the likelihood that any issues will actually have to be decided in arbitration. The presence of the med-arbiter and the imminence of an arbitrated decision create tremendous incentive for the parties to successfully mediate their dispute. While some may view this incentive as undue coercion, in proper practice by a skilled neutral this is better characterized as appropriate subtle pressure. Certainly, it is critical that a neutral be selected who has the skill and experience necessary to exercise this power appropriately and not abuse it. Most skilled med-arbiters are likely to avoid disclosure of their ultimate opinions on the merits of the case while in the mediation phase, thus reserving their judgment(s) until likely more complete evidence is presented at the arbitration phase agreed upon. Nevertheless, there appears to be agreement that parties in MED-ARB are more likely to reach a negotiated settlement than in a stand-alone mediation process.
The experience of most ADR providers is that the MED-ARB process also increases the likelihood that parties will participate in the mediation phase in sincerity and good faith knowing that should they fail to reach an agreement they will immediately lose control over the outcome. Therefore parties are more likely to present more reasonable demands, posture less, and display a more conciliatory attitude than in mediation alone, increasing the opportunity for a more satisfying result for all involved.
Most importantly, the savings of time and money, and the manner in which the parties approach the process are due in large part to the finality that permeates the MED-ARB process.
Dealing with Potential Disadvantages of MED-ARB:
Our experience at MDRS is that the advantages of the MED-ARB process outweigh its perceived disadvantages. These perceived disadvantages can be dealt with appropriately if parties, counsel, and neutrals alike understand the pros and cons of merging the two processes and the nuances inherently involved in the resultant combination. A detailed MED-ARB agreement, prepared after full disclosure and discussion between the parties and the neutral(s), can appropriately anticipate and deal with the issues raised when the processes of mediation and arbitration are joined within one resolution process.
Issues that arise when combining the processes of mediation and arbitration primarily arise in the “pure” form of MED-ARB, where the same neutral is chosen to serve as both mediator and, if needed, arbitrator. An understanding of these issues and full disclosure and discussion between parties and the med-arbiter is essential.
Use of confidential Information by Med-arbiter at Arbitration:
Mediators often separate the parties into private “caucuses,” where the mediator receives information that may not be related to the dispute, can be irrelevant, inadmissible or embellished, since it is not provide under oath, and of which the opponent may never learn or have a chance to rebut or cross-examine. The fear is that those things could “improperly influence” a deciding arbitrator and should not be considered by them. Arbitrators, by contrast, customarily apply more strict rules of evidence at a hearing with sworn witnesses and there are no ex parte communications. The premise of this criticism is that the med-arbiter cannot be completely neutral in the decision-making phase, having gained some information in confidence in the mediation phase. While this concern is real, judges and lay juries are regularly required to ignore information that has been deemed improper. A judge presiding over a bench trial is often required to disregard evidence he or she has heard but has subsequently determined to be inadmissible. Moreover, this issue ultimately rests with the competence of the neutral and the trust the parties place in him or her.
Parties should be aware of the confidentiality issues when considering MED-ARB, but they should be perfectly free to enter into the process so long as the information sufficient to obtain their informed consent has been disclosed. In the case of MED-ARB, the protection is in full disclosure to the parties, informed consent and/or knowing waiver by the parties, proper crafting of the process and a competent, trustworthy neutral.
The parties and neutral should, in advance, agree on what evidence the med-arbiter is allowed to consider should he or she be required to decide the matter in arbitration. For example, all could agree that the arbitrator shall not base his decision on any information obtained at the mediation session. An example of such a clause in the MED-ARB agreement follows:
The parties agree that no information shared or submitted at the mediation session, whether in joint session or in private caucuses with the mediator are to be considered as evidence in the event that an arbitration hearing is required. Rather, the arbitrator shall hear and determine the controversy upon the evidence submitted at the arbitration hearing only and shall have the ultimate responsibility to determine the relevancy and admissibility of all evidence.
These concerns about confidentiality and due process can also be addressed by the parties in other manners:
-“opt out” variation: The parties can initially agree to MED-ARB by the same neutral, but either party may opt out of its initial decision to use the same neutral for arbitration after the mediation has concluded. And, it can solve a problem for a party who doesn’t “hit if off” with the mediator or who is concerned for other reasons about being treated fairly in the arbitration phase. In that event, of course, the ADR process is delayed until the parties select an arbitrator, who will have to climb the learning curve.
-no private caucuses: Another variation is for the parties to agree there will be no private caucuses in the MED-ARB mediation phase, thus limiting the ex parte aspects of mediation and the fear that potentially unreliable information gleaned from private caucuses could improperly influence a deciding arbitrator and should not be considered by them.
-Different Mediator and Arbitrator: The parties always have the option to select different neutrals for the roles of mediator and arbitrator. What distinguishes the process from a traditional mediation followed by a traditional arbitration is that both neutrals would be selected before the process begins and the arbitration phase would follow right behind the mediation phase. This process however is generally more costly and time consuming.
Although not suitable for every situation, MED-ARB can be a highly effective and flexible dispute resolution mechanism for wide array of disputes. However, it should only be undertaken after a thorough understanding of the nuances of the process by both parties and the neutral.
A sample full MED-ARB agreement of this type is available here.
If you have any questions about this highly effective and adaptable ADR process, please contact us at MDRS (800) 536-5520.