What is alternate dispute resolution (ADR)?
UPDATED: June 19, 2018
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Alternative Dispute Resolution (ADR) is a mechanism whereby a case is formally resolved or adjudicated outside of court. ADR can be contractual (all parties sign a contract agreeing to use ADR in lieu of a traditional lawsuit) or court-ordered.
Whether alternative dispute resolution makes sense will depend on the situation and the type of ADR being considered. It could also depend on contractual language and/or the whims of a presiding judge. There may be times when a person is required to use this type of dispute resolution, such as if a contract that had an arbitration clause was signed, or a judge orders ADR. In other situations, choosing to find an alternative to litigation occurs for various reasons including cost and chances of winning or losing at trial.
There are three main types of alternative dispute resolution: binding arbitration, mediation/facilitation and case evaluation.
Arbitration is generally considered the most formal type of ADR. Arbitration is essentially a regular court case trimmed of procedural fat. The arbitrator (or panel of arbitrators) plays the role of the judge. While arbitrators do not generally have all the legal powers of a judge in the court system, arbitrators do have subpoena power and can compel the production of witnesses and documents. The arbitrator, with input from the attorneys involved, sets the schedule for the case, including time for discovery, depositions and many of the same hallmarks of any court case. The time for such activity is usually abbreviated and formal court rules tend to be ignored in favor of a more relaxed, non-adversarial approach.
Upon completion of discovery, the arbitrator will hear arguments from both sides and will make a decision that is legally binding on the parties involved. The arbitrator’s decision is then reduced to a judgment, which is signed by the presiding judge if the arbitration arose from a court case. If there was no case, the resolution is contractually agreed upon. While the decision can potentially be appealed in the event that the arbitration was grossly unfair or if there were procedural problems, generally, the binding decision of an arbitrator is going to stand.
The Arbitration Only Clause
Arbitration is, by and large, a contractual mechanism. For example, when you sign a contract with a construction company, there is likely a clause in the contract stating that any dispute regarding the job will be handled through arbitration as opposed to through regular court channels. Arbitration can be a major money-saver for possible defendants, as the cost of defending an arbitration action is far less than that of a traditional court case. Arbitrators are notorious for “splitting the baby,” meaning that they generally don’t dismiss cases but instead grant awards that are about half-way between zero and a Plaintiff’s monetary demand. Juries are far more likely to grant a Plaintiff a huge verdict as they tend to be more sympathetic.
The second most common type of ADR is mediation. Mediation is a voluntary form of ADR wherein the mediator helps the disputing parties communicate their positions and demands, either openly or in private, and then strives to get the parties to agree on a settlement.
Mediation is called facilitation in some jurisdictions. It is not uncommon, in some states, for judges to order cases into mediation. Judges want each and every case to settle, and often feel that if an unbiased third party opens litigants’ eyes to the financial realities, strengths and weaknesses of a particular case, the parties will be likely to settle, thus removing the case from the judge’s docket. Unlike with arbitration, mediation generally does not occur absent a previously filed court case.
One final type of ADR is case evaluation. Some jurisdictions have a law requiring all cases to be evaluated by an attorney or panel of attorneys. Normally, the panel consists of one Plaintiffs’ attorney, one defense attorney and one ostensibly neutral attorney. After reading summaries of each party’s position and hearing limited argument as to the value of the case, a case evaluation panel puts a number on each case. This number is representative of what the panel believes is the actual settlement value of the case.
If all parties accept the case evaluation award, the case settles for that amount and litigation ends. If one party rejects the award, the case continues. The only potential pitfall in rejecting a case evaluation award is that many jurisdictions can award fees, costs and sanctions against a party that rejects an award and then losses the case, ultimately recovering less than what they would have recovered had they accepted the award.
Contact an Attorney
Alternative dispute resolution is an excellent way to cut litigation costs, but it is not right for every case. Sometimes, a jury of one’s peers is the best trier of fact, and the chances of recovery are far greater than if a case was handled in ADR. ADR can be a complex process and a seasoned attorney is essential to navigate what can often be very rough waters.