INFOTECH AND THE LAW

Litigation Preferred to Resolve Disputes

Litigation, time-consuming, expensive and disruptive as it may be, is still preferred over all techniques for resolving business disputes. Arbitration, for 20 years the most heavily promoted alternative to litigation, is on the decline and comes third behind mediation as business persons' choice to resolve disputes. These beliefs came to light in a recent national sample of 402 business persons by the American Bar Association, which concludes that distrust of arbitration, long sold as fast, fair and inexpensive, is more widespread than ever.


Why is arbitration's popularity waning, while mediation's grows? And why is litigation, so often vilified, retaining its place as the most favored tool to resolve business disputes?

Organizations such as the American Arbitration Association have promoted arbitration as a private, confidential alternative to litigation, controlled by the parties and resulting in quick, inexpensive final decisions without lengthy pretrial discovery and interminable appeals. It frequently fails to live up to this billing in complex business matters, however. In many cases, parties find that assigning a case to an arbitrator initiates a process over which they have little control and in which the arbitrator has freedom to do much as he or she pleases.

Arbitration is private in the sense that no public record is created, but that does not necessarily mean that it will remain confidential. Nothing prevents a party from issuing press releases about developments in the matter if public relations is part of the strategy.

The arbitration process works like this: The parties hire attorneys, hire their own panel of arbitrators through the American Arbitration Association or other arbitration associations, and present their side of the issue to the arbitration panel, not the court. Both parties agree to abide by the decision of the panel. Thus, delays imposed by a crowded court calendar certainly can be avoided.

Unfortunately, though, the process has its own inherent problems of delays and costs. Most arbitrations of business disputes include a period of discovery, which can be as extensive and time-consuming as if the matter was being tried in court. Arbitration is rarely less expensive that litigation and frequently costs more. Not only do the parties pay their own lawyers to prepare and try the matter, as they would in litigation, but they also pay thousands of dollars to the organization that administers the arbitration and to the arbitrators themselves. An unfortunate aspect of arbitration is that it is in the arbitrator's own financial interest to keep the matter going as long as possible.

Civil litigation (as opposed to arbitration) is governed by a set of rules and procedures developed over centuries to eliminate bias, unreliable evidence, ignorance and incompetence from the process. Failure of the trial court to abide by those rules is grounds for an appeal. Arbitration, for the most part, does away with the procedural protections and with the parties' ability to appeal an erroneous decision. The arbitrator's findings, whether fair and competent or biased and contrary to the facts, are virtually irrefutable because the laws of most jurisdictions preclude appeal of all but the most blatant misconduct by the arbitrator.

On the other hand, mediation's popularity stems from its differences from arbitration. First, a mediator is a facilitator, not a quasi-judge or jury. The mediator's role is to listen to each party's view of the facts and identify areas of potential agreement. Second, the parties never relinquish their control of the matter to a third party; they are not bound to accept the mediator's decision. The mediator may criticize or support a party's position, argue, reason and cajole, but he or she may not order a result without the consent of both parties.

The object in mediation is not to persuade the mediator, but to persuade the other side. At the end of a successful mediation, the parties will have cut their own deal. Failing an agreement, the parties are not prejudiced in any future litigation or arbitration for having made the effort.

Just because mediation can be tried without risk does not mean that it can be casually undertaken. Two critical decisions will determine the success of the mediation: selection of the mediator and selection of the individual responsible for presenting your side. The mediator will either be a lawyer -- perhaps a retired judge -- or a business person knowledgeable in the industry.

The issue is to decide whether your best arguments are grounded in a narrowly focused legal theory or on aspects of the business that might be more familiar to someone experienced in the field.

Mediation does not require involving an attorney and may not conform to your overall strategy. But relying on a company employee who is intimately involved in the circumstances leading up to the dispute is likely to be counterproductive because that individual may be unreceptive to solutions to a problem that he has helped to create. An officer or employee from another department or division may be the best candidate. The presentation must be as thoroughly vetted as that prepared for any complex sales negotiation.

Because of these characteristics of mediation, it often is cheaper than litigation or arbitration. However, most business persons still prefer litigation because it has tools to uncover facts that may remain hidden in mediation, retains fairness and procedural protections lost in arbitration, and produces an enforceable result.

Jonathan Cain is a partner in the high-technology practice group of Shaw, Pittman, Potts & Trowbridge in McLean, Va. He can be reached via e-mail at Jonathan_Cain@shawpittman.com


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