The late Donald F. Dickey of NH is co-author of this article. His diligence, intelligence, patience, and expertise in the law and in ADR helped make this article possible. Thanks Don!
Med-arb is the melding of two well-established processes for conflict resolution into one hybrid process. Mediation and Arbitration are used in conjunction with one another and, in the truest form of med-arb, the same third-party neutral plays the role of both mediator and arbitrator. In this paper, the term med-arb refers to this pure form that uses the same neutral, and is distinct from the common process where different neutrals are used in a mediation phase and an arbitration phase. Our goal is to educate the reader, stimulate thinking about the med-arb process, and probe the questions that conflict professionals should explore with their clients when med-arb is considered as a process choice for resolving a specific dispute. People in conflict are looking for a resolution process that is fair, consistent, transparent, inexpensive, quick, and in some way allows them to tell their own story. Med-Arb offers parties the ability to obtain a definite resolution of a particular dispute, with reduced cost, efficient process, and flexibility to pursue consensual settlement prior to or during binding arbitration. In the right circumstances, med-arb may represent the process that best serves the interests for your clients.
What is Arbitration?
Arbitration is a private dispute resolution process where parties in conflict hire a third party neutral(s) to hear their stories, look at the facts, and make a decision for them on how the dispute will be resolved. Arbitration is essentially contractual and is generally used in a wide range of commercial settings to deal with conflicts that arise under contractual agreements (Lewicki 440). The most common settings for arbitration include construction, manufacturing and other commerce, international trade, labor-management, employment, public sector, and insurance (Id.). Arbitration has particular application when issues are specialized and technical, such as in a construction project when the costs of building defects need to be allocated among the architect, engineer, contractor, and property owner (Hoellering 23).
The Federal Arbitration Act of 1925 established a national policy in the U.S. allowing contractually based private arbitration to take the place of standard court procedure and be judicially enforceable (Oehmke 305, FAA 1990). The Uniform Arbitration Act, promulgated in 1956 and revised in 2000, has been adopted in nearly every state to provide guidance on the uses of arbitration and the enforceability of arbitral awards (UAA 2000). Finally, a number of international trade agreements, most notably the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted through the United Nations in 1959, require courts of contracting nations to recognize and give effect to private arbitration agreements and enforce arbitral awards (Onyema 411-13).
Arbitration is a private, less formal, and more expeditious form of adjudication (judicial procedure to hear a dispute) that enables disputing parties to reach a binding decision similar to a court judgment, while relieving the courts of case overload. In some instances, the parties have the chance prior to the arbitration to decide whether the results will be binding upon them or non-binding. In other contexts, binding arbitration may be contractually binding despite one party’s lack of bargaining power, as when consumers “agree” to be locked into binding arbitration (in lieu of a court remedy) via their purchase contracts with commercial vendors (Lipsky 12). A binding process means the results of the arbitration are a contract between the parties that is enforceable in a court of law. A non-binding arbitration follows all the same steps as a binding process except that the decision by the arbitrator is considered a suggestion. Parties are free to use the suggested decision to make their agreement final or to simply use the process as a dress rehearsal to get a sense of what may happen in a formal court procedure. Unlike mediation, information uncovered in arbitration is not typically held as confidential (Oehmke 30). Although an arbitrator may be called into court if there is compelling evidence of unfairness, or a denial of justice, the merits and methods of decisions made by the arbitrator are rarely questioned by the courts (Oehmke 51).
Differences Between Arbitration and Mediation
Arbitration and mediation are different processes with different purposes. The fundamental difference lies in who makes the final decision – a neutral third party or the parties themselves. In traditional arbitration, a third party neutral conducts an adjudicative process similar to a court proceeding to reach a decision according to the law of the contract (Henry 396-97). The arbitrator hears arguments presented by the parties, accepts evidence, listens to witnesses called by the parties, and does not address underlying issues and interests unless raised by the parties (Bartel 664). As an adjudicative process, arbitration emphasizes the ability of each party to represent factual information (evidence) and highlight relevant standards so that the impartial third party (arbitrator) can reach a sound decision based on principles and criteria set forth in contract, law, policy, and common practice.
In contrast, in mediation the third party neutral’s role is to facilitate negotiation, and the parties themselves make the final decision as to how to resolve the dispute. Mediation’s different orientation emphasizes different skills. “Mediation is a process in which an impartial third party acts as a catalyst to help others constructively address and perhaps resolve a dispute, plan a transaction, or define the contours of a relationship. A mediator facilitates negotiation between the parties to enable better communication, encourage problem solving, and develop an agreement or resolution by consensus among the parties” (Menkel-Meadow 266). Under an interest-based and party-centered model of mediation, the role of impartial third party is to clarify the issues and especially the underlying interests that “lie at the heart” of the dispute (Friedman and Himmelstein 540-547). The mediator may place as much emphasis on personal, practical, or business related aspects of the conflict as on the legal aspects (Id.). The mediator may help the parties explore subjective dimensions of the conflict, such as beliefs and assumptions, emotions (anger and fear), the need to assign blame, and the desire for self-justification, which normally would not be considered relevant in an arbitration (Id.). All of the information discussed in mediation is confidential, and the mediator cannot be drawn into litigation as a result of information uncovered in mediation.
While mediation and arbitration are fundamentally distinct processes, there are different styles and forms of mediation (e.g., directive, evaluative, or transformative) as well as different variations of arbitration (Hoffman 14). Aside from the fundamental difference concerning who makes the final decision, the two processes can sometimes appear quite similar (Bartel 663). A form of mediation that has much in common with arbitration is evaluative mediation, where negotiations focus narrowly on the legal and evaluative aspects of the dispute, and it is often favored by attorneys in commercial litigation. As Nancy Welsh has written, “[t]hrough their presence, their role vis-à-vis their clients, and their power over selection of mediator, lawyers have made mediation look more like the processes in which they are dominant – bilateral negotiation sessions and judicial settlement conferences” (Welsh 797-98). In this “law-centered” approach to mediation, commonly found in court-connected mediation programs, joint session is minimized in favor of “shuttle diplomacy” between separated parties, personal stories give way to arguments over legal rights, the parties’ participation is subordinated to that of their lawyers, and the parties’ interests are narrowed to legal terms and monetary values (McMahon 5-6). Mediators in this context are often selected for their skill in “evaluating” cases and presenting strategies for settlement based on their “expert” analysis of legal and technical norms, industry practice, and monetary values (Welsh 788-89). Because the mediator’s evaluative role resembles that of an arbitrator, changing hats in the middle of the process represents less of a shift than it would in the broader interest-based approach to mediation. (See Appendix B for qualifications of the neutral)
Evolution of Med-Arb
The development of med-arb reflects and parallels the larger societal trend that has increasingly linked judicial procedure with various forms of less formal, more expedient processes for resolving conflict, collectively known as “alternative dispute resolution (ADR).” The American court system has always had an interest in facilitating negotiation to settle a case prior to trial (Galanter 1-2). The rising quantity of disputes in the 1970’s elevated this interest and accelerated the trend in favor of mediation and other mechanisms for promoting settlement. Both federal and state court systems reached “a warm endorsement” of facilitated settlement as preferable to adjudication not only because of administrative convenience but also in the belief that a freely negotiated settlement will produce a higher quality of justice (Id.). With statistics showing that over 95 percent of court cases are settled without a trial, litigators have also come to “embrace the view that settlement is the goal” (Hoffman 19-20).
Like court process, arbitration has been subject to the same call for more expedient “alternatives” for resolving disputes. With many of the formalities of court adjudication, arbitration is criticized as “slow, expensive, formalistic, and unnecessarily adversarial” (Blankenship 35, Bartel 393). The growth of mediation in the 1970s and its extension to a wide range of commercial disputes resulted in the “growing interaction” of arbitration and mediation (Hoellering 23-24). For instance, the American Arbitration Association itself began to promote inclusion of mediation along with arbitration in standard construction contracts (Id.). An increasing number of commercial industries concluded that “combining mediation and arbitration in sequence can be a fair, efficient, and cost-effective process for resolving disputes” (Brewer and Mills 34). Throughout the business community it became common practice “to provide a mediation ‘window’” available to the parties at any stage of arbitration (Hoellering 24).
Med-arb is a natural outgrowth of this trend. In a dispute resolution environment where mediation and arbitration often occur in sequential order, it makes sense to have the same neutral perform both functions, if feasible. This is particularly so when, in keeping with the law-centered model of mediation, the parties already expect the mediator to be adept at formulating optimal settlement strategies based on legal and technical norms and industry practice. In this context, the mediator already has tremendous power of persuasion based on his “expert” authority to evaluate the likely outcome of the case if it went to trial, and his knowledge of how other cases in the same commercial sector have settled. While the neutral in arbitration has the ultimate degree of decision making power by virtue of his authority to create a final and binding settlement, the evaluative mediator’s power to influence the settlement process may differ only as a matter of degree. This has led some to characterize the differences between mediation and arbitration as “artificial” (Blankenship 30, 34).
Advantages of Med-Arb
From a process design perspective, the advantages and disadvantages of med-arb depend on the goals and values of the parties, as well as the personal goals and values of the third party neutral. What one party may see as a strength of the med-arb process (the power and leverage of the med-arbiter during mediation) may be viewed by another as a flaw (power that too often results in pressure tactics and “coercion” of a mediated settlement) (Blankenship 34-36). Accordingly, conflict professionals need to follow two essential guides. First, they must give clients sufficient understanding and information to make well-informed decisions about the risks and trade-offs inherent in this choice of process (Hoffman 35). Second, they must have “the skill and experience necessary to exercise this power appropriately” and avoid ethical dilemmas such as undue pressure or improper use of confidential information (Blankenship 35-37).
The central advantages of med-arb are the certitude of a defined outcome, greater efficiency in terms of time and money, and greater flexibility concerning process and timeline (Brewer and Mills 34).
4 MED-ARB: The Best of Both Worlds or Just A Limited ADR Option?
The most important attribute of med-arb is the certainty of a final decision, which of course is also the essential attribute of arbitration. The med-arbiter has complete authority to create a final and binding settlement, and this power is not available to the mediator (Blankenship 34). In addition, “[r]egardless of whether the final product of a med-arb results entirely from mediation or both mediation and arbitration, it becomes the entire [arbitral] settlement, which is binding and enforceable as law” (Blankenship 35).
Med-arb can save time and money over separate sequential phases of mediation and arbitration in two important respects. First, if the mediation phase does not reach settlement, the parties and their lawyers do not have to hire another neutral unfamiliar with the case and then prepare for a full-blown arbitration. Second, the issues in dispute are frequently narrowed during the mediation phase and this forward progress can carry over directly into the arbitration (Blankenship 34).
The flexibility inherent in med-arb allows the process to be fashioned to fit the dispute. Blankenship argues that while med-arb may not be suitable for every dispute, it is a leading example of “adaptive ADR” where “[the different ADR] forms become adaptable, combinable, reversible, and even discardable for the sake of the parties and their dispute” (Blankenship 29, 40-41). In the same vein, Hoffman asserts that “[o]ne of the reasons why one cannot rely on generalized claims of superiority of one [ADR] process over another is that the advantages of one process over another are largely situational—i.e., related to the specific circumstances of each case” (Hoffman 35). Hoffman provides a specific case example of how the flexibility to blend mediation and arbitration may sometimes serve the parties’ best interests:
…[T]he parties and counsel had intended to resolve their dispute–a breach of contract claim between two taxi companies–by mediation. However, after more than a day of mediation, both sides became convinced that a definitive interpretation of their contract was needed, and they asked me to switch hats and arbitrate the dispute. Strongly held views on both sides, as well as intense anger between the principals of the two companies, made it difficult for either party to consider settlement, but they did see the value, from a business standpoint, of having the dispute resolved quickly and privately. (Hoffman 23).
As Hoffman’s example indicates, parties to an ongoing business relationship have a mutual interest in being able to resolve inevitable disputes expediently, privately, and in a fair, even-handed way so that they can move forward. Med-arb is an especially appealing option for disputes that the parties view as “irritants” to a valuable commercial relationship (e.g., manufacturer-distributer, joint venture, or marketing relationship) than the stakes involved in such disputes” (Brewer and Mills 34).