Breaking the Deadlock with Med/Arb

201905.13
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Med/Arb is seen by some attorneys as a last resort, and others as a best practice. Here’s what you need to know before giving your clients advice on using this controversial alternative dispute resolution model.

By Gregg Bertram

©2019

When you’re entering alternative dispute resolution, you want the best possible outcome for your clients. Mediation and arbitration are by far the most used options to settle disagreements, but each has its limits. However, they’re not mutually exclusive — in fact, disputes that have mediation and arbitration built into the process may have a better chance of reaching a satisfactory conclusion than either of the two on their own. Parties can hammer out most of their differences in mediation, then rely on arbitration to bring things to a close if the remaining issues reach an impasse.

In spite of its advantages, the med/arb alternative dispute resolution model is often criticized, including by many ADR practitioners themselves. Med/arb begins with a dispute in which the parties engage the services of a mediator and the process transforms into arbitration if needed, often with the mediator serving as the arbitrator. The transformation from mediation to arbitration is something that the parties may have anticipated and agreed to ahead of time, or it could occur ad hoc.   For obvious reasons, an ad hoc transition from mediation to arbitration with one person serving in both roles presents greater risk if only with respect to how or whether the issue of confidential communications between parties, attorneys and mediator will be managed.

Alternatively, the arbitrator may be a third party and not the mediator. If a party other than the mediator becomes the arbitrator, this new entrant has a learning curve and the parties must pay for additional time to bring the arbitrator up to speed.

Critics of med/arb raise several complaints.  For example, if parties in mediation know that their mediator could become a binding arbitrator if they reach a stalemate during the mediation, they may not disclose adverse confidential information to the mediator.  They fear that the mediator may be unduly influenced by information that, while not admissible evidence, may nevertheless affect their impartiality as an arbitrator.  Of course, adverse “confidential” information may already be known to the opposing party. If that is likely, it may be best to disclose it to the mediator at the mediation stage.  Then there is at least the opportunity to communicate damaging information in the most favorable light.

Some criticisms focus on the fundamental differences in the roles of mediators and arbitrators.  Not every mediator is a capable arbitrator and vice versa.  Relative to arbitration, mediation is a much more free -wheeling, creative process. Mediation can take a number of forms while arbitration generally hews to the structure of a trial with, for example, some discovery, motion practice and testimony under oath.  The most salient distinction between mediation and arbitration is that while the mediator attempts to broker an agreed settlement, the arbitrator decides the outcome of the dispute. Obviously, when selecting a mediator/arbitrator for these dual roles, there is much to be considered, including the neutral’s ability to inspire trust, subject matter expertise, and managerial skill.

The most common ad hoc use of med/arb is where the mediator is designated the arbitrator of settlement issues that may arise per a CR2A settlement agreement.  Such a designation is very common and often occurs as the last item included in the CR2A.  At this stage seldom do the parties, their attorneys or even the mediator fully consider that the mediator has received ostensibly confidential communications from each party throughout the mediation phase of the dispute.  It is equally rare for the parties to specify the scope of the mediator/arbitrator’s jurisdiction or applicable arbitration rules.

And while it is rare for post-mediation disputes to require intervention by the mediator as arbitrator, the necessity does occur.  When it does, the financial stakes are often substantial.  Experienced attorneys and mediators should always anticipate a potential continuing role of the neutral in post-mediation dispute resolution if that person is named arbitrator of settlement-related disputes.

Med/arb is frequently used by design in many family law disputes.  Washington courts require mediation of most family law matters.  RCW 26.09.015 (3)(C)(ii) expressly contemplates a neutral serving as both mediator and arbitrator in post decree proceedings.  This statute expressly waives mediation confidentiality when the same person serves as mediator and arbitrator in post decree disputes.

However, RCW 26.09 et seq.  does not require divorcing parties to be represented by counsel.   Problems can certainly arise if the mediator /arbitrator is working with unrepresented parties.  Neutral attorneys serving either as mediators or arbitrators for unrepresented parties are at significant ethical risk well beyond ethical concerns peculiar to the roles of mediator and arbitrator.  Yet, the practice is common.

Med/arb also has important applications in the commercial arena.  For example, med/arb can be used to settle closely held business disputes, including professional practice dissolutions, as well as break deadlocks within other closely held entities, including family enterprises.

Commercial construction often uses a form of med/arb when disputes arise during the construction process in the interest of avoiding costly delay if a project is halted.   In all of these environments, delay is very undesirable because it’s costly, and moving the disputes to a public forum through litigation is equally unattractive and inefficient.

While no ADR process if perfect, the med/arb hybrid has great potential to achieve resolution quickly and relatively inexpensively.  It is intended to couple the efficiency of mediation with, if necessary, the informed decision making of the arbitrator in a private arena.

Parties should agree before entering dispute resolution that they will use the med/arb process if negotiations fail to resolve all or some of the issues, and agree whether they will use the mediator or a new neutral in the arbitration phase. Having these details worked out in advance will operate to make the transition from mediation to arbitration smooth and efficient.

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