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Using Mediation or Arbitration to Save Time and Money

mediation arbitration agreement settlement bindingMany people inquire at our office regarding Alternative Dispute Resolution (“ADR”) options like mediation and arbitration. These have certain advantages over traditional litigation, although they have certain disadvantages as well which should be considered. Mediation and arbitration are also very different from one another, and parties should consider those differences before deciding whether to pursue arbitration, mediation, or regular litigation.

Mediation: First, mediation is a process whereby a third party works with disputing parties to assist them in reaching an agreement. The mediator does not represent either party and nothing that happens in a mediation is binding on either party until they both sign some kind of settlement agreement that memorializes the argreement that they reached with the help of the mediator. The advantage of mediation is that it avoids the excessive attoreys feels and costs of a litigation and helps the parties come to an agreement in a more amicable manner that may not be as acrimonious as an all-out litigation. The disadvantage is that it will only work if both parties are willing and able to come to a mutual agreement because the mediator cannot force any resolution on the parties.

Arbitration: An arbitration is a quasi-judicial process whereby the parties agree in advance to have their dispute resolved by a third-party arbitrator. The arbitrator will conduct some form of judicial proceeding and then issue a ruling which will be binding on the parties and which the courts will enforce. Parties often have attorneys and even “trials” in arbitration proceedings so the cost savings are not as significant as they are in mediation, but where the parties are unable to come to a resolution on their own and need someone else to settle the dispute without the full cost of a regular litigation, artbitration may be the best choice.

There are many independant organizations that provide independent, third-party arbitration services like the American Arbitration Association (“AAA”) or National Arbitration and Mediation (“NAM”). Some people prefer to have their cases decided by arbitrators who use religious law in deciding cases like the Jewish Beth Din of America and the Institute of Christian Conciliation. One of the difficulties in arbitration is that althought U.S. and state courts will generally enforce arbitration decisions, they do not always do so.

Congress has made it clear that it strongly supports a policy of enforcing arbitration decisions. The Federal Arbitration Act (“FAA”) provides that when an arbiter issues a decision pursuant to a binding arbitration agreement between parties, “any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order.” 9 U.S.C. § 9 . (It should be noted that these federal rules are binding only on federal courts. State law disputes are arbitrated according to each states’ arbitration laws.)

Furthermore, Congress also supports the enforcement of contractual agreements to arbitrate future disputes. “A written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

However, there are federal and state law exceptions to the general enforcability of arbitration agreements. We wrote earlier about the nullification of an arbitration award by a rabbinical tribunal back in January by a Brooklyn court in the context of an employment dispute, Brisman v. HAFTR. There, a teacher was let go, the parties went to binding arbitration with a rabbinic tribunal, the tribunal awarded the teacher his job back as well as back pay, and then a Brooklyn judge vacated the arbitration award. The teacher’s appeal of that case is now pending before the New York State Appellate Division. UPDATE 2/19/10: The teacher won the appeal.

On the other end of the spectrum, Prof. Howard Friedman of the Religion Clause blog recently reported that an Indiana Federal court recently upheld an agreement to engage in “biblically based” Christian arbitration pursuant to an employment agreement. Easterly v. Heritage Christian Schools, Inc., 2009 U.S. Dist. LEXIS 76269 (S.D.IN. Aug. 26, 2009. This case also involved a teacher who was let go from a religious school. One difference between this case and the rabbinic tribunal case is that this teacher, Dorothy Easterly, made federal law claims against her former employer, so her challege to the Christian biblically based arbitration agreement was heard in federal court, rather than state court.

The bottom line is that mediation or arbitration can be a great way to settle a dispute without the cost of a full-blown litigation, but one should make sure to take all of the benefits and potential pitfalls into account before making a decision.

Picture courtesy of Civil Negotiation and Mediation

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