As some of you may know, litigation can be a risky, unpredictable and costly undertaking. As a result, more and more parties are exploring and utilizing various alternative dispute resolution (ADR) vehicles both pre- and post-suit.
What is ADR? Generally, ADR refers to a closed and confidential proceeding where a neutral third party facilitates the resolution of a dispute. It is often used in a variety of civil disputes and administrative law matters before governing bodies.
The two most popular ADR vehicles in Texas are mediation and arbitration.
Mediation is a process by which an impartial third party (i.e., a mediator) helps the parties find a resolution to their dispute. In theory, mediation operates to vest the power to decide the outcome of the dispute with the parties, rather than with a court or administrative body.
While each mediator utilizes a different strategy or style when helping the parties obtain a resolution, many highlight the strengths and weaknesses of the parties’ respective positions during private caucuses with each party and their counsel. This is done in an effort to help the parties arrive at a mutually acceptable resolution.
Arbitration, on the other hand, is where the parties present their positions to one or more neutral third party arbitrators who will render a final binding decision. The Texas Arbitration Act and the Federal Arbitration Act generally govern arbitration proceedings.
ADR can be instituted before or after litigation has commenced, and it can sometimes be a faster, more economical way to resolve disputes. When ADR is utilized pre-litigation, it’s often as a result of a contractual ADR clause. These types of clauses, where properly drafted, can be beneficial to parties under a number of circumstances.
For example, in some situations, a party may wish to preserve the current or future business or personal relationship with the other party. An ADR clause can be drafted and used with this goal in mind. This is often seen in cases involving businesses of comparable size.
Parties wishing to avoid embarrassing public disputes can also utilize pre-suit ADR since litigation is generally conducted in a public forum. Arbitration is also well-suited for parties seeking a final, binding decision since judicial review of an arbitration award is limited.
In addition, arbitration clauses can be crafted to provide for the selection of an arbitrator or panel of arbitrators with targeted industry experience. This can be advantageous in highly technical contact disputes.
Once litigation has been instituted, parties are often compelled by Texas courts to participate in mediation (subject to reasonable and timely objections by a complaining party). Due to the inherent risks and uncertainty of trial, parties may wish to “buy off” the risk of litigation by arriving at a mediated settlement agreement.
However, ADR vehicles are not without critics. For example, some critics of mediation argue that the process costs too much money and takes significant time with no guarantee of reaching a resolution.
Critics of arbitration lodge similar complaints. For example, some critics argue that the process is just as expensive as litigation, citing as support the need for the parties to pay one or more neutrals to arbitrate the dispute. Critics also point out that arbitration significantly curtails a party’s ability to seek judicial review of an arbitration award.
Despite the criticism, it is clear that under appropriate facts and circumstances, ADR can be beneficial. Its increased use in recent years further highlights its advantages.
Please note that there are other ADR procedures (e.g., collaborative law and managed dispute resolution) not discussed in this article that may be advantageous to parties in certain types of disputes.
This article is not intended as an exhaustive discussion of the issues raised herein. Please consult with your legal professional when seeking information related to alternative dispute resolution procedures.
Karina C. Cantu is an attorney at Karina Cantu Law, PLLC. Prior to starting her own law practice, Cantu was an attorney at one of Texas’ largest firms, where she focused her practice on complex estate planning, as well as transactional and business litigation matters. For more information, please contact her at 210-446-3232 or karina@kcantulaw.com.
