The unfortunate reality is that at every level of corporate activity there is a possibility that disputes will devolve into litigation. When these situations arise, the company's interests—undoubtedly, the best interests of all parties—are almost always best served by the use of some "alternative dispute resolution" (ADR) mechanism, the most common being mediation and arbitration. Whether it is a disagreement involving key employees, shareholders, a board of directors, vendors, or customers, including an ADR provision in the agreements and documents that form the relationship offers many advantages over traditional litigation.
It is helpful to first understand the basic processes involved in the two principal forms of ADR— mediation and arbitration—before discussing the advantages they have over traditional litigation. Mediation is conducted with an impartial mediator who is often an attorney and is usually conducted in a rather informal setting. A mediator acts as a neutral facilitator while seeking to understand the key positions and concerns of all parties involved.
Mediation typically begins with a private, joint mediation session where all involved parties sit down at the same table and are encouraged to directly express their basic positions and concerns to each other. After the parties speak to each other about their disagreements, the mediator typically breaks the parties up into separate rooms and shuttles between them in private sessions, or caucuses. During these separate sessions, the mediator works to achieve two objectives: (1) to help the parties understand the strengths and weaknesses of each other's respective positions and (2) to help the parties jointly craft a solution to their dispute. The mediation process and what is said therein is confidential and non-binding; a binding resolution is only reached by mutual agreement among the parties.
Arbitration is more formal than mediation, and it is conducted with either a single arbitrator or a panel of up to three arbitrators. An arbitrator essentially functions as a judge, and the parties typically express their positions by means of written submissions to the arbitrator and in-person testimony at an arbitration hearing.
The arbitrator hears testimony from the parties and witnesses, considers the evidence submitted, and then renders a decision. This final decision is legally binding to, as well as enforceable on, all parties. The arbitration hearing is similar to a traditional courtroom trial but differs in important respects: it is a private, abbreviated, and more informal process that does not involve a jury. Although mediation and arbitration are different and separate ADR mechanisms, they are often used consecutively as a dispute resolution process; if the parties fail to reach a common agreement through mediation, arbitration is used to resolve the dispute.
As you can see, the ADR mechanisms of mediation and arbitration differ from traditional litigation in important respects, and it is these differences that give rise to the unique benefits ADR agreements provide. The two main advantages to ADR—cost and expediency—are interrelated.
Traditional litigation often involves a lengthy and expensive pre-trial process, with a complaint and answer session, detailed discovery requests, depositions, and various pre-trial motions (e.g., a motion for summary judgment). The entire process can take a great deal of attorney time and effort—not to mention keep the company's full attention from more productive matters—and can result in both increased expenses and decreased productivity for the company.
In sharp contrast to traditional litigation, ADR characteristically costs far less than traditional litigation, mostly because the ADR process is much quicker and far more efficient. Thus, while a traditional lawsuit may take several years to resolve, ADR disputes are often resolved much sooner. The discovery and pre-hearing process in ADR is usually abbreviated, and often there are not many pre-hearing motions. Further, if an ADR provision is included in company agreements, the company has the advantage of setting the rules and procedures that will govern a dispute before it even arises. In these agreements, the company can often even choose both the law that will apply and a convenient venue for resolution of the dispute.
Having the foresight to include an ADR provision in company agreements can guarantee that the ADR process will, in fact, be speedy, efficient, convenient, and cost-effective. Additionally, because the ADR proceedings are usually less complex than traditional litigation (the rules of evidence tend to be far more relaxed, and the proceedings themselves tend to be far more informal), individual litigants in ADR proceedings sometimes choose to not hire attorneys at all.
Another advantage that cannot be underestimated is the value of ADR in preserving ongoing relationships. In the business environment, a company will often find itself in a continuing relationship with the disputing party, both during the dispute and long after the dispute has been resolved (e.g., employees, customers, vendors, clients, board members, shareholders). Traditional civil litigation is often a rigid, formal, adversarial, time-consuming, and sometimes contentious process that does not lend itself to preserving ongoing relationships. On the other hand, ADR can be structured as a "softer" process that is informal, quick, and flexible.
ADR can also produce results that traditional litigation simply cannot. Traditional litigation is often a process controlled by the involved lawyers and judge or jury where the litigants themselves are often not engaged participants in the process. In this model, the judge or jury reaches the ultimate decision, and the remedies awarded are often limited to monetary compensation.
ADR in general and mediation in particular require active involvement of the parties themselves and allow them to craft a wide variety of solutions to their disputes. This involvement often gives the parties a greater measure of control over the outcome of their dispute than they would have in traditional litigation, and it can result in mutually beneficial, "win-win" solutions that could never be achieved in a courtroom. Possible solutions might include such cost-effective measures as simple apologies, which could never be part of a judgment in a traditional civil court.
Further, ADR in general and mediation in particular are accommodating, inclusive processes that seek to find solutions that all parties to disputes can agree upon. In contrast, traditional litigation is an inflexible system that often only produces one clear winner—and one clear loser. Moreover, traditional litigation takes place in full public view and can result in the undesired public disclosure of sensitive corporate information to both the media and competitors. Conversely, ADR is a private means of dispute resolution that is not subject to the same public scrutiny as traditional litigation; this may afford the company a beneficial measure of privacy when unpleasant or sensitive matters are involved. Finally, ADR avoids endless appeals that sometimes attend contentious litigation.
In short, there are many advantages to including ADR provisions at every level of activity in a corporation, including shareholder, director, employee, vendor, and client agreements. The result may well be a dispute resolution process that is faster and cheaper than litigation, that affords the parties more control and input into the process, that produces a better outcome for all parties involved, that is confidential and takes place out of the public eye, and that preserves beneficial ongoing relationships between the company and others.
About the Author:
Kieran Shanahan is principal of Shanahan Law Group. Kieran is a former federal prosecutor and an experienced litigator with extensive trial court experience in federal and state courts. He handles a wide variety of cases, including business disputes, employment, and construction matters, as well as environmental, federal agency, and white-collar defense matters. He also handles corporate compliance matters, professional licensing matters, and internal investigations for professionals and corporations under regulatory scrutiny.
At the UNC School of Law, Kieran was an editor of the North Carolina Journal of International Law and Commercial Regulations and served on the prestigious Holderness Moot Court Bench. From 1991 to 1998, Kieran served on the Action for Children NC Board and Editorial Board of Construction and Design Law, which complemented his experience in construction law.
Kieran spent more than five years as an Assistant United States Attorney in the Criminal Division, serving in both the Eastern District of North Carolina and the Northern District of Georgia, where he concentrated on the investigation and prosecution of white-collar crime. In 1989, he received the Directors Award from the U.S. Bureau of Alcohol, Tobacco and Firearms and was recognized as one of the most outstanding federal prosecutors in the country. He is admitted to practice in North Carolina and Georgia as well as the U.S. Court of Appeals for the Fourth and Seventh Circuits, and he has been admitted pro hac vice in more than 15 jurisdictions.
Kieran has also been admitted into the United States District Court for the Eastern, Middle and Western Districts of North Carolina and the United States District Court for the Northern and Middle Districts of Georgia. He was admitted into the Georgia Bar Association in 1982 and admitted to the North Carolina bar in 1986.
Originally from McLean, VA, Kieran is a former federal prosecutor and an experienced litigator with extensive trial court experience in federal and state courts. He received his J.D. from the University of North Carolina at Chapel Hill in 1982 and his B.S. from East Carolina University in 1979.