Any time two or more parties sign a legally binding contract, the need for conflict resolution may arise, which can be addressed via mediation, arbitration, or litigation. With mediation, a neutral third party, a mediator, attempts to bring the parties together, to find a way forward that everyone can agree to without assigning fault or blame. With arbitration, an impartial third party, an arbitrator, reviews all parties’ testimony and evidence and makes a (usually) binding decision about how to proceed. Litigation is a legal proceeding in a court of law with strict rules about testimony and evidence where a judge makes a legally binding ruling. Litigation is the most expensive and time-consuming, so most folks prefer mediation or arbitration. Here’s what you should know about each.
Generally speaking, there is no downside to mediation. It is almost always non-binding, so there’s no legal risk. The focus is not on who’s right or wrong, but rather how to overcome differences. All parties in the dispute sit with the mediator, whose sole purpose is for everyone to walk away happy (or at least happy enough). Mediators charge from $300 – $1000 per hour, a cost usually split equally among the parties. While this may seem like a hefty sum, it is a pittance compared to litigation.
Mediators, who are often retired judges, remind the disputing parties that without some compromise, their mediation costs of, say, $10,000 could quickly balloon into $50,000 in attorneys’ fees if the case ends up in court. Faced with that, the mediator’s next question, “How do we come to an agreement you can live with?” seems far more compelling.
I’ve heard plenty of mediators say, “I don’t care who’s right. I care about coming to an agreement.” And with that, they start chipping away to weaken what initially appears to be an immovable wall of disagreement. In real estate disputes, mediators encourage the parties to loosen their stance on all manner of things, from time, money, and boundary lines to property uses, allowance of easements, lease terms, or something else.
The mediator goes back and forth between parties until they reach a settlement that is reasonably equitable for all involved. Although they are not trying the case as they would in a court, they understand the law and can explain to the parties where their case would stand. This often gets things moving. Discussions and offers made during mediation are confidential and not typically allowed to be shared in court. Overall, mediation is faster, cheaper, and easier on relationships.
Arbitration is somewhere between mediation and litigation. It involves a judge-type person who hears evidence, weighs testimony, and determines who owes what to whom. The rules of evidence and testimony are more relaxed than in a courtroom, but it is still a formal affair.
Typically, people find an arbitrator via two professional organizations: the American Arbitration Association and the Judicial Arbitration and Mediation Service (JAMS). Both are staffed primarily with retired judges who charge for their services and hand down binding verdicts. These are not the only organizations that provide arbitration services. Except in the case of gross incompetence or corruption, courts usually uphold arbitrators’ decisions.
Arbitration is more expensive than mediation but still far cheaper than litigation. It takes longer than mediation but less time than litigation. Arbitration can be decided in six months or less, while it can take a year (or two) to get a court date to start litigating. But arbitration does have some down sides. The rules of evidence aren’t as strict, and if an arbitrator makes minor legal mistakes, you just have to live with them.
The decision on whether to mediate, arbitrate or litigate is absolutely something to discuss with your legal counsel before proceeding. For my two cents, if mediation is an alternative, do it. I can think of no situation where it wouldn’t be advantageous to all parties.
As for arbitration, I personally believe it is the better way to go in most cases, but not everyone agrees (including some of my attorney friends). It all depends on the details of each case. When you agree to arbitrate, you give up some rights. You cannot demand legal standards of evidence, which may or may not work in your favor. Consequently, discussing arbitration with your legal counsel is a must.
If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.