Arbitration vs. Mediation
Updated: Mar 30
In our recent video, Peter discusses the differences between Arbitration and Mediation. Read the transcript below or watch the video linked below.
VIDEO: CLICK TO PLAY:
Hi and thanks for joining me. For those of you who don't know, my name is Peter Lamont. I am a New Jersey business litigation and real estate attorney, and I post videos like this on our channel to give you some inside information and to help clear up some confusion over some common legal issues.
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Now, today's video we are going to talk about the difference between arbitration and mediation. Sometimes they're used interchangeably and that's incorrect. There's a huge difference between arbitration and mediation. So we're going to talk about the two of them when I hopefully explain the difference in a more clear way than maybe what you've heard in the past.
So arbitration and mediation are alternatives to a lawsuit. That's why they're called alternative dispute resolution methods, all right? So if you've ever heard that term, alternative dispute resolution, or ADR, that's what people are referring to. They're referring to arbitration or mediation. Now, the thought process behind alternative dispute resolution is that it is a more efficient and more cost effective way of resolving disputes than if you were to file a lawsuit.
Now, in another video, we're going to talk about the difference between litigation, arbitration and mediation. And I'll get down to brass tacks and talk to you about what I think works better, what I prefer, and some of the pitfalls, but that's going to be in another video. I'll link that video in the description below. But today I just want to talk about the differences between the two: arbitration and mediation, ADR resolutions or ADR choices to try to resolve disputes.
So what are the main differences? Well, both of them attempt to resolve a dispute without a judge or a court, and both of them are touted as being more cost effective, but there's a major difference between the two. Arbitration is binding. I mean, if you arbitrate, you are like a dinosaur in the La Brea Tar Pits, you are stuck with whatever the arbitrator decides. You can't appeal, there's nobody else to go to. You just stuck. And that's the main difference between arbitration and mediation.
Now, mediation is similar to arbitration in the sense that you're going to have a neutral third party. Someone who is going to help resolve or help try to resolve your dispute. That person's a mediator. The difference though is that a mediator's job is not to make a decision. They don't rule on anything. They don't issue anything. They simply help try to bring the two parties together. They help to facilitate a resolution, but their job isn't, like I said, to rule or decide anything. So whatever happens at mediation is non-binding. That's a huge difference, because arbitration, you are locked into the arbitrator's decision, whereas in mediation, you're sitting down, you're trying to resolve a dispute, and if it works, great, and if it doesn't work, then you've got other options or alternatives. Whether it's arbitration at that point or litigation.
Well, what happens in an arbitration proceeding or a mediation? And here are some of the similarities. So you have to request arbitration. You file a document with one of the arbitration companies, either the AAA, and the AAA, by the way, is different from the people that used to give you the trip ticks to tell you how to get to Disney World. AAA is American Arbitration Association, or there's another one called JAMS. And they don't make jam, believe it or not. They are mediators and arbitrators.
So you have to initiate your arbitration proceeding by filing a document, and it's essentially a demand for arbitration. And then you have to abide by their rules. You serve discovery, I mean discovery in the legal senses, exchange of documents. So in a lawsuit, you've got this formal proceeding whereby you're exchanging documents, and you're obtaining information, and obtaining information about what your adversary has, what your client has, that sort of thing. Arbitration is a very scaled down version of that discovery process.
So in arbitration, you've got these rules that shorten the timeframes for everything. And the arbitration rules determine what you can ask for, what you can give, what you can do. Can you take depositions? Can you subpoena somebody? A whole host of specific rules to that arbitration? So you ultimately end up getting to a point where you are going to have a hearing, and you, and the other parties, and the arbitrator will either meet in person at a conference room, just like this one, or it can be done remotely via Zoom or another platform like that. And you lay out your evidence, you make your arguments. The arbitrator listens to both sides, and ultimately issues a ruling. And then, like I said earlier, you're stuck with that ruling.
With mediation, the two sides select a mediator who's going to act as that neutral third party. And then that mediator will likely ask each side to prepare and to produce to the mediator some kind of mediation statement. It's a position statement that sets forth what you think you're entitled to and what you think the other side did wrong and why you're here and what your position is. And all the parties will submit that to the mediator so that he or she can become familiar with the issues.
Now, on the day of the mediation, similar to the day of the arbitration hearing, you go into a conference room, or you do it via Zoom, and you and the other parties sit down with a mediator. You address all of the issues and the mediator helps facilitate talking points and possible resolution. But again, that glaring difference between the two is that mediation is not binding.
Now you might say to me, well, why would anybody mediate if it's not binding? And what happens if you reach an agreement during a mediation and then the parties walk away and don't follow through? Well, some mediators are very good, and what they'll have you do is they will write out the resolution on paper, whether it's handwritten or they'll have somebody type it up real quick, and then they'll have the parties sign it. And once it's signed, it's meant to be a binding contract or agreement. So you take this informal non-binding mediation process, and if you can reach an agreement, you put it down on paper, you sign it, and now you've got yourself a settlement agreement that either side can move to enforce through a court proceeding.
So that's how you would make a mediation, which is non-binding, ultimately produce a settlement agreement that is binding. There are some mediators that I've seen that just don't do it. And I'll tell you a quick story, I remember being in a mediation with a client in a business matter. The mediation lasted, and I kid you not, no exaggeration, 15 hours. The mediator absolutely refused to put anything down in writing. He wouldn't have the parties sign it. And when I proposed that, because it's so important to be able to walk out of a mediation knowing that you've got something enforceable, right? Since it's not binding, just based upon what the mediator does. He refused. And because of that refusal, the parties didn't want to do it either. They thought, well, if the mediator is saying no and he doesn't want to do it, why should we do it?
I knew it was going to happen. We walk out of the mediation, everybody's happy that this matter has resolved. The next day, my client turns around and says, I've changed my mind. I do not want to be settling this the way we discussed yesterday. I've got all these other ideas, I've got these other alternatives. And lo and behold, this thing fell apart. So 15 hours in mediation down the drain. The other side wanted to try to enforce the mediation, but because nothing was in writing, they couldn't. And ultimately the case continued for another eight months. But that's just a war story I'm sharing with you.
The point of this video is obviously to just make that distinction between arbitration and mediation. And the key takeaway here is that arbitration is binding and mediation is not. So if you are faced with a potential dispute, whether it's a business situation with a partner or something non-related to business, should you choose arbitration?
Should you choose mediation? Well, sometimes you don't have a choice, and it's often overlooked, but when you have a contract with, I don't know, let's say a contractor, or you have a partnership agreement, something in writing, oftentimes it's overlooked, but there might be a provision in there that says you must submit to arbitration and you're bound by the terms of that contract. Other agreements might say, if there's a dispute, you must first submit to mediation, and that if that fails, you're allowed to go and file an arbitration. And then other agreements are silent on arbitration or mediation, and just allow parties in a dispute to file a lawsuit and go to litigation. So a lot of -ations here in this discussion.
There is litigation, arbitration, mediation, but the key point that I want you to walk away from this video understanding is the difference between arbitration and mediation. And if I could sum it up in one phrase, it is, arbitration is binding, mediation is not. That's really what you have to understand.
I'll be putting up some other videos on these topics. One in particular explaining, like I said earlier, my feelings on whether or not arbitration is a real, true, effective, and I mean from a cost standpoint, a time standpoint, and a quality of decision standpoint, is it a real beneficial alternative to litigation? But we'll discuss that in another video. I don't want to drone on about that here.
So hopefully this video helped you. Hopefully it was clear concerning the differences, and now you can walk away and have conversations with people about the differences between arbitration and mediation. And when they tell you that mediation's the same thing, now you can set them straight.
All right, well, that's going to do it for this video. Thanks for joining me, thanks for watching. Please make sure you subscribe and share this channel with your friends and family. Maybe they'll find it helpful as well. Thanks. I'll see you next time.
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