Cyrus Dugger

Mediation v. Mandatory Binding Arbitration: Step by Step

You’ve heard of meditation before. People have likely spoken about it as a great way to alternatively resolve seemingly intractable personal problems. Or perhaps, you’ve heard of it as an alternative to filing lawsuits. In mediation, a neutral facilitator (the mediator) attempts to get the parties to voluntarily agree to resolve their dispute through pointed negotiations. The parties have to booth agree to accept the terms of this negotiation, and until they formally agree their negotiations the result of these negotiations are non-binding. If the parties cannot agree on a resolution through mediation, they’re free to move forward with litigation or any other legal actions.

For anybody who remembers the hilarious beginning of Wedding Crashers, in which Vaughn and Wilson are attempting to get the two divorcees to agree what to do with the frequent flyer miles, you’ve seen an example of mediation at work – perhaps at its best.

Indeed, mediation is rightly assumed to be a great method of alternative dispute resolution available for parties that wish to avoid litigation or other types of potentially prolonged conflict.

And perhaps, you’ve also heard of arbitration. Arbitration is a process in which the two parties submit their case to a similarly “neutral” intermediary (the arbitrator). However, instead of attempting to get the parties to come to a mutually satisfactory agreement, the arbitrator hears both sides present their evidence (in a limited or expansive manner depending on the arbitrator and given arbitration rules), and then decides the outcome of the dispute. The decision of the arbitrator resolves the dispute. The resolution is not mutually negotiated, but is instead decided by the arbitrator in an adversarial process akin to the traditional process of our courts. However, arbitration proceedings are not inherently binding on the parties, and unless they have otherwise agreed before hand, the losing party can simply reject the decision of the arbitrator.

Maybe you have also heard of binding arbitration. This form of dispute resolution is the same as arbitration except that the decision of the arbitrator is final and must be accepted by both parties as binding. In binding arbitration, you can’t simply wait to hear the decision of the arbitrator, and then say “yeah I just don’t agree.” You’re bound, hence the name.

Unlike mediation, which is a voluntarily negotiated settlement, and unlike arbitration, which is an adversarial trial like process the result of which a party or parties may reject, binding arbitration is the final word (save an extremely limited form of judicial review). Parties may voluntarily agree to be bound by the decision of the arbitrator after the dispute arises. In this sense, they can evaluate and voluntarily agree to utilize binding arbitration.

Of course, if you’ve read Tort Deform before, you’ve heard of mandatory binding arbitration. Mandatory binding arbitration is binding arbitration without a choice. Mandatory binding arbitration requires an agreement before any dispute arises to resolve future disputes through binding arbitration. In contrast, binding arbitration that is not mandatory, is voluntarily agreed to at some point, usually after a dispute develops.

As has been chronicled numerous times on this blog, mandatory binding arbitration is frequently used by corporations as an anti-consumer tactic geared towards immunizing themselves from lawsuits related to products or services. Arbitration companies and arbitrators are also often selected by companies for their pro-business leanings.

Mandatory arbitration contracts are often weaved into the fine print of your consumer contracts. Because most companies in certain industries require the use of these contracts, consumers often have no effective choice except to “agree” to mandatory binding arbitration if they want to use essential or common consumer products.

Don’t take my word for it, just check your home construction, car, car lease, credit card, bank account, cell phone, storage room, utilities, or an exterminator contract and see for yourself.

Arbitration, and binding arbitration, can sometimes be a helpful means of alternative dispute resolution. In contrast, mandatory binding arbitration rarely is. If anybody ever challenges you on this point, ask them “if mandatory binding arbitration is so great that I certainly want to use it, then why is it mandatory?”

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Posted at 10:56 AM, Jan 30, 2007 in
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I am a professional mediator in New Jersey. You have laid out very well why parties should consider mediation -- precisely because control of the outcome lies in the hands of the parties. Even Judges and Jurors have biases, as every human being does.

Posted by: Marvin Schuldiner | January 31, 2007 9:15 AM

If both parties have agreed to a binding arbitration.
Approx. how long does this
process take ?

Posted by: Denny Pullen | February 26, 2007 3:30 PM