In this week’s Freedom Friday blog and email newsletter, I want to talk about a topic that comes up with clients who ask me to review their contracts, and those who may have contract disputes, and that’s this issue of an alternative dispute resolution clause in the contract. Some of these contracts require mediation, some arbitration, and some of them require both (mediation first, and if that is not successful, arbitration). So, in today’s Freedom Friday blog and email newsletter, I’m answering the question, “What is the difference between mediation and arbitration?”
So, let’s start with mediation. Mediation is a process where a neutral third-party, the mediator, helps both sides find a mutually acceptable solution to a dispute. Mediation is voluntary. Both parties must agree to participate and agree on who the mediator will be, and mediation can occur at any stage in litigation, including before a lawsuit is filed. Mediation is also somewhat affordable. You will usually pay half of the mediator’s fees, and your attorney’s fees, but it is less expensive than arbitration.
Mediation usually consists of a single session, either a half day or full day, and not multiple sessions that prolong the process as you would see in arbitration. The mediator will also bring his or her experience; they are usually attorneys in your practice area and who are familiar with judicial and jury trends in your area. Before the mediation session, each side will prepare and send to the mediator a summary of the case, usually called a “mediation statement” or “mediation letter,” which summarizes the facts, the arguments, costs, damages, and other issues in the case. At the mediation session itself, the parties will attend in separate rooms, and the mediator will start by meeting with each side (and their attorney) to explain the process and ask questions. Then the mediator will go back and forth between the parties, asking each side to make offers and counteroffers, either until a settlement agreement is reached, or the parties conclude a settlement is not possible, at least not at that time.
On the other hand, arbitration is a more formal process than mediation, because it is essentially private court. Arbitration may be voluntary, but many times it is mandatory based on an arbitration clause in the contract at issue in the dispute. Both federal law and Oklahoma law supports arbitration and courts can require it if the parties entered a written agreement or contract which allows for arbitration. Most arbitration agreements also require the arbitration be conducted in a specific “forum,” either by the American Arbitration Association (more common in Oklahoma), and JAMS. JAMS is not available in Oklahoma, so if you enter a contract with a mandatory arbitration clause, and that contract requires the arbitration to be conducted by JAMS, you may need to travel out of state to attend the arbitration.
Arbitration has procedures which are similar to court, but those procedures are abbreviated or faster. Discovery may be allowed, but may be more limited, and there are formal rules (provided by the arbitration forum), but everything happens on a faster timeline, and the case is heard by either a single arbitrator or a panel of arbitrators. Arbitrators are usually specialists in your area of law, but arbitrators are not bound by prior rulings. In terms of costs, arbitration may cost less than full litigation, especially if you take a case to trial, but significantly more than mediation. The parties pay the arbitration forum directly, as well as the arbitrators as the case progresses. In Oklahoma, the initial filing fee can be more expensive than filing a civil case, but the cost savings may be seen more in the discovery and trial phases of a lawsuit. In some consumer cases, the consumer may pay a small fee, or the company on the other side may be required to pay the full filing fee if the consumer shows a hardship. At the end of the arbitration, the decision of the arbitrator is final, and can be enforced in court. Only in limited circumstances can the court overturn what the arbitrator decides.
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