(Published by the Idaho Business Review, April 2007)

Alternative Dispute Resolution is often Viewed as a Reliable Way to Resolve Commercial Disputes.

Few business owners relish the thought of protracted litigation to resolve disputes.  Even victory in the courtroom usually comes at a substantial price, measured not only in dollars but also in lost time and distraction from business opportunities.  As such, the best strategy for resolving commercial disputes involves informal negotiation, requires willingness to compromise, and results in an expedient resolution.

However, not all disputes can be resolved informally.  Traditionally, such disputes have been resolved by litigation, but Idaho businesses are relying more and more on other alternatives to resolve commercial disputes.  Largely, the growth of alternative dispute resolution (“ADR”) has been spurred by the expense and time that can be required to obtain a judgment. 

Lawsuits are expensive and time consuming in part because of the procedural rules that govern civil litigation.  Many disputes warrant these extensive procedures governing discovery, evidence, trials and appeals, but in other circumstances, these procedures prove disproportionately complex for modest claims or straight forward issues.  In Idaho, two forms of ADR are commonly used to expediently and economically resolve disputes:  mediation and arbitration. 

          Mediation is a voluntary and non-binding dispute resolution procedure which involves formalized negotiation and settlement discussions.  The parties can agree to mediation at almost any time.  Instead of a judge the proceedings are conducted by a neutral mediator, often an attorney.  

          The mediator does not have the authority to decide the merits of a case or to force the parties to settle their dispute.  Instead, the mediator facilitates negotiations between the parties, usually by separate discussions with each party to explore the strengths, weaknesses and value of their claims.  This process assists the parties in realistically assessing their respective claims. Based upon these discussions the mediator will seek to aid the parties in negotiating an amicable settlement.

Mediation may be worth attempting in almost every commercial dispute.  It is relatively inexpensive and quick compared to litigation or arbitration.  Generally, mediation takes a day or less to conduct.  Also, mediation is private process, so the details of the dispute do not become a matter of public record.  Since mediation is a voluntary process, it only resolves those disputes the parties can agree to settle.  Even when mediation fails the participants usually gain valuable insight into the dispute.

          In arbitration, the parties contractually agree to have disputes resolved by a third party.  Unlike mediation an arbitrator does have the power to make a decision that is binding on the parties.  The arbitrator decides all factual and legal questions and there is no general right of appeal from the decision.

          Parties usually agree to arbitrate disputes with a contractual provision in advance of any dispute.  However, the parties can also agree to arbitrate an existing dispute.  Often commercial contracts contain arbitration provisions that require disputes arising between the parties be decided by arbitration.  However, these agreements vary widely with regard to the types of disputes subject to arbitration.

          Arbitration agreements often require that hearings occur in a particular place.  Such an agreement setting a venue convenient to the parties often makes sense.  In particular, where transactions involve parties located in multiple states or even countries.  However, such clauses can operate as a virtual bar to using arbitration to resolve a modest dispute.  Simply, an Idaho business is unlikely to seek arbitration over a small amount if a choice of venue clause requires the hearing occur in a specific county in Florida.  Thus, businesses should carefully consider the potential impact of such clauses prior to agreeing to arbitrate a dispute in a distant location. 

Remedies in arbitration can differ considerably from those available in litigation.  For example, Idaho law provides for an award of attorney fees incurred by the prevailing party in most litigation arising from commercial transactions.  However, absent a contractual agreement regarding attorney fees, arbitrators usually cannot award attorney fees to the prevailing party.

          The streamlined procedures of arbitration have advantages over litigation of commercial disputes, especially smaller disputes.  Arbitration offers a relatively speedy remedy, typically within months rather than years.  However, this streamlined procedure may at times also be considered a pitfall of arbitration.  For example, in foregoing some of the procedures available in litigation, a party may not discover the evidentiary “smoking gun” that might have changed the outcome of a case in court. 

          Likewise, there is no general right to appeal the decision of an arbitrator.  Courts may review arbitration decisions only for issues such as fraud, bribery or other illegal conduct, not for mistakes made by the arbitrator in deciding factual and legal questions.  Businesses should consider both the benefits and shortcomings of arbitration before agreeing to arbitrate commercial disputes.