Editor’s Note: Jason T. Strickland is a member of the Litigation Practice Group at Ward and Smith, P.A.
When a significant dispute arises between parties in a contractual or commercial relationship, phrases such as the following are often heard:
• “I’ll see you in court.”
• “This is headed to litigation.”
• “Our contract requires that we arbitrate.”
• “We are required to mediate first.”
Frequently, these terms are used interchangeably and imprecisely. Knowing what these terms actually mean is important for understanding what you are likely to encounter if you end up in a dispute that requires resolution by formal legal means.
Litigation refers broadly to any legal procedure by which parties to a dispute seek a resolution. The roots of our dispute resolution processes go back nearly a millennium to a time when judges were sent by the King of England throughout the kingdom to resolve disputes. This was done in an effort to prevent parties from resolving disputes themselves, which typically involved destruction of property, injury, or even death.
Without the King’s assistance, if a property owner refused to pay for the materials, effort, and money a homebuilder put into the construction of a house, then the homebuilder had three basic “self-help” options: threaten to tear (or burn) down the house; threaten to injure or kill the property owner; and, if those options didn’t work, carry out one or both of the threats just to feel better!
Obviously, these options not only were counterproductive, but also were ineffective in actually getting the homebuilder paid for his work. Further, the homebuilder could reasonably expect retaliation from the property owner’s family or friends which itself induced further retaliation, home burning, injury, and death. Thus, the king’s concern.
If home burning, personal injury, or killing seems like a dark or extreme outcome for a commercial dispute, then this is a testament to the effectiveness and value of the system of Anglo-American litigation initially conceived of more than a thousand years ago. We have come to accept that if we are harmed by the wrongful actions of another, then our recourse is to a relatively peaceful dispute resolution process administered by our judicial system. It is now generally accepted – even if not commonly understood or appreciated – that this process is better than having the parties resolve the dispute themselves by wreaking more havoc on and loss to society.
Today, the most basic form and, in fact, the default form, of litigation is dispute resolution through recourse to the courts. Outside of the criminal context, this procedure typically involves a plaintiff initiating a formal lawsuit by filing a complaint naming the other party to the dispute as a defendant. The complaint sets forth the factual basis of the plaintiff’s claims, the legal theories upon which the plaintiff is relying to obtain recovery from the defendant, and the recovery the plaintiff is seeking to obtain from the defendant. The defendant next files an answer and then the parties will engage in a period of discovery which involves the exchange of information relevant to the case.
If the case does not settle or is not decided in a summary fashion beforehand, the parties will then present their case in an adversarial fashion at a formal trial where the ultimate outcome will be decided by a judge who determines what law applies and a jury that makes a determination of facts.
In most, but not all, cases, the ultimate remedy will be some form of directive by the court that one party pay money to the other. A party disappointed with the results obtained at the trial court can typically pursue an appeal to a higher court where significant outcome-effecting errors can be reversed or corrected. Litigating in court often involves mediation (discussed below) which can occur before, during, or even after litigating in court.
Arbitration is a form of litigation that involves an agreement between the parties to submit their dispute to an arbitrator or arbitrators in lieu of the court system. Arbitration was developed under the premise that litigating in court with a judge and jury is overly expensive, complicated, and time consuming. The undergirding principle of arbitration is that the parties themselves can fashion a flexible procedure applicable to their dispute that is no more time consuming or costly than is absolutely required by them.
Arbitration, although once highly favored as an alternative to court-based litigation, is now recognized by many as not substantially different in terms of cost and time from litigating in court. The basic principles of dispute resolution applicable to litigating in court and litigating through arbitration are substantially similar.
However, arbitration does differ from litigation in the following significant respects:
• There are generally no appeals. Thus, the arbitrators’ decision is typically final and unchallengeable.
• Most procedures used are guided by the parties’ agreement rather than by the inflexible and rigid rules used in court-based litigation.
However, these benefits are balanced out by the fact that, notwithstanding other costs such as filing fees, the major costs of court-based litigation – such as the cost of the judge and jury – are borne by the government. In arbitration, the parties must bear all of the costs.
Mediation is a procedure whereby a third party neutral seeks to assist the parties in resolving their dispute. Mediation typically commences with the parties and the mediator meeting in a single room. The mediator provides an overview of the mediation process, followed by the parties providing a brief summary of their respective positions in the dispute. The parties then adjourn to separate rooms. The mediator travels between the rooms, discusses the dispute with each party, and attempts to facilitate the flow of information and settlement offers between the parties.
The mediator has no actual power to render a result or compel either party to settle. Indeed, the only formal power the mediator really has is to require the parties to continue mediating so long as the mediator feels that continuing to mediate will be productive. This is not to say that the mediator can’t play a powerful role in effectuating a settlement. Mediators are typically trained in the art of negotiation and settlement and act as an intermediary between the parties while also attempting to disabuse parties of incorrect notions regarding the strengths of their legal positions in the case and the weakness of the other party’s case.
Put simply, mediators are often highly successful in getting parties to realize that if they do not resolve their dispute in mediation, they will be forced to spend substantial sums in legal fees to continue litigating for an ultimately uncertain result which, even if favorable to them, may not be sufficiently favorable to fully compensate them for the time, effort, and money spent to obtain that result. Frequently, the mediator’s most powerful tool is the ability to facilitate the flow of information and settlement offers between the parties without either party having to technically “go first.”
Arbitration and mediation are not mutually exclusive. Mediations are often conducted alongside, as part of, or before arbitrations or litigation.
There are various methods and components of dispute resolution, with the three most prevalent in the United States being litigation, arbitration, and mediation. All of these methods and components fall under the general category of dispute resolution which involves an effort to efficiently resolve disputes without additional or unnecessary harm or loss.
© 2012, Ward and Smith, P.A.
Ward and Smith, P.A. provides a multi-specialty approach to the representation of technology companies and their officers, directors, employees, and investors. Jason T. Strickland practices in the Litigation Practice Group where he assists clients in a wide range of issues involving litigation and dispute resolution. Comments or questions may be sent to firstname.lastname@example.org.
This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.