W hen practitioners think of arbitration, they Binding usually - PDF document

A R B I T R A T I O N NON-BINDING ARBITRATION: AN INTRODUCTION By Steven C. Bennett W hen practitioners think of arbitration, they Binding usually mean a process that results in a arbitration has final, binding and enforceable award, received much more which serves as an alternative to liti- attention than non-bind- gating in court. But there are many circum- ing. Steven Bennett, a practi- stances where a process that is not as bind- tioner who frequently writes about arbitration, remedies this ing as arbitration may be useful to parties imbalance. Here, he discusses how involved in a dispute. Non-binding arbitra- non-binding arbitration works and tion may be what the circumstances the advantages of this process. He demand. However, this process rarely re- distinguishes between private ceives much attention. This article attempts and court-referred processes to fill that gap. and discusses how to design the process. He also addres- The Spectrum of ADR Processes O n e Alternative dispute resolution (ADR) processes step up ses enforceability and may be arranged on a spectrum from simple and from settle- the effect of a non- voluntary to complicated and mandatory. The ment discus- simplest ADR process involves having settlement sions is media- binding award. discussions. The parties can easily have such dis- tion. This pro- cussions on the telephone or at in-person meet- cess introduces a ings. Unless a court or other legal body mandates neutral third party into that settlement discussions take place, the process the picture, whose role is to is entirely voluntary and generally quite flexible. assist and encourage the parties to reach an The parties can meet when they desire as many agreement on some or all of their differences. times as they like, using whatever format for dis- The mediator facilitates the discussions by, cussion they prefer. among other things, asking the parties to state Reprinted with permission from the Dispute Resolution Journal , vol. 61, no. 2 (May-July 2006), a publication of the American Arbitration Association, 335 Madison Avenue, New York, NY 10017-4605, 212.716.5800, www.adr.org. D I S P U T E R E S O L U T I O N J O U R N A L 1

A R B I T R A T I O N their views on the issues, try to see the issues require all (or some class of) cases to be screened through non-binding arbitration first. 5 Only if from each other’s point of view, identify what each wants and needs from the mediation, and the results are unsatisfactory must the court or encourage the parties to begin the process of agency decide the matter after a formal hearing making settlement offers. The mediator may also de novo . help the parties evaluate the strengths and weak- In addition to these institutional forms of non- On its face, non-binding arbitration may appear to be quite inefficient. Yet, when properly implemented, it can serve several useful purposes. nesses of their claims, and even suggest an binding arbitration, parties may agree to have a amount (or range) for a reasonable settlement. non-binding arbitral process to address their dis- Although mediation can involve limited discovery pute. There is a business purpose to this: The and briefing in appropriate cases, the goal that is purpose is to provide the parties with an advisory always at the center of the mediation process is to opinion which they can adopt as their settlement, reach an agreed-upon settlement. if they wish to. Or the parties may use the award One step above mediation in the spectrum of as an indicator of the probable result in the event ADR processes is non-binding arbitration. This of a full-scale trial, and proceed with settlement process is more formal and involves more manda- discussions, making use of the arbitrator’s opin- tory procedures. Indeed, non-binding arbitration ion as they see fit. resembles conventional arbitration in that some discovery and briefing usually take place, and Benefits of Non-Binding Arbitration there are often formal hearings where evidence is On its face, non-binding arbitration may presented and witnesses are examined and cross- appear to be quite inefficient. The parties go examined. A non-binding arbitration award dif- through the motions of traditional arbitration fers from a traditional arbitration award only in only to end up with an award that has no binding that it is not binding. However, in some circum- effect. If the parties do not settle, they may be stances it could become binding. forced to repeat the entire process at a trial, Many states sponsor ADR programs that offer administrative hearing, or in binding arbitration. non-binding arbitration, 1 sometimes for cases Yet, when properly implemented, non-binding valued under a certain amount. 2 These programs arbitration can serve several useful purposes. 6 usually provide that the award will First, it can be a “springboard for discussion” 7 become final unless one of the par- because it provides the parties with important ties files a request for a trial de information about how a knowledgeable fact Non- novo within the time provid- finder might decide the case. Second, because the ed in the statute or rules. 3 award is advisory, there is no need to argue that binding arbitration There is a downside to the arbitrator failed to follow proper procedure could be structured so that requesting a trial de or ignored the essential facts and law of the case. the award never becomes bind- novo , which is that the Thus, non-binding arbitration eliminates the requesting party could possible need to appeal an adverse decision, ing. In essence, it is advisory only. be assessed arbitration thereby making it less costly in time, money and If the parties wish to adopt the and court costs, plus frustration. award as their settlement, they may attorney’s fees, if the A party who is unhappy with a non-binding judgment in the new award and chooses not to settle may litigate the do so. If they decide against adopting trial is not more dispute in court (or binding arbitration, if the the award, they could be forced to favorable than the parties agree). But because this is a costly deci- repeat the entire process at a sub- arbitration award. 4 sion, the disappointed party is likely to think hard sequent court trial, adminis- Some courts and about it and try to find a more businesslike solu- agencies may direct par- tion. trative hearing, or in ties to participate in non- In addition, non-binding arbitration shares binding arbitration. binding arbitration on an some of the benefits of traditional arbitration: it ad hoc basis. Others may have is more flexible and more private than litigation standing orders or rules that because the parties can agree to keep arbitration M A Y / J U L Y 2 0 0 6 2