Mediation & Arbitration
By Greg Crosslin
Alternate Dispute Resolutions for Pest Control Operators
The use of mediation and arbitration has grown dramatically in the last decade for parties to handle disputes. These are certainly two dispute resolution procedures that you may want to consider when dealing with customers. It is however necessary to understand the various nuances and requirements for each and compare them with traditional litigation in order to decide which, if any, you will use in your contracts.
For generations, the most frequently used method of dispute resolution was litigation. Litigation retains many advantages over both mediation and arbitration; however, the cost of litigating a court case involving claims against a pest control operator can easily run from $15,000 to $50,000.00. Accordingly, over the last few decades and increased expenses within the last ten years, less expensive dispute resolutions have become increasingly popular throughout the country. Many pest management professionals include mediation and/or arbitration clauses in their contracts. In fact, many decide to pursue such procedures when informal efforts to resolve disputes fail.
Because each of these procedures has advantages and disadvantages, it is very important that pest management professionals understand how they work and how they can work in conjunction with each other.
Generally speaking, mediation is an informal, private resolution process where the parties and their representatives meet with an unbiased, knowledgeable individual who endeavors to facilitate a settlement. Typically, mediators are retired judges, practicing attorneys or other individuals who are specially trained by state or national organizations. They generally can be selected by the parties without having to go through a judicial process for selection. One of the benefits of mediation is the parties are generally able to determine how the cost will be divided, how much will be expended for mediator services and how long mediation will last.
Initially, the parties submit written presentations setting forth their position statements on the issues together with any documents and/or evidence the mediator may need to understand the special issues of the case. This is basically to educate the mediator as to the facts at issue, to allow the mediator to understand the parties’ respective positions as to the facts and allegations and to begin the efforts of shuttle diplomacy.
Parties to the mediation do not have the right to conduct discovery (depositions or demand documents or evidence from each other); however, mediators will often ask parties to exchange information on a voluntary basis. After parties present their positions to the mediator, a mediation will be convened where typically a mediator will meet with all the parties as a group and go over the general aspects of the mediation, the purpose of mediation, explain the process of mediation and get the parties to thinking about how best to resolve the respective issues.
Immediately thereafter, a mediator will often break into small groups generally meeting with the Plaintiff or Claimant first to obtain a complete understanding as to their allegations and to discuss strengths and weaknesses of the respective positions. The mediator will “shuttle” between the parties pointing out the strengths and weaknesses or positions and will work with the parties in an effort to mutually reach an amiable settlement. A mediator cannot impose a settlement on the parties unless the parties have previously agreed that the mediation will be binding. Binding mediations are fairly rare. Because of the process, mediations are relatively quick and inexpensive and often provide insight into the theory of an adversary’s case which can be an important advantage in either arbitration or litigation if the same is pending. Because you have no right to discovery and no guarantee that your investment of time and money in mediation will result in a settlement, there is some risk of mediation being a complete failure. But because mediation is often quite effective, on balance, it is generally worth pursuing unless it has become clear that the emotional level of the parties has become such that one or both of the parties has become so inflamed or has inflamed the other party that emotions prevent reason from prevailing. Obviously this is something that will need to be addressed before mediation.
At the very least, mediation should be pursued because of its relatively low cost and opportunity for quick resolution. Mediation services are generally accessible throughout the country and is something that should be explored in virtually all types of disputes that cannot be resolved absent litigation.
An increasingly popular alternative to litigation is arbitration. This is a private dispute process in which the parties and their representatives (often attorneys) present their claims and defenses to an arbitrator (or panel of arbitrators) who actually decide the merits of the case. Arbitration is generally binding although non-binding arbitration is certainly available.
There are a number of ways that arbitrators can be selected. Arbitrators are often experts in a specific industry who can be selected by the parties or their attorneys or employed by an organization that offers arbitration services. Several arbitration services have become quite expensive over the years. Serious analysis of the services that will be provided by the arbitrator and/or the administrative services is necessary before selecting arbitration as a formal, agreed- upon resolution process. Moreover, although parties are generally required to pay various filing fees, form and administrative costs and arbitrators fees at the inception of proceedings, several agreements provide that the ultimate division of fees is determined by the arbitrators at the conclusion of the case. This needs to be well thought out and included in the original contractual agreement as well. It is not necessarily an “inexpensive” method of resolution and costs need to be well understood before the decision to include required arbitration in your contracts is made.
Typically, a claimant who initiates an arbitration proceeding will issue a statement of claim that explains the nature of the dispute, identifies the amounts involved and the remedies or resolutions sought. Respondents (typically the defendants) are entitled to file answering statements and assert present claims and cross claims if applicable. Arbitrations often involve multiple parties.
Initially, parties in arbitration generally were not involved in the discovery process and may not be necessarily entitled to discovery unless the arbitration procedure selected includes such a position. Under the rules of virtually all the organizations that offer arbitration programs, arbitrators may, in their discretion, direct parties to produce documents and information, identify witnesses and often will allow depositions and even a formal exchange of written discovery requests and responses. The parties are usually able to obtain some information about the respective adversary’s case and position. This however can change depending upon the amount in controversy and some special arbitration rules that apply for smaller amounts which do not allow for any discovery whatsoever. Thus, it is necessary to review the rules and procedures of the sponsoring organization prior to including the same in any agreement. Often the rules do not require parties to exchange documents until just a few days before a hearing while some do not even allow a specific rule of evidence from the respective states to control what will be produced and what will be reviewed.
Because there is a significant impact on the type of documents that will be required to be produced, ability to object to the introduction of exhibits and even to agree upon these exhibits, the sponsoring organization’s rules must be thoroughly understood before formally including an arbitration clause in an agreement. This simply is something that must be addressed before PMP’s insert the requirement in their contracts.
After a statement of claim has been presented, documents and information produced and exchanged, arbitrators will conduct a hearing in which parties may call witnesses in support of their claims and their defenses. The arbitrator will then conduct a hearing very similar to a trial when the parties may call witnesses and offer evidence in support of their position. Rules that govern the admission of evidence in courts typically do not apply in arbitration although they can be required by virtue of inclusion in an agreement. Presentation of evidence can be very loosely defined and is entirely up to the arbitrator.
Upon conclusion of the hearing the arbitrator will issue an award containing all the remedies that he or she deems appropriate, together with his or her assessment of appropriate costs and fees. Typically, in the United States parties generally bear their own litigation costs. In arbitration, however, and if requested by the parties or if provided by statute or by the agreement setting up the arbitration, the arbitrator, in his/her discretion, may also assess attorneys fees, expert fees and other costs against the parties.
Clearly, arbitration may be quicker, and ostensibly less expensive than litigation, but make no mistake about it, binding arbitration entails a number of risks and disadvantages.
Initially, because parties are not entitled to take discovery, they are not always able to learn everything they need to know about an adversary’s case which may serve as a severe disadvantage. Coupled with an adversary’s ability to withhold trial exhibits and documents until just before a hearing, the process of arbitration has often been labeled “trial by ambush.” Further, since the rules of evidence do not apply in arbitration proceedings, arbitrators are often free to base their decisions on testimony and documents that would be held too unreliable to be admissible by a court of law. Thus, decisions can be made upon items of evidence that truly are not worthy of being considered as evidence. Moreover, binding arbitration runs a significant risk because arbitrators are not required to justify their decisions in the same manner in which a judge is required. This often leads to awards that more than likely would never survive scrutiny if they were issued by a court.
Finally, and perhaps most important, an award by an arbitrator is not appealable in the absence of fraud, obtained by prejudice, misconduct and/or manifest disregard of the law. Generally, this means that you will have no recourse from an award, even if it is substantially unjust and/or based upon a mistake of fact or law.
In my opinion, all these factors mitigate against binding arbitration in cases in which large sums of money are at stake especially when you do not know much about your adversary’s position or if your claims of defense rest largely upon legal principles such as those identified in a contract.
Attached to the following pages are various samples of mediation clauses, arbitration clauses, and in fact a very creative mediation/arbitration clause used by one pest management professional who takes the marketing position that he does not want to ever be in a suit with his customers. Thus, he has incorporated a mediation/arbitration position so that all issues must first be submitted to mediation and if not resolvable at mediation then they go to binding arbitration.
These are just samples. Before you use any such sample, you must have the same reviewed by your local attorney. These are not applicable in all states and are general in nature.
No matter what your choice, make sure you understand the advantages, the disadvantages, inherent costs and risks involved with all forms of alternative dispute resolutions.
The jury system may not be perfect but its been around a long time. The ability to appeal a decision wrongfully made has certain value all to its own.
In the event of a dispute between PMP and/or its employees and Customer arising out of or relating to this Agreement, or to the identified property in any way, whether by virtue of contract, tort, or otherwise, including but not limited to the interpretation of the terms and conditions of this Agreement, the making of the Agreement, or breach of any provision of this Agreement, the parties hereby expressly agree to submit their dispute to binding arbitration for resolution in accordance with the rules and requirements of the American Arbitration Association. The parties acknowledge and understand that by agreeing to submit their dispute to binding arbitration they are effectively waiving their right to trial by jury as a means of resolving disputes. Any arbitration will occur in the State of __________. Furthermore, the parties acknowledge that they desire to arbitrate any dispute arising from this Agreement in an effort to resolve such dispute(s) quickly and avoid the costs of litigation. Judgment upon such arbitration award may be entered in any attorney’s fees, expert witness’ fees and other expenses it incurs on its behalf in connection with the arbitration, plus one half the arbitrator’s fee and one half of any expenses incurred by the arbitrator, and the award shall assess the arbitrator’s fees and expenses accordingly.
In the event of a dispute between PMP and/or its employees and Customer arising out of or relating to this Agreement, or to the identified property in any way, whether by virtue of contract, tort, or otherwise, including but not limited to the interpretation of the terms and conditions of this Agreement, the making of the Agreement, or breach of any provision of this Agreement, the parties hereby expressly agree to submit their dispute first to a qualified mediator. Should the dispute not be settled to the satisfaction of all parties, then the parties hereby agree to submit their dispute to arbitration pursuant to the American Arbitration Act for resolution.