Faster, Cheaper and In Control

Having a shipment of decaf instead of regular beans show up at a coffee shop might sound like a very specific problem, but for attorney Linda Klein of Baker, Donelson, Bearman, Caldwell & Berkowitz in Atlanta, it’s a handy way to explain how a business owner can fix an issue through alternative dispute resolution (ADR).

“The first thing you can do is engage in the simplest, most common form of ADR—negotiation,” she says. “You call the salesperson at the vendor’s company and talk it out. If that doesn’t work, maybe you escalate to the owner, who says, ‘I’ll give you a discount if you keep the decaf.’ You can say no and counter with, ‘Give me another 25 percent off my invoice.’ All of that is negotiation. If you still can’t agree, you have lots more options instead of filing a lawsuit.” 

Those options include mediation, in which a neutral third party helps the sides reach a voluntary agreement; and arbitration, with a neutral panel hearing evidence and issuing a decision. 

“Mediation is not binding, so no one can force you to settle,” notes Klein, a former president of the American Bar Association, who serves as a mediator, arbitrator and neutral. “Arbitration is different because, generally, it’s binding.”

Attorney and mediator Charles M. McDaniel Jr., who runs an eponymous firm in Atlanta, sees ADR used in almost every type of commercial dispute—vendor and employment conflicts, construction projects, and contract or insurance coverage issues. “It’s often found in the fine print of contracts,” he says. Courts encourage it, too. In many jurisdictions, parties must attempt mediation before a trial date is set.

McDaniel says arbitration is “patterned after court rules” but on a tighter schedule. Parties make their cases to arbitrators who have knowledge of the subject matter, as opposed to a jury, which tends to have a wide disparity of expertise. He urges clients to take what he calls a 180-degree analysis during ADR, viewing the case from the other side’s perspective—a shift that can soften hard positions and open paths to settlement. 

Time and cost savings are the main appeals of ADR. With crowded court dockets, litigation can drag on for years. ADR lets parties set their own pace, sometimes resolving matters in a single day. 

Klein recalls mediating a case that began with the parties $8 million apart and by evening had narrowed the difference to just $11,000. When talks stalled, she proposed “baseball arbitration,” in which each side submits a final number and the neutral must pick one of them. The need to put forward a figure that might actually be chosen by the neutral, she says, “encourages them to be really, really reasonable.” The case settled that night, saving the parties hundreds of thousands of dollars.

Privacy is another advantage. Court filings are public, but mediation proceedings remain more confidential, allowing for more candid discussions. “I might even say to my lawyer, ‘Maybe I am wrong here. Maybe I did make a mistake and owe something,’” says McDaniel. “I can’t put that in a court document. But in mediation, I can share [that information] with the mediator, and the mediator can’t be forced to testify later. None of that is admissible in court.”

Klein considers mediation the next-most economical step after direct negotiation. But she cautions that looming deadlines, such as statutes of limitation, may require filing suit first to preserve rights, with mediation following soon after.

ADR isn’t perfect and has its detractors. Arbitration awards are hard to appeal and the arbitration process often involves limited discovery, which can hurt a party that lacks access to key documents. “Sometimes faster and cheaper is not better if you don’t get the facts,” Klein says. And some disputes require a judicial ruling, McDaniel points out, such as when establishing legal precedent or interpreting contractual terms. 

McDaniel adds that built-in arbitration clauses in business contracts leave parties with no option for a jury trial because “the decision is the decision,” and appellate options are also limited. And mediation can fail if one party or the other does not approach it with the idea of working toward a solution and wants to use mediation to attempt to force the other party into an unreasonable position. In those cases, McDaniel says, trial may be the only realistic route.

But because ADR offers various ways to resolve disputes, parties can choose the approach that best suits the situation. As Klein puts it, “You may not come to the ‘perfect’ resolution, but you’ll get there quicker and save money. And that can make all the difference.”