From the November 2000 issue of Entrepreneur

"See you in court!" yells the irate vendor just before slamming the door. The botched deal will cost both sides thousands of dollars to correct, and frustration has erupted into blame and anger. As you reach for the phone to call your lawyer, you think about the past lawsuits you've been embroiled in-hours of digging out documents for discovery, months of depositions and motions, stacks of briefs and counter-briefs, days of tension in court, thousands of dollars in legal fees, and all for what? There has to be a better way.

There is. Alternative dispute resolution (ADR) is growing nationwide, providing individuals and businesses with cheaper, faster ways to resolve disputes. The two major types of ADR are arbi-tration, in which parties hire private judges to decide their cases, and mediation, in which neutral parties help work out solutions. The number of ADR cases submitted to the American Arbitration Association grew from 95,143 in 1998 to 140,188 in 1999. Compare those figures to roughly 45,000 cases per year in the mid-1980s. The association's case load for mediation grew 17.5 percent from 1998 to 1999, reflecting the rate of growth in recent years.

The growth may be because of increased recognition that mediation lets the parties involved control outcomes. In litigation and arbitration, outcomes are decided by arbitrators, judges or juries, whose actions can be unpredictable. Someone wins and someone loses.

In many cases, though, what's needed is for the two parties to bend a little. "Mediation leaves you in control of your settlement," says professor Kenneth Kandaras, director of the Center for Advocacy and Dispute Resolution at John Marshall Law School in Chicago. "You leave the mediation only if you're satisfied." That doesn't mean that sitting down with a mediator guarantees you'll get everything you want. Nor does it mean that you simply split the difference. "It pushes both sides to give up more than they'd like," Kandaras says. But you're the one deciding what to insist on and where you can bend.

"Business people recognize that mediation is a better alternative," says Toni L. Griffin, vice president for corporate communications for the American Arbitration Association. Griffin notes that while cases can take years to get through all the stages of litigation, mediations can literally be scheduled the next day. In more than 85 percent of the mediation cases filed, she says, the parties are able to reach settlements-and preserve their business relationships.

"Once you walk into court, you're finished," says Naomi Angel, an attorney with McBride, Baker and Coles in Chicago who represents trade and professional associations. Observing the rancor that builds during lawsuits is one thing that led Angel to start recommending mediation to clients and to seek the training needed to be a mediator herself. Many professional mediators are attorneys or former attorneys looking for more conciliatory ways to resolve problems. "Clients can feel they're still right in a moral sense without the need to be vindicated in court," Angel says. She acknowledges that people who've had to give up part of what they wanted in a mediation won't always walk out as buddies, but she says they may still be able to work together in the future.



Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.

How It Works

Entrepreneurs do well to consider mediation for employment problems, commercial disputes and even negotiation with government agencies. Professor Barbara Fick of Notre Dame Law School, who teaches courses in ADR and labor law, notes that one of the key advantages of proposing mediation when you have a dispute with an employee is the opportunity to retain the employee. "You've already put a lot of time and money into training this person," Fick says. "Mediation can help you work through the issues, so you get a person who's happy and productive."

Prompt resolutions can make a difference in commercial cases. Lee Goodman, a professional mediator and arbitrator in Northbrook, Illinois, notes that business cycles are so short that by the time cases go to trial, products in question may have been redesigned or discontinued and employees involved may have left. Speedy mediations can resolve disputes while they're still relevant.

More and more frequently, citizens and businesses are using mediation to deal with government agencies, too. The Administrative Dispute Resolution Act, signed into law a decade ago, set out the framework for mediation in disputes with the federal government. State agencies have established similar procedures. Professor Philip Harter of Vermont Law School notes, for example, that when there's a problem with a government procurement contract, the normal procedure is to go through the Federal Board of Contract Appeals. "That's a mysterious, complex process," Harter says. "But now you can explain the circumstances and try to work it out through mediation." When government agencies propose new rules or are considering controversial permits, groups of businesses and citizens are now getting into the act from the start by negotiating with the agencies and, if talks reach impasses, moving to mediation.

Starting with negotiation makes sense for nearly all disputes. It's only when talks break down that you need mediators. "A good mediator focuses on why these people can't agree," says Fick. "Is it that they haven't formulated the real problem? Is someone digging in his heels? Do they not know how to negotiate?" When mediators do their jobs well, she says, the parties will have the skills they need to work it out next time.

In cases involving businesses, mediation participants must have the authority to make decisions on behalf of the companies. For smaller disputes and those in which people are still willing to talk to each other, mediators may sit down with people from both sides and simply help them talk things out. For bigger problems, each side is normally represented by an attorney, who helps gather documents, prepare the client and submit a premediation statement.

In a typical scenario, after opening statements by attorneys, the two parties typically adjourn to separate rooms. The mediator talks with one group, then the other, back and forth until they reach a resolution. While the conversation in each caucus is confidential, the mediator may ask permission to tell the other side what was said. When the parties reach an agreement that everyone can live with, the attorneys draft a preliminary agreement that both parties sign.

All this does cost money, whether you reach a resolution or not-maybe $100 to $250 per hour for the mediator's time and skill, or $800 to $1,000 per day. "Not every problem can be mediated, and some aren't worth the money," Fick says. But if the issue is escalating into a lawsuit, mediation costs are pocket change compared to court costs.

Fick also raises the question of public policy. "I think there's a problem when you privatize civil justice," she says. If major court cases involving discrimination, defective products and other matters of principle or precedent were quietly mediated, the public wouldn't be able to benefit from the court decisions or the changing laws that often follow. Then there's the question of abandoning the civil justice system because of the time and expense it involves. "If no one uses the public system, maybe we should fix the system," she says.

Maybe so, but people want alternatives in the meantime. One option is to draw up agreements that submit disputes to mediation, and if that doesn't work, to arbitration. The threat of third parties deciding issues can move both parties to work harder on compromises.

Be sure to choose a well-qualified, skilled mediator. Check with the American Arbitration Association, which posts bios of mediators on its Web site (www.adr.org); the Federal Mediation and Conciliation Service, which focuses on employment disputes; private mediation companies; and local independent mediators. Some states even have certification programs. Ask other business owners for recommendations, and ask mediators how many cases they've mediated and who can offer references. If the other party in your dispute is willing to meet you at the mediator's office rather than see you in court, chances are, you'll both be better off.


Contact Sources

  • American Arbitration Association, (800) 778-7879, www.adr.org
  • Center for Advocacy and Dispute Resolution, (312) 987-1421, 7kandara@jmls.edu
  • Lee Goodman, (847)559-9525
  • McBride, Baker & Coles, (312) 715-5788, angel@mbc.com