The case for mediation in an arbitration nation

Upon intake your client presents you with compelling facts and the potential for recovery of significant damages. After he/she signs a retainer agreement, you present a beautifully written and soundly based demand letter. The response comes with a twist you had not yet considered: the case is subject to binding arbitration. Now what?

Increasingly, attorneys are faced with the prospect of re-evaluating their case after they have been retained where the conflict is subject to binding arbitration. Even though most Arbitration forums do not require the parties to engage in mediation, it is very often a better option for several important reasons.

First, case law has repeatedly held that Arbitrators need not follow the law. Instead, they are permitted to base their decisions on "broad principles of justice and equity." Your thorough legal research may not be enough to predict the outcome in Arbitration. Generally, even errors of law committed by the arbitrator, no matter how gross, are not grounds for challenging the arbitrator's award under California law. Moncharsh v. Heily & Blase (1992) 3 C4th 1, 11, 10 CR2d 183, 188.

Second, there is no due process right to review an arbitration award (except in very narrow cases where there is a refusal to allow relevant evidence in or in cases of undisclosed conflicts of interest).

Third, the rules of evidence do not automatically apply in arbitration. (Civ. Proc. Code, § 1282.2(d)). And courts have found that it is immaterial what evidence an arbitrator relies upon or disregards. The court simply may not substitute its judgment for that of the arbitrator even if it appears to be illogical. Morris v. Zuckerman, supra, 69 C2d at 691, 72 CR at 883-884.

Fourth, the Arbitrator is making an award based upon incomplete information. The lawyers don't present jury instructions or an agreed upon legal groundwork to the Arbitrator. That is left to the Arbitrator to decide.

Fifth, a mediation presents an opportunity for a neutral third party to look below the surface of the controversy and uncover the underlying interests of the parties. Once the mediator uncovers those interests, she can address the claims that may go beyond the purely legal causes of action. In mediation, counsel, as advocates, have the chance to confide in the mediator about the range of possible resolutions that his/her client may consider acceptable. No such communication occurs with an arbitrator. The true interests and needs can be met through mediation in a way that is entirely elusive in arbitration. For example, in arbitration there is no chance to make law or set precedent or usually even to send a "moral" message by exposing wrongful conflict to the public. There are no non-monetary concessions available.

Sixth, there is little predictability and virtually no control on the outcome in an arbitration. Although the arbitrator has discretion to award a range of damages, statistical analyses have repeatedly shown that the outcome in arbitration may vary widely from Court and even among arbitrators. In a California Law Review article published in February 2019, the authors, Andrea Cann Chandrasekher and David Horton found that Arbitrators who were former Judges at JAMS gave a verdict in favor of Claimant between 19-30% of the time, whereas practitioners gave a verdict ranging from 19-45%. At ADR Services, Inc., the win rate for Claimants was higher--but still significantly lower in the hands of former Judges (ranging from 59-63% v. 58-75% for non-Judge Arbitrators). At both agencies, according to the study, there was a sharp decline in verdicts for Claimants where the Respondent was a "repeat player."

Seventh, mediation is both less expensive and more efficient than Arbitration. When Arbitration was initially adopted it was hoped it would be less expensive and more efficient than court. Yet the Law Review authors found that the mean arbitration fees ranged from $8,500-$37,000 for single Claimant cases. The length of time it takes to get to arbitration also ranged from a mean of 187 days for a consumer case at ADRS to a mean of 504 days in an arbitration at JAMS. That is hardly more efficient than Court and it appears to be more expensive, too. Mediation can usually be accomplished within six months and for less than $15,000 for a single day.

Eighth, mediation gives the lawyer a chance to act as counselor in advising his/her client to consider taking the best deal that is available at the time of the hearing instead of accepting the risk and incurring the expense of an arbitration hearing set in the future. Sometimes we lose sight of our role as counselors of law. A counselor, as defined in the Merriam Webster Dictionary, is a person who gives advice and deals with various issues, particularly in legal matters. In an arbitration, the lawyer acts as advocate, but loses all power as counselor.

Ninth, mediation allows the parties and their lawyers to maintain some control of the outcome. In arbitration, the control of the case is surrendered entirely to the arbitrator as each party rests his case. The Arbitrator never learns what each party wanted or what outcome either side may have found acceptable. It is a zero-sum game with no right of appeal.

Finally, mediation takes a lot of preparation and stress off your plate as you can usually accomplish your client's goals without setting aside a week or more of your time putting on a full case which has a 50/50 chance of winning at best.

In short, there are at least ten and probably many more compelling reasons to invest in a mediation in every case before trial preparation for arbitration begins. Once you and your clients have identified your clients' goals and analyzed all potential solutions to his/her problems, you will undoubtedly find that mediation is likely to optimize their outcome. No reason to fret over that initial response to your demand letter. You have good options.