The Three “tions”: Mediation, Arbitration and Litigation

David Allen

Partner

Jaburg | Wilk Attorneys at Law

For most people, their understanding of the legal system is based in large part upon what they see, hear, or read in the media. If you and your former best friend get into a dispute regarding whether that $1,000 check that you gave to him or her was really a loan or a gift, all you have to do is file some papers, and the next thing you know you’re on national television with Judge Judy or some other television judge calling you an idiot and deciding within ten minutes whether or not you will get your money back.

In the so-called “real world,” of course, the legal system does not work nearly so smoothly, nor so expeditiously. There are, in essence, three distinct ways to resolve disputes in a “legal” manner, and it is important to understand how they function and how they are different, particularly when entering into a contract, including a real estate contract, that mandates the use of one or more of them.

A mediation is a fancy word for a settlement conference, which is officiated at by somebody given the title of the “mediator.” Unlike arbitrations, with which they are commonly confused, in a mediation there will not be any adjudication by the mediator as to who is “right” and who is “wrong,” or who “wins” and who “loses.” Rather, the sole purpose and goal of the mediator is to facilitate a discussion about the dispute that ideally ends with the parties agreeing between themselves as to how to resolve it.If one side or the other is unwilling to compromise to the extent needed to reach a common ground for resolution, then the mediation will not result in a resolution, which leaves the parties to go down the road of a contested proceeding, meaning either an arbitration, or a lawsuit.

In its simplest terms, an arbitration is a private form of litigation, in which the parties agree that one or more “arbitrators” will review the evidence relating to the dispute, apply the law, and render a decision. While in that respect, an arbitration functions the same as a civil lawsuit, where the evidence is presented to a judge or jury, who must then apply the law and decide who wins and who loses. There are, however, several important distinctions between an arbitration and a civil lawsuit. For one thing, the parties to an arbitration are able to agree upon both the procedural rules and the substantive rules that will apply to the arbitration process, as well as the manner in which the arbitrators reach their decision; whereas in a civil lawsuit, the parties are bound by the rules and laws that have been established by the legislature and by judicial precedent. For another, in most instances the decision of the arbitrator is final; whereas in a civil lawsuit, an incorrect decision of the judge or jury can be appealed to appellate courts and potentially reversed. And while not true in all instances, typically arbitrations are more streamlined, less expensive, and quicker than a lawsuit that is litigated in either the state court or federal court systems.

When entering into a real estate contract, or any other contract, it is wise to anticipate the possibility of future disputes, and to provide in the contract for the method in which such disputes will be resolved if and when they do arise, whether by mediation, arbitration, or litigation.