The Mediation-Arbitration Option

While most parties choose to resolve disputes by either mediation or arbitration (or litigation), there is a hybrid process – known as Med-Arb – that parties occasionally prefer. As its name implies, the parties first mediate and then, if and only if they are unable to resolve all issues by settlement, the mediator changes hats and sits as an arbitrator, resolving whatever issues remain unresolved. The process is problematic for a number of reasons, not the least of which is that the “arbitrator” is (normally) privy to each party’s confidential assessment of its case (and its opponent’s case) as a result of the information learned during the mediation phase and, even if he or she agrees to base an arbitration award only on evidence presented during the arbitration phase, may well be influenced or affected, at least subconsciously, by information learned during mediation.

There are other variations on traditional mediation that avoid the conflict of interest/appearance of fairness problems associated with the neutral changing hats in mid-stream and retain the parties’ ability to decide their own fate. One is the use of a mediator’s proposal if impasse is reached: the mediator gives the parties a written settlement proposal, which they are free to accept or reject within a pre-determined time limit; they communicate their decision to the mediator only – if one party rejects a proposal, that is the end of the matter but the “rejecting” party will never know if the other side accepted, thus preserving both parties’ settlement positions for future negotiations. Another is to use a med-arb process but to dispense with a formal arbitration “hearing” at which evidence is presented: instead, the parties rely on what they’ve told the mediator during the mediation (or have the opportunity to present a short brief summarizing their kep points) and each present (to the neutral only) a “last best offer”, with the neutral then simultaneously sharing the LBOs to both parties and then choosing to adopt one or the other; regardless of the history of offers during the mediation, this process generally results in the claimant/plaintiff reducing its demand and the respondent/defendant increasing its offer so as to narrow the gap and not encourage the neutral to pick the other’s LBO.

I will serve as the neutral in a med-arb process only when the parties are represented by counsel, I have explained to counsel the more-traditional ADR options (including the variations described above), and I have some reasonable assurance that counsel has competently and completely explained to the participants the risks and potential problems associated with using a med-arb process like that described below. When I do agree to serve as the med-arb neutral, I insist that the parties execute an agreement along the lines of the below form.

Mediation and Arbitration