Alternatives To Litigation

• Pages: 99-127

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CHAPTER VI

ALTERNATIVES TO LITIGATION

Attorneys representing franchisors and suppliers, or franchisees and

dealers, should have a working knowledge of alternative dispute

resolution so that they may draft the parties’ contracts consistent with

their clients’ goals and be aware of the parties’ options and obligations

when disputes arise.

Many franchise and dealer agreements explicitly provide that

disputes must be resolved through binding arbitration. Some agreements

require the parties to submit to nonbinding dispute resolution before

initiating litigation or arbitration. Even where parties have not

contractually agreed to alternative dispute resolution, many courts have

the statutory power to compel parties to engage in nonbinding dispute

resolution. Further, parties that have not contractually agreed to a

dispute resolution mechanism may still agree after a dispute arises to

elect arbitration or mediation. And some litigants in commercial

disputes have chosen to use hybrids of mediation, court-based litigation,

and arbitration to resolve protracted disputes.1

This chapter provides an overview of the two basic forms of

alternative dispute resolution: mediation and arbitration. There are

numerous organizations providing mediation and arbitration services,

and many websites containing useful information about alternative

dispute resolution in general, including template contractual provisions

and pleadings, procedural rules, and advice.

A. Mediation

1. What Is Mediation?

Mediation is a process of direct negotiation between the parties to a

dispute that is facilitated by an impartial third party, who is often called a

“neutral,” “mediator,” or “facilitator.” Unlike arbitration, mediation is

1. For a discussion of such hybrids, see David Hechler, “Baseball”

Arbitration, NAT’L L.J., Jan. 23, 2002, at 1.

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nonbinding. The mediator has no authority to enter judgment or to

compel parties to enter into an agreement. Mediation usually is

voluntary, although more courts are implementing programs compelling

good faith participation in mediation. Absent court-ordered mediation or

a contractual obligation to mediate, parties to a dispute may decline

mediation or walk away from mediation at any time for any or no reason

without penalty.

Mediation may be facilitative, evaluative or a combination of the

two. In a facilitative process, the mediator focuses on facilitating the

resolution of the dispute by the parties themselves, without any

assessment of the merits of each party’s case. In an evaluative process,

the mediator will assess the strengths and weaknesses of each party’s

case, and opine on the parties’ respective chances of success and on

settlement terms that he or she would consider fair. A growing number

of courts have developed programs in “early neutral evaluation,” or ENE.

In ENE, a neutral or impartial expert is assigned by the court or agency

early in the litigation to provide the parties with an evaluation of the

strengths and weaknesses of the case after an informal presentation to the

evaluator by the parties.

Whether the parties should choose a facilitative or evaluative

approach is often a question of strategy. A party confident in the

strength of its case may prefer an evaluative process in an attempt to

impress upon the opposing party its likelihood of success. Conversely,

the party with the weaker position may prefer a facilitative process to

maximize its settlement value despite its weaker case. Overall, where

counsel feels that the unrealistic expectations of the other party or even

of his or her own client are an impediment to settlement, an evaluative

process may be beneficial.

Practically speaking, parties need not expressly agree to one form of

mediation over the other. Instead, the form that mediation takes is often

a function of the style and strengths of the mediator chosen or appointed.

Attorneys specializing in franchise and dealership disputes and retired

judges experienced in applying those laws are preferred mediators in an

evaluative process because of their knowledge, experience, and

credibility.

2. When Is Mediation A Good Idea Even Though Not Required?

Parties to a dispute may have no choice but to mediate if the court

orders it or their contract requires it. Absent an obligation to mediate,

parties to a dispute should consider whether mediation would be useful