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, NATL L.J., Jan. 23, 2002, at 1.
Franchise and Dealership Termination Handbook
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
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

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