Chapter 7

• Jurisdiction: United States

Chapter 7 A Brief Introduction to Alternative Dispute Resolution

We have seen so far that the great majority of "disputes" are just informally worked out by the parties themselves. When such efforts are not successful, we have also seen that America has a large and fairly complex system of courts for formal resolution of disputes within a strong legal framework.

In this and the following chapters, we will be talking about some ways of resolving disputes that sit between the informal "do-it-yourself" approach and the formal judicial approach. In so doing we will focus on arbitration and mediation and touch very lightly on some other practices.

First, we need some context. The judicial approaches to dispute resolution that we have already discussed are centuries old and are used many millions of times a year. Why does anybody need another approach?

There are actually several reasons. We will discuss the most important ones briefly below.

The first reason is time. People and businesses sometimes need their disputes settled quickly. In businesses, the dispute over a few thousand dollars may be slowing down a project that involves many millions of dollars. In disputes between people, the controversy may be interfering with daily life by weighing heavily on the minds of the parties, or it may involve what to a business would be a small amount of money, but to an individual is a lot of money. It might be an employment dispute that prevents a person from working and making a living.

Courts are relatively slow in private disputes. Courts are required by the Constitution to hear criminal cases very quickly, so the other matters—civil cases—are pushed later in the calendar. When it comes to arbitration, the potential time saving is clear. On average, U.S. district court cases took more than twelve months longer to get to trial than cases adjudicated by arbitration (24.2 months versus 11.6 months). If a federal district court decision is appealed, another year may be added to the process (33.6 months versus 11.6 months).

And time is not just time. It is also money. A case that takes two or three years to complete will run up significant attorney fees and use up much management time in business cases. Cases taken to arbitration will require additional payments (for the arbitrator's fee), but the cost savings from faster resolution will quickly offset that.

Arbitration results in significant cost savings because the amount of discovery that occurs in an average...