Consider Mediation and Arbitration to Resolve Business Disputes While Court Access is Limited, and Will Be Backlogged, Amid the COVID-19 Pandemic
April 27, 2020
Mediation and arbitration are potentially attractive alternatives to resolving business disputes, especially given the pandemic induced stress on the court system. Courts in New York are operating on a limited basis due to social distancing rules, and will be backlogged even when they return to “normal.” Court litigation may be necessary and may be the best, or only option, for dispute resolution depending on the circumstances, but other options should be considered. In mediation a neutral third-party facilitates negotiations to resolve a dispute when the parties cannot negotiate a resolution on their own. In arbitration the parties agree to hire a private judge, the arbitrator, to decide their dispute, and it can be faster and less expensive than court litigation. We explain further below the potential benefits of mediation or arbitration in light of the current conditions in the court system.
Access to the Court System Is Currently Limited Due to the Pandemic and the Courts Will Be Backlogged Even When Access Improves
Courthouses in New York are physically closed to the public. The New York State and federal courts have stopped all trials, and are functioning on a much more limited basis than usual. Moreover, the New York State courts have barred the filing of any new civil lawsuits until further notice, and adjourned court conferences and the filing of non-emergency motions even in pending business cases. That leaves out the filing of complaints in business disputes in New York State courts unless there is a need for emergency relief such as a preliminary injunction to stop conduct that is causing irreparable damage. New lawsuits can be filed in the federal courts when there is federal jurisdiction, but such jurisdiction is more limited than state court jurisdiction. Even as the courts slowly increase their activities, and work toward the new “normal,” they are likely to be backlogged from the pending litigations that have been placed on hold, and the onslaught of fallout litigation from the pandemic.
The right to have your day in court is fundamental, but parties with a dispute should consider out-of-court options, especially amid the pandemic.
Under current circumstances, increased efforts should be made to reach a negotiated settlement to resolve a dispute, and even to re-set a workable business or contractual relationship under the changed business environment created by the pandemic. If that is not possible, then the parties might pursue mediation or arbitration to resolve their disputes.
Mediation to Resolve Disputes Out of Court
In mediation the parties agree to appoint a neutral third-party, the mediator, to help facilitate a settlement of the dispute as distinguished from an adjudication where a neutral third-party, like a judge, determines the outcome. Mediation is a non-binding, confidential, and consensual process that can be
tailored by mutual agreement to the particular needs of the dispute. For example, the parties may mutually agree on a mediator with industry-specific experience or experience with the type of legal issues in dispute. The mediator does not decide the merits of the dispute, but a mediator often will provide feedback on the merits as part of efforts to encourage the parties to reach a resolution. Mediation is also a process that easily allows the parties to take into account non-legal, business and other considerations as part of the effort to settle their dispute.
In the mediation process, each side can communicate confidentially with the mediator and reveal to him/her potential settlement outcomes that can be either communicated to the other side or for the mediator’s own reference. This allows a mediator to explore potential outcomes that might lead to a settlement without one party openly negotiating against itself with the other party.
Mediators will typically shuttle back and forth between each side to facilitate the settlement negotiations. Post-pandemic mediations are being conducted virtually using video and telephone conferencing.
Arbitration to Resolve Disputes Out of Court
Arbitration, unlike mediation, is an adjudication process like court except that the parties appoint a private decision-maker, the arbitrator, or in some instances, a three-arbitrator panel, to decide their disputes on the merits. The outcome of arbitration is usually binding, unless the parties agree otherwise, and, unlike court proceedings, there is usually little avenue for appeal.
Arbitration is a consensual process. Arbitration can be compelled if the parties consented to arbitration prior to the dispute, such as in a contract, or the parties may consent to arbitration after a dispute has arisen.
The parties may have their arbitration conducted under the auspices of a major provider of arbitration services such as the American Arbitration Association (“AAA”). Such organizations offer panels of experienced commercial arbitrators to serve on a case, and detailed rules for arbitration selection and the arbitration process. The parties can also proceed with an ad hoc arbitration in which the parties negotiate and agree on the selection of arbitrators and the rules for the arbitration process. The advantage of an ad hoc arbitration is that it can be tailored to the particular needs of the dispute.
Arbitration generally tends to be faster and more streamlined than court litigation with less expansive discovery of evidence. Court proceedings, including the judge, are paid by the taxpayer rather than the parties. In arbitration, the parties have the additional expense of paying the fees of the arbitrator(s) and any arbitrator organization like the AAA that is used, but those extra costs might be mitigated by lower party attorney fees if the arbitration proceeds in a streamlined manner.
Pre-pandemic arbitration hearings were typically conducted in-person although it was not uncommon for remote witnesses to testify by video conference or video depositions. Post-pandemic, the arbitration process will likely be more adept than the court systems at quickly accommodating virtual hearings as needed, particularly because the parties can work out such a process.
Our firm is experienced in handling business litigation and dispute resolution, including court litigation, mediation and arbitration discussed here. For more information on this or other business dispute issues, contact Steven Schoenfeld, Esq. (srs@ddw-law.com and 914-607-3115) or Nelida Lara, Esq. (nlg@ddw-law.com and 914-607-3108).
This article is Attorney Advertising and has been prepared for general informational purposes only. It does not, and is not intended to, constitute legal advice.