Alternative dispute resolution (ADR) refers to the methods that individuals use to resolve disputes without resorting to civil litigation (i.e., without going through a trial). ADR includes any method or procedure for achieving this purpose; however, there are two commonly recognized processes: arbitration and mediation. Employing these resolution methods may be mandatory or voluntary. Further, these methods may not be exclusive. That is, the parties may employ mediation, arbitration, and litigation, all within the realm of a single dispute. There are unique procedures and general legal principles applicable to each of these processes.
Check Your Knowledge
Question
1
Which of the following is the best definition of a "settlement"?
Settlement means that the parties to a legal dispute work out their differences and enter into an agreement to resolve the situation.
Settlement is the process by which parties to a legal dispute employ a third party to assist in resolving the dispute.
Settlement is a form of alternative dispute resolution in which the parties choose to forgo litigation and solve their problems through a third-party decision maker, known as an arbitrator.
Settlement is when a judge or jury makes a decision resolving a legal dispute.
Correct. This is the best definition of a settlement. Settlements may occur at any point in time prior to or during litigation, mediation, or arbitration.
Incorrect. This is the definition of "mediation." Although some settlements come after mediation is attempted, some settlements come without mediation through other methods, such as negotiation.
Incorrect. This is the definition of "arbitration." A settlement may sometimes come before an arbitration is complete.
Incorrect. When a jury makes a decision resolving a dispute, it is after a trial has taken place (except for grand juries in some criminal processes, which occur before trial). A judge may make a decision resolving a legal dispute at many times during the litigation process.
Question
2
Which of the following is not an advantage of mediation?
The parties to mediation generally have more control over the process than they have in court.
The dispute is more private when resolved through mediation than in court.
The costs are typically when pursuing mediation than when pursuing litigation.
A jury composed of normal citizens during mediation allows for a fair outcome.
Incorrect. The parties within mediation typically have more control over the process than they do in court, where judges have significant control over the parties and process. This is generally viewed as an advantage.
Incorrect. Mediations allow for more privacy and confidentiality than the trial process does. This is a significant advantage, particularly for people and businesses that need to keep information confidential.
Incorrect. Mediations generally cost less than the trial process does, when a mediation is successful. The advantage of cost-savings is very appealing to many parties seeking to engage in mediation.
Correct. There are no juries during a mediation, which is sometimes, in itself, an advantage related to the control and self-determination of the parties. Due to the fact that there are no juries during mediation, it cannot be an advantage of mediation.
Question
3
Which of the following is the key characteristic of arbitration?
The key characteristic of arbitration is that the parties are hiring an unbiased third party to help facilitate a resolution to their dispute by trying to help the parties reach agreement.
The key characteristic of arbitration is that the parties are hiring one or more unrelated and unbiased third parties to decide the legal dispute.
The key characteristic of an arbitration is that the parties are given the opportunity to present evidence in front of a jury of citizens.
The key characteristic of an arbitration is that it is utilized by many popular reality court television shows to bind the parties who appear on the shows.
Incorrect. The description here is more akin to that of a mediation, during which a mediator is hired to help facilitate a resolution to a dispute by trying to help the parties reach agreement.
Correct. The arbitrator, the unbiased third party hired by the parties, acts in a "judge-like" capacity when hearing evidence and coming to a decision about how the dispute should be resolved.
Incorrect. Juries are used during the trial process, but not during an arbitration. In an arbitration, the arbitrator makes the decisions that a judge or jury would make during a trial.
Incorrect. Although, it is true that many parties who appear on popular reality court television shows are actually in an arbitration. This is because it is made to look like court, but it is not the key characteristic of an arbitration.
Question
4
Which of the following is not an advantage of arbitration?
There may be significant cost savings associated with arbitrating, rather than litigating, a dispute.
Arbitrators are generally chosen based upon their expertise in the subject matter of the dispute.
Parties to an arbitration maintain more control over the process than they do in litigation or mediation.
The dispute is more private when resolved through arbitration than in court.
Incorrect. Often, arbitration is significantly cheaper than litigation because it is less formal in many ways. For example, the discovery process—which can be very expensive—and the limited grounds for appeal.
Incorrect. The expertise of an arbitrator is generally perceived an advantage over juries, who typically have no specialized skills or knowledge regarding the subject matter of the dispute.
Correct. When submitting to arbitration, the parties give up a significant amount of control and self-determination, just as they do when pursuing litigation. In an arbitration, the parties give up control to the arbitrator, whereas in litigation, the parties give up control to the judge and jury. Moreover, more control over the process is preserved by mediation than by arbitration. This is because in mediation, the parties are not bound by anyone else's decisions but their own.
Incorrect. Arbitrations allow for more privacy and confidentiality than the trial process does. This is a significant advantage, particularly for people and businesses that need to keep information confidential
Question
5
In which of the following circumstances does the Federal Arbitration Act (FAA) apply?
The FAA applies when the dispute is subject to mandatory federal arbitration, or when there is a voluntary arbitration agreement, and the dispute involves federal law.
The FAA applies to all arbitrations within the United States.
The FAA applies to all arbitrations worldwide, so long as a US party is involved.
The FAA applies when a dispute arises under state law, federal law, or if a dispute is initiated voluntarily within a federal jurisdiction.
Correct. For mandatory federal arbitration, the FAA is mandatory. However, the parties within voluntary arbitration may agree to a different set of laws, but applying FAA standards may affect a party's ability to enforce the arbitrator's award through the court system. Most importantly, the FAA requires that where the parties have agreed to arbitrate, they must do so in lieu of going to court.
Incorrect. Although the FAA is influential as a far-reaching public policy, it does not apply to every arbitration in the United States.
Incorrect. Although the FAA is influential as a far-reaching public policy, it does not apply to every arbitration involving a US party in the world.
Incorrect. Although the FAA is influential as a far-reaching public policy, it does not apply to all state and voluntary arbitrations.
Resources
Licenses and Attributions
Business Law: An Introduction, by TheBusinessProfessor.com, Jason M. Gordon & Colleagues has been adapted with permission from Jason M. Gordon. © Business Professor, LLC.