March 30, 2021 Practice Points

Try Med-Arb as an Alternative to the Typical Alternative Dispute Resolution

An alternative to traditional alternative dispute resolution called med-arb, a combination of mediation and arbitration, should be strongly considered in small and uncomplicated cases.

by Brian R. Gaudet

Alternative dispute resolution in the construction context typically means arbitration and mediation. Dispute review boards and executive negotiations are some others, but those are far less frequently used. There are alternatives to traditional alternative dispute resolution (hi low arbitration, baseball arbitration, med-arbs, neutral case evaluation, and other creative variations of trying to figure out who gets what from whom). One such method that I would ask folks to consider is the med-arb, a combination of mediation and arbitration. The parties first try to mediate the case to resolution and in the event the mediation is unsuccessful, the mediator turns into an arbitrator and renders a decision. Depending on the facts and complexity of the case, there may be nothing more needed after the mediation in order for the arbitrator to make a decision. Occasionally, additional documentation or witness testimony is required. A variation (called arb-med) is having a short arbitration first with the arbitrator putting a decision in a sealed envelope; the arbitrator then tries to mediate the parties to a mutually agreeable resolution in lieu of the decision. If the case is resolved in the mediation, then the arbitrator simply throws away the proposed award.

Med-arb should be strongly considered in small and uncomplicated cases. Parties usually do a pretty good job of setting out their position and the law during a mediation. With several back and forth trips of the mediator, the dispute is usually fairly well understood. After investing half a day talking about the facts and legal issues, it seems wasteful to repeat that process in court or an arbitration. A  med-arb should start with the parties exchanging a position paper rather than a confidential mediation memo so that the mediator/arbitrator (“facilitator”) and the other party have an opportunity to understand the other sides position on the pertinent facts and the law.

One concern of the facilitator is whether the parties have agreed going into a mediation that it will be a med-arb. There may be reluctance to turn a mediation into a  med-arb at the end of the day. Accordingly, this should be discussed in advance. The main criticism of the  med-arb is the idea that parties may not be candid with the mediator during mediation (i.e. especially in disclosing weaknesses in their case), thereby preventing the mediation process from working appropriately and making an arbitration result much more likely. Theoretically that is possible, but one must question how vulnerable and candid parties become during a construction mediation to begin with. One criticism of mediation is sometimes parties do not attend with the intention of trying hard to resolve the case at mediation, but rather to find out more about the opposing parties case or to try to set up a resolution down the road. The benefit of the  med-arb is that the parties last chance to resolve the matter themselves IS during the mediation… there is no tomorrow or later. The med-arb can be useful in making sure both parties are committed to trying hard to resolve the case in that moment. When the dollar amounts are lower and the issues are not complex, significant efficiencies in resolving the matter can be gained by trying a  med-arb.

I have participated in a number of  med-arbs as a party representative. In all but one case a mediated settlement agreement was reached. In the one instance it went to arbitration, the facilitator did not require any additional information from the parties and rendered a decision that was reasonable based on the evidence presented. Admittedly, there was some evidence not gathered that could have helped inform the decision, such as a site visit that would have taken a full day and/or several depositions. If the parties engaged in those activities, a mediated settlement would not have been a possibility, and the outcome of the arbitration may have differed. Or it may not have, but in either event both parties would have spent significantly more in legal fees than what the value of the dispute supported. In this instance, the legal expense was relatively low, the dispute was over even though the process was a little imperfect, and, in that sense, both parties got a great outcome overall.

Brian R. Gaudet, Board Certified, Construction Law, Texas Board of Legal Specialization, Kilpatrick, Townsend & Stockton, LLP.

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