Dispute Resolution – Litigation v. Mediation/Arbitration

Alan L. Stefaniak

When a construction dispute arises, it becomes necessary to decide whether litigation will be pursued or some other alternative dispute resolution mechanism. In some situations this decision was already made at the time the parties entered their contract. If the ALA form documents were used then a mediation/arbitration procedure will most likely have to be followed. However, even when the AIA documents have been used I will confer with my client and discuss the pros and cons of mediation/arbitration and determine if my client would prefer to litigate the matter or if circumstances exist such as the need to conduct discovery that we should still try to litigate.

It is well settled law that a contractual right to arbitrate can be waived like any other contractual right. Waiver will be deemed to have occurred when a party’s conduct has been inconsistent with the arbitration clause so as to indicate an abandonment of the right to arbitrate. Once a lawsuit has been filed you can claim that you no longer have the right to demand arbitration as you have waived that right and it is up to the other side to demand arbitration if they want it.

In determining whether to pursue alternative dispute resolution procedures it is generally thought they are more expeditious and less costly. My experience with the mediation/arbitration process leads me to advise that while the process is more expeditious, it is not less costly. The filing fees for mediation/arbitration are much more than to file a lawsuit. In addition the mediators/arbitrators charge significant hourly fees generally ranging from $400 to $600 or more. This can add up fast. There are no such hourly fees for a judge or jury in a lawsuit. Also you need to consider if more than one arbitrator is required by contract provision or by the rules of the agency administering the arbitration. Unless a case involves hundreds of thousands of dollars I personally see no reason for more than one arbitrator. I have been confronted with situations where a contract requires arbitration and the clause in the contract calls for multiple arbitrators and the amount in controversy is not that large. In these instances I have approached counsel for the other side and suggested that we agree to use only one arbitrator. In most cases the other side agrees since they realize that the expense of multiple arbitrators is not necessary.

Another possible disadvantage in arbitration is that discovery is not allowed or limited to a great extent. This may not be that much of a problem if the issues are straight forward and based primarily on documents. Also if the dispute has been going on for some time and the parties have been trying to settle then you have a good idea of what the other side is going to say. You also need to consider what agency is administering the arbitration. If it’s the ALA then the rules only allow for exchange of documents before the arbitration hearing. Some other agency’s rules allow for limited depositions. In most cases one for each side. Again the whole concept of mediation/arbitration is to streamline the process so extensive discovery is not going to bemediation/arbitration is to streamline the process so extensive discovery is not going to be allowed. In my experience limiting discovery does not hurt either side and does serve to expedite the process.

In determining whether to mediate and arbitrate a construction dispute I need to consider who the client is and what setting is best for that person. Mediation/arbitration provides for a more informal dispute resolution process. In one case I was involved in which required arbitration it would have been a disaster to litigate the case. My client was very knowledgeable about his construction business but he could not testify without using his hands to gesture and draw. While this was allowed in the arbitration it would not have been in a courtroom. I have had other clients who were extremely good witnesses in a courtroom and did quite well. The bottom line is I need to consider if my client is going to be more comfortable in an informal setting as opposed to a courtroom. In an arbitration proceeding, the rules of evidence are relaxed and the proceeding is private. No public record is made of the dispute nor the award that is made. However, another important consideration is the finality of the award. It is extremely difficult to vacate an arbitration award. Also there is no appeal from an arbitrator’s decision.

If mediation is required before arbitration, my experience is that mediation only has a chance to succeed if the process is treated seriously. It is necessary to be throughly prepared even though the mediation process is informal. Mediation gives an opportunity to determine how a neutral third party will react to the claim you have and the reasonableness of the settlement position you take. If a mediation is going to have a chance of success a well prepared presentation is needed that is well formulated and presented concisely. In a mediation it is necessary for me as the lawyer to not let the adversarial nature of good lawyering overtake the mediation process. The more conciliatory and cooperative the parties and their attorneys are the more likely an amicable resolution will be achieved.

If litigation is possible and determined to be the preferred means of resolving the dispute a determination needs to be made whether to request a jury trial or bench trial. I always confer with my client before making this decision. Some people distrust judges and would rather place their fate in a jury of their peers. In addition a trial by jury is a constitutional right. However, 1 always caution my construction clients regarding the complexities of construction litigation and what the public’s attitude is toward contractors. This is especially true when I represent homebuilders. I would almost never advise a homebuilder to demand a jury trial. ‘[‘his is not so because homebuilders don’t do good work but because the jury pool is most likely going to consist of at least some people who have had a problem with a builder. In such situations it is much better to take your chances with a judge and a bench trial than a jury.

A trial before a judge is much like a proceeding before an arbitrator. Even though the rules of evidence govern, in my experience in most bench trials almost all evidence is admitted. There is one important difference between a bench trial and an arbitration. You can appeal from a judge’s decision.

Regardless of which dispute resolution mechanism is chosen it is important to properly determine the facts and present them clearly and concisely. I always advise my contractor clients that just as they use an architect’s plans for construction of the building the complaint I prepare or the demand for arbitration that I submit is the blueprint for resolution of the dispute. To the greatest extent possible we need to get it right and do so the first time it is submitted so that amendments are not needed.

Regardless of whether the dispute is being litigated or arbitrated it is important to properly frame the claim and present it in the best manner possible. t advise my clients that it is extremely important that we know the facts, marshal the evidence such as job logs, time records etc., to support the claim. We need to present the case clearly, succinctly and be consistent. To the extent this is done and done well the more likely success will be achieved whether it’s in litigation or arbitration.


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