In 1998, Professor Thomas J. Stipanowich, then of the University of Kentucky,  was asked to chart the future of arbitration in the 21st Century.  He suggested then that arbitrators would increasingly be asked to “wear more than one hat.” That is, he predicted the growth of hybrid forms of dispute resolution such as “med-arb,” a process in which the same neutral first attempts to mediate a dispute, then arbitrate if agreement cannot be reached.

Med-arb is a long-standing and robust practice that combines the flexibility and self-determination inherent in mediation with the certainty and finality of arbitration.   The purpose of this article is to introduce the med-arb process to those unfamiliar with it, and to suggest that those involved in business disputes explore this alternative.

 

Med-Arb is, and has been, widely used

 

Professor Stipanowich’s 1998 prediction was right on target. A survey performed the same year by David Lipsky and Ronald Seeber found that an astonishing forty percent of responding Fortune 1,000 corporations had engaged in med-arb in the preceding three years.

Med-arb is also very popular in other cultures.  In Japan, for example, most cases submitted to arbitration actually undergo “med-arb.”  Australia, Canada, Hong Kong and Japan have actually enacted arbitration laws that contain med-arb provisions. 6
In Canada and Australia today, med-arb is used routinely to resolve public sector labor disputes.  and arbitration statute in effect in New South Wales, expressly permits resolution by this method as well.

Nor is med-arb a new concept.  Professor Derek Roebuck indicates that in ancient Greek and Egyptian traditions, med-arb was the norm rather than the exception.   In both ancient and modern Muslim legal practice, the judge must make serious efforts to bring the parties to agreement before trial. 

Proponents of med-arb convincingly argue that it eliminates the major weakness of mediation – lack of finality  – while allowing the parties to use an arbitrator with whom they have built up trust during the mediation process , allowing maximum flexibility, and saving the cost and time associated with selecting a separate arbitrator should mediation fail.

Despite the popularity and obvious usefulness of med-arb, it remains controversial, with some arbitrators treating it as “heretical and even unethical.”  These observers view it as impossible to fairly combine the two processes, believing that the inherent tension between the neutral’s initial role as a facilitator and her potential role as an adjudicator renders the procedure coercive, ineffective, and disruptive of basic due process.  
But the med-arb process is alive and well in California, and depriving the parties of this alternative is unnecessary, given that the same risks exist, and are deemed acceptable, in other contexts. 

In Lindsay v. Lewandowski  , the California Court of Appeal expressly authorized med-arb, holding:

“We do not suggest that parties are prohibited from agreeing that, if the mediation fails, they will proceed to arbitration. And, should they so desire, they may agree that the same person may first act as mediator and, if he or she fails in this task, act as the arbitrator. Whether or not this arbitrator (nee mediator) may consider facts presented to him or her during the mediation would also have to be specified in any such agreement.” (Emphasis added)

Med-Arb’s advantages of finality and swiftness are obvious.  Whether the matter settles or not, it will shortly be resolved. Examining the process’ criticisms will help you to decide whether it is right for your dispute.

 

The due process / natural justice issue

 

Perhaps the most frequently-cited defect of med-arb is that the neutral hears evidence in private caucus that the non-caucusing party cannot respond to, because he has not heard it.   This is often referred to as a “due process or “natural justice”  violation.  Natural justice has two elements: Parties must be allowed to hear and answer an opponent’s case, and any decision affecting a person must be made by an impartial tribunal.  Likewise, `at its most basic, due process requires only notice and an opportunity to be heard. 

Med-arb detractors doubt that while acting as an arbitrator, the neutral will be able to disregard what she learned in the mediation phase  If true, this means that an arbitral party who was excluded from caucus during mediation has not had notice of “new evidence” presented during that private session, or an opportunity to respond to it.  This situation is a prima facie violation of fundamental fairness, whether it goes by the name of natural justice or due process.  

As Telford  points out, concerns about exposure to improper evidence reflect doubts about the neutral’s ability to disregard that evidence, rather than a flaw in the med-arb process itself.  But judges (many of whom retire to become mediators, arbitrators or both) are expected to routinely disregard inadmissible evidence presented to them for consideration, without any due process concerns being expressed.  Indeed, in many jurisdictions, judges are presumed to have disregarded inadmissible evidence. 

And there is no consensus about neutrals’ supposed inability to disregard inadmissible evidence.  Megan Telford, who surveyed med-arbiters working in Ontario’s Greivance Settlement Board. reports that the great majority of the neutrals surveyed felt that the issue was not a practical problem, since they were able to disregard inadmissible evidence.  

As Telford points out, the clients of the Ontario Grieveance Settlement Board are generally sopisticated “repeat players” (unions and employers) who could refuse to use a given arbitrator in the future if he or she was seen as biased.   Yet, Telford reports that the Grievance Settlement Board runs smoothly.  So such challenges must be few and far between. This suggests that the effect of the arbitator’s prior role as mediator is not as serious as Kagel  and others assert.

Finally, the above-quoted passage from Lindsay,  referring to the consideration of otherwise-inadmissible evidence as a matter for agreement, shows that the Court of Appeal, at least, believes that the med-arbiter can disregard such evidence.

 

The waiver issue

 

California Rule of Court 3.823 (a), concerning evidence in arbitration, provides: “All evidence must be taken in the presence of the arbitrator and all parties, except where any of the parties has waived the right to be present or is absent after due notice of the hearing” Phillips  and Knight, et al.    each recommend obtaining an explicit waiver referring to the risk that the med-arb neutral will learn confidential information  during the mediation process.  At a minimum, the waiver issue should be discussed with counsel as part of preparation for a med-arb procedure.

 

The coercion issue

 

Critics of med-arb claim that it gives neutrals the power to coerce settlement by (at least implicitly) making it clear in mediation that in the event arbitration goes forward, an unfavorable award will result. 

Although such a scenario is certainly plausible, it ignores the reality that professional mediators do not achieve settlement “at all costs.” After all, they want to maintain a reputation for fairness, without which they will get little business. 

While med-arbiters admit pressuring the parties on occasion, for the most part they deny a “directive” approach. Parties are more motivated to settle in the shadow of arbitration. But this is a natural outcome of the process. The parties chose med-arb because they wanted the certainty of a result; otherwise they would have chosen pure mediation. 

Further, even outside the med-arb process, the prospect of a looming trial or upcoming arbitration encourages settlement.  Therefore, this “weakness” of med-arb is actually a feature of any adjudicative process; it should not be laid at the door of med-arb in particular.

As for the “coercion” that arises from expressions of opinion occurring in mediation, Telford’s data  shows that med-arb neutrals generally avoid expressing their opinions, unless directly asked to do so.  And assuming that the neutral’s opinions are made clear, this situation is hardly unique to the med-arb context.  Lawyers are constantly trying to predict what a judge will do based on his or her comments during the litigation of the case.

If, for example, the trend of a judge’s law and motion or evidentiary rulings has been unfavorable to one party throughout the progress of a case, it takes little imagination to conclude that a bench trial will go ill for that party as well. 
In such a case, the pressure to settle will mount quickly even without a coercive intent on the part of the judge.  The point is that the same “weaknesses” attributed to med-arb occur, and are deemed perfectly acceptable, in other contexts.

 

Reluctance to disclose information &
posturing for the neutral

 

A final criticism of med-arb is that the parties will refuse to disclose information as they normally would in mediation, because they are too conscious of the neutral’s future role as an arbitrator.  A related argument is that a party will try to spin the facts to make herself look good in front of the med-arbiter.

Non-disclosure

Some critics of med-arb suggest that participants are unlikely to share unfavorable facts with the mediator, in view of his or her possible role as an arbitrator.
However, participants are actually more forthcoming in med-arb than in other contexts, perhaps out of a desire to avoid appearing uncooperative to the potential arbitrator.  
Even if there is non-disclosure, this situation is hardly unknown to experienced mediators.  It is not unusual, in the author’s experience, for counsel to withhold extremely useful information – data that would probably settle the case -- so that he or she can “save it for trial.”  This occurs even if the point is expressly made that the settlement process is designed to avoid trial altogether.

Posturing

Likewise, inflating the merits of one’s case in order to look good to the arbitrator could happen in med-arb, but is not limited to that context.     So posturing cannot be attributed solely to med-arb.  In fact, there is no evidence that non-disclosure or posturing is more likely in the med-arb context than it is in single-process ADR, such as mediation or arbitration.


Summary

The above analysis shows med-arb has a long history of success, and that despite the numerous criticisms of the procedure, any “defect” in the process has been accepted with equanimity in other contexts.  For example, we either presume without thinking that judges can disregard inadmissible evidence, or accept their human frailty with a shrug.  Yet we challenge med-arb neutrals for sharing the same frailty.

There is no evidence of coercive behavior by med-arb neutrals that is distinguishable from the general effect of an upcoming bench trial with a skeptical judge.  Yet, it is deemed unacceptable for the neutral to have opinions – but acceptable for the judge.
Finally, the problems of posturing and non-disclosure face every mediator from time to time; not just the med-arbiter. These risks are not enough to disregard the undeniable advantages of the med-arb process-- flexibility, finality, cost-savings and a high probability that the parties will reach a settlement

Conclusion

The lesson of the foregoing is not that med-arb is the right answer in every case.  The point is that med-arb is a useful option,  especially where the business relationship is worth trying to preserve but a speedy resolution is very important. 

Just as business executives must learn to navigate the legal system in order to succeed, they need to be familiar with the full spectrum of ADR methods, able to raise their use with counsel, and ready to intelligently discuss their strengths and weaknesses when the time for a decision comes.  

Retired judge and neutral Lawrence Waddington has said "[M]ed-arb is a valuable addition to the constantly maturing world of alternatives to litigation ... the increasing use of mediation by the Bar has developed experienced lawyers who recognize a variety of techniques to settle cases and med-arb is one option. No mediator should ignore this potential for resolution of a dispute."   Judge Waddington’s insight is as true for business executives as it is for mediators.  Med-arb is a valuable tool, which should be routinely considered, and never ignored.


ENDNOTES

[1]  Professor Stipanowich currently serves as the academic director of the Straus Institute for Dispute Resolution at Pepperdine University School of Law.

[2]  Dykema Gossett PLLC, “Arbitration Expert Predicts 21st Century Trends,” http://library.findlaw.com/1998/Sep/1/128936.html (visited 1/10/2012)

[3]  Blankenship, John T. “Developing your ADR attitude: Med-Arb, a template for adaptive ADR” http://www.tba.org/Journal_Tbarchives/200611/TBJ-200611-medArb.html (visited 1/10/2012)

[4]  Stipanowich, Thomas J. “ADR and the Vanishing Trial: The Growth and Impact of ‘Alternative Dispute Resolution’”  Vol. 1, No. 3 J. Empirical Legal Studies 843, citing  David B. Lipsky and Ronald L. Seeber, The Appropriate Resolution of Corporate Disputes: A Report on the Growing Use of ADR by U.S. Corporations.,”  at p. 9.  Professor Stipanovich suggests at n. 152 that Lipsky and Seeber over-report the use of med-arb, but presents no evidence in this regard.

[5]  See Sato, Y. COMMERCIAL DISPUTE PROCESSING AND JAPAN, pp. 283-286, noting that when disagreements do land in court, a Japanese trial judge will try to settle them throughout the process, rather than resorting to adjudication . Going to trial is considered a failure.

[6]  See the final document of the CEDR Commission on Settlement in International Arbitration, available at http://www.cedr.com/about_ us/arbitration_commission/Arbitration_Commission_Doc_Final.pdf

[7]  See Telford, Megan Elizabeth, “Med-Arb:  A Viable Dispute Resolution Alternative,” IRC Press, January,  2000, and New South Wales Consolidated Acts, Commercial Arbitration Act (1984), § 27.

[8]  Limbury, Alan L. “Making Med-Arb Work” citing Roebuck D., “The Myth of Modern Mediation”, (2007) 73 Arbitration 1, 105 at 106. http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1393&context=adr (visited 1/11/2012)

[9]  Khatchadourian, Minas   ‘Arbitration and Mediation between Europe and the Gulf’ http://shiac.com/Shiacimages/REPORT%20ARBITRATION%20EUR.pdf last (visited 1/11/2012)

[10]  Blankenship, supra n. 3

[11]  Brewer, Thomas J and Mills, Lawrence R.  “Combining Mediation & Arbitration” Dispute Resolution Journal,  Nov 1999 http://findarticles.com/p/articles/mi_qa3923/is_199911/ai_n8861081/pg_5 (last visited 1/11/2012) 

[12]  Gerald F. Phillips, “Same-Neutral Med-Arb: What Does The Future Hold?,” 60 Disp. Resol. J. 24, at 26 (2005).

[14]  See Telford, supra n. 7 and Blankenship, supra n. 3 for summaries of these concerns.

[15]  139 Cal App 4th 1618 (2006)

[16]  Id., at 1625

[17]  See Limbury, supra, n. 8.  ”Natural justice” is a concept used in the British Commonwealth. It is similar to what Americans think of as “due process”   For a brief discussion of basic principles, see “What is Natural Justice?” http://www.businessdictionary.com/definition/natural-justice.html (visited 1/11/2012).

[18]  See Telford, supra. n. 7

[19]  Cleveland Board of Education v. Loudermill, 470 U.S. 532, 545- 546 (1985),

[20]  Kagel, John. 1976. “New frontiers in dispute resolution. Skills and techniques: Comment.” In New techniques in labor dispute resolution, ed. Howard J. Anderson, pp. 185-90. Washington, DC:, BNA.

[21]  Id.

[22]  “Improper Evidence in Nonjury Trials: Basis for Reversal?”  Harvard Law Review, Vol. 79, No. 2  407 (Dec. 1965)

[23]  Id.

[24]  Id.

[25]  See n. 21, supra.

[27]  Phillips, n. 12, supra.

[28]  H. Warren Knight et al., Alternative Dispute Resolution (The Rutter Group California Practice Guide) Form 17, p. App. D-35. (Thomson West 2003).

[29]  Blankenship, supra, n. 3

[30]  See Telford, supra. n. 7

[31]  Id.

[32]  Id.

[33]  Limbury, n. 8, supra.

[34]  See Blankenship, supra n. 3, citing Neil B. McGillicuddy et al.,“Third-Party Intervention: A Field Experiment Comparing Three Different Models,” 53 J. Personality & Soc. Psychol. 104, 110 (1987)).

[35]  Forester, John, “Planning and Mediation, Participation and Posturing: What’s a Deliberative Practitioner to Do?” http://courses.cit.cornell.edu/practicestories/documents/samples_planning/ParticipationAndPosturing.pdf

[36]  For four brief case histories of successful med-arb sessions, see Phillips, Gerald F. “It’s More Than Just ‘Med-Arb; The Case for ‘Transitional Arbitration,’” 23 Alternatives to High-Cost Litigation 9, pp. 141-154 (October, 2005)

[37]  See Phillips, n. 12 supra, at fn. 5

 

Scott Van Soye is the managing editor of ADR Times. He is also a full-time mediator and arbitrator working with the Agency for Dispute Resolution with offices in Irvine, Beverly Hills and nationwide. He is a member of the California Bar, and practiced real estate, civil rights, and employment law for over twenty years. He holds an LL.M. in Dispute Resolution from Pepperdine University, where he is an adjunct professor of law. He welcomes your inquiries, and can be reached at scott.vansoye@agencydr.com or (800) 616-1202, Ext. 721. www.scottvansoye.agencydr.com