USA Trends and Developments Contributed by: John Desmond, Alexis Taitel and Alice Samberg, Dickinson Wright PLLC
certain remedies. Indeed, the drafters of a contract may choose to include clauses that require mediation before either party may commence formal litigation. Mediation clauses such as these are routinely upheld by courts, which essentially treat these clauses as conditions precedent. A party to a contract who fails to comply with the mediation clause may be subject to monetary consequences as provided by the contract, including, for example, disallowance of an award of attorneys’ fees and costs to which it would otherwise be entitled or even more severe consequences, such as dismissal of the action. Alternatively, the presiding judge may determine that a case is a good fit for mediation, taking it upon him or herself to either refer the case to mediation with party consent or order the parties to participate in a mediation session in good faith. In fact, it is relatively common across United States’ jurisdictions for courts to impose mediation as a prerequisite to litigation – requiring parties to mediate before they may proceed with their case. The Federal Rules of Civil Procedure – which govern legal procedure in all civil actions in United States district (or trial) courts – encourage settlement, particularly at the outset of a case. For instance, Rule 16 explicitly references the facilitation of settlement as a reason that a judge may order par- ties to appear for a pre-trial conference. Regardless of whether parties choose to mediate or are court- ordered to do so, if they reach a mutually agreeable resolution, it is typically memorialised in a written agreement that is enforceable by courts just like any other contract would be. Arbitration Mediation is intended to facilitate early settlement of claims without deeming one party to be the “winner” or the “loser.” By contrast, arbitration is a more formal and “litigation-esque” process through which parties conduct discovery, engage in motion practice, and ultimately present evidence in support of their posi- tions for the consideration of a third-party decision- maker – the arbitrator or panel of arbitrators. Parties typically end up in arbitration, as opposed to litigation, because they are limited to arbitral proceedings by contractual provision. For example, contracts often contain a mandatory arbitration provision, requiring that any and all disputes arising under the contract
be resolved via arbitration. Such provisions are widely enforced by courts. See, eg, the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–16. As a result, parties to the contract are prohibited from initiating litigation over the subject matter of the contract, instead being lim- ited to arbitration as the sole available forum. Arbitration agreements in the United States are enforceable only if the parties thereto freely chose to arbitrate the dispute and evidenced their consent in a written agreement. Just like any other contract, in the absence of evidence of such mutual agreement, the United States Supreme Court has clarified that a court should not force the parties to a dispute into arbitration. A common question in the interpretation of many arbitration clauses is whether one party lacked bargaining power and was thus forced into agreeing to arbitrate. Such agreements, particularly in the con- sumer and employment contexts, are referred to as “contracts of adhesion” and are generally enforced in the United States even if there is a disparity in bargain- ing power, as long as the clause is not procedurally and substantively unconscionable. Unconscionability is a fairly high standard to meet, existing in the narrow circumstances where a party is affected by oppres- sion or surprise in the bargaining process (procedural unconscionability) and subjected to overly harsh or unreasonably one-sided results (substantive uncon- scionability). As a result, arbitration provisions are near-ubiquitously enforceable. Parties may agree to contractual arbitration provisions – or otherwise elect to arbitrate instead of litigate – for several reasons. Arbitration is generally considered faster, more streamlined, and more cost-effective than litigation. Arbitration is also more private because unlike litigation where there exists a presumption of public access to filings, documents and proceed- ings in arbitration are not part of a publicly accessible docket. Consequently, it may be the superior option for parties hoping to protect sensitive information from widespread disclosure. In addition, arbitration has the potential to be a more flexible and tailored process because parties have some level of input over the individual arbitrator, the governing procedural rules (although arbitral bodies typically have a standard set of applicable rules), the breadth and availability of cer- tain discovery tools, and scheduling.
557 CHAMBERS.COM
Powered by FlippingBook