These Alternatives Can Be Settling
Today, the regular judicial process is not the only option available to parties
with legal conflicts. Alternative dispute resolution (ADR) can reduce the time
and expense involved in litigation.
BY DALE DYKEMA
I have been involved in real estate-related businesses in California for close to
half a century and have seen a significant increase in litigation and the costs
associated with it.
Regardless of the decision reached in any case, there are no real
winners. The unnecessary costs and time involved in pursuing a lawsuit
through the normal judicial process affect all the involved parties. In the final
analysis, we are all consumers. And, as consumers, we pay for our litigious
society.
Today, the regular judicial process is not the only option available to
parties with legal conflicts. Alternative dispute resolution (ADR) can reduce
the time and expense involved in litigation. It is essential, however, that the
parties involved fully understand the potential consequences of ADR,
especially as they relate to a party's right to appeal an unfavorable decision.
There are different kinds of ADR agreements, and a closer look at
some of them might be instructive.
Contractual arbitration
Frequently, contracts will provide that, in the event one of the parties
has a dispute with the other party, the issue must be submitted to an
arbitrator for binding arbitration.
This type of arbitration is usually completed more quickly and much
less expensively than judicial trials. In addition, if the case involves special or
technical issues, the parties can select an arbitrator who has the specialized
or technical knowledge required.
There are, however, two potentially significant disadvantages to
contractual arbitration.
First, the arbitrator is not required to follow the law. His or her
decision may be based on common business practice, specialized technical
judgement or even the arbitrator's basic sense of fairness, whim or bias.
Second, the decision of the arbitrator is final, no matter how flawed the
decision may be. This is true even if the arbitrator makes a serious error in
evaluating facts or applicable laws. The result could be that at least one and
potentially both parties are stuck with an unpalatable decision.
Judicial arbitration
Judicial arbitration is sometimes confused with contractual arbitration,
probably because both can be informal and less expensive than the regular
legal process.
However, there are major differences. Parties may choose contractual
arbitration when a contract is first established, or later, if a dispute arises.
Judicial arbitration usually occurs only after a dispute has occurred.
More importantly, however, is that the decision which results from
judicial arbitration is not binding. A party who is unhappy with the decision
may petition the court for a judicial trial and have the arbitrator's decision
voided.
Rent-a-judge
Section 21 of the California constitution allows parties to resolve a dispute in
a setting which is more formal than arbitration, but still not as involved as an
official court proceeding.
Pursuant to this section, the parties may select a temporary judge,
often a retired judge or possibly a lawyer with solid litigation experience. Even
though, as with arbitration, the parties may select the person who acts as
adjudicator and can control the timing of the process, the temporary judge
must follow the law.
These judges are compensated by the parties, but have powers
essentially identical to those of appointed judges, and what they decide has
the same force as court-rendered judgements. In addition, unlike decisions
resulting from contractual arbitration, the temporary judge's decision can be
reviewed by an appellate court.
In summary
We don't like to think that a contractual agreement might later result in
a dispute. But it does happen, and one should consider how such a dispute
would best be resolved.
An arbitration clause in a contract might well eliminate excessive delays
and expenses. It is important, however, that if the parties do select an
alternative dispute resolution method, the contract clearly defines the
method without blurring the lines among the techniques or trying to combine
various elements from each of them.
If a court finds any ambiguity or inconsistency in the language of the
provision, the court itself might impose a method of dispute resolution that
the parties had not intended and find undesirable. Clarity and accuracy in
these provisions are very important.
As we all know, the United States is the most litigious nation on earth.
Given that fact, it is unlikely that we will see a reduction in the number of
attorneys or less propensity for litigation. Therefore, the use of alternative
dispute resolution will probably increase. When the terms of a contract are
being written, it is vital to seek the advice of an attorney with expertise in this
field.
Dale Dykema is president of T.D. Service Financial of Santa Ana, Calif., a
member of the USFN, a national association of commercial and multifamily
mortgage banking attorneys. For more information about the USFN or its
membership, contact David Nielsen, executive director, at (800) 635-6128
or dnielsen@usfn.org.
This article was previously published in the February 2001 Issue of Commercial Mortgage Insight
