Many people often confuse mediation and arbitration. A good place to start is by defining the two:
Mediation: Mediation is a confidential process conducted with a mediator, who is a neutral third party. A mediator (while typically a lawyer), is not a judge, does not give legal advice, and does not make any decisions regarding the dispute. Instead, the mediator facilitates discussion between the parties and assists them in reaching a mutually agreed-upon resolution.
Mediation is a non-binding process. This means that the parties cannot be forced to accept a resolution, but instead must voluntarily agree to accept any resolution. Once the parties execute an agreed-upon settlement agreement, the terms of the settlement become legally binding. However, if the parties cannot reach a resolution, they still have the option to move forward with arbitration or litigation in state or federal court.
Arbitration: Arbitration is similar to trial in state or federal court. Like court, the process entails the presentation of evidence and legal arguments. While the court systems have a single judge or a jury presiding over a dispute, arbitrations have one-three arbitrators who hear and decide the outcome. Arbitration is a popular alternative to litigation because the parties can select the arbitrators, it is less expensive and formal than court, and the process is faster than court litigation. Unlike mediation, the arbitration process is binding, which means that the parties are legally obligated to accept and comply with the arbitration decision/award rendered by the arbitrators.
Why You Should Mediate First
Without question, mediation should almost always be the first step in working towards resolving a dispute. Mediation is a swift and economical process (normally taking a single day to conduct) while arbitrating or litigating a dispute is more time consuming, emotionally taxing, and expensive. More importantly, mediation enables the parties in a dispute to come to a mutually agreed-upon resolution with terms the parties create. On the other hand, if a case is arbitrated or litigated, the arbitration panel or court makes its decision regarding the dispute and the parties have a legal obligation to abide by that decision.
Mediation Clauses in Contracts
In many states, almost all lawsuits are now required to be mediated before being allowed to proceed with trial. Due to the high success rate of mediation, it is also more common to see pre-suit mediation clauses in contracts that require mediation prior to moving forward with arbitration or litigation. The success of mediation is largely related to the structure of the process. Mediations are typically held in an office versus a courtroom-type setting and offer a more relaxed environment for the participants. Mediation is also a collaborative process that promotes open communication between the parties. Open discussions enable all parties to actively participate in the process and allows the parties to truly air their grievances and concerns. In addition, the mediation process is confidential and therefore allows the matter to be resolved privately.
Selecting A Mediator
Not all mediators are created equal. A significant amount of care should be exercised when selecting a mediator for securities industry-related cases. While some mediators may have substantial business litigation experience, the issues inherent to the securities industry are unique and require familiarity with industry-related processes and FINRA rules and regulations. Accordingly, mediators with FINRA arbitration and securities-related litigation experience are an absolute must for handling matters involving all customer and industry-related disputes.
Ryan S. Nichols is a Florida Supreme Court Certified Circuit Civil Mediator and also a part of the Broker-Dealer Litigation practice group of Shumaker, Loop & Kendrick, LLP. Ryan regularly practices before self-regulatory agencies such as FINRA, as well as state and federal courts.