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Thursday, Mar 28, 2024

Difference Between Mediation, Arbitration ADR Procedures

Question: I hear a lot about mediation and arbitration. I really don’t know how one differs from the other. Can you explain? Answer: Both mediation and arbitration are forms of alternative dispute resolution (otherwise known as “ADR”), but that is where their similarities end. Take mediation first. California Evidence Code Section 1115 defines “mediation” to mean ” a process in which a neutral person or persons facilitate communication between the disputants to assist them in reaching a mutually acceptable agreement.” Although a group of individuals or an entity may fill the role of mediator, it is almost always an individual. Features and benefits unique to mediation which make it more advantageous than litigation include the following: >Mediation is a voluntary process. It commences when the parties agree to commence and continues only so long as the parties agree to continue. >Confidentiality. Absent a statutory exception, like that sleepy city just over the California/Nevada border, what is said in mediation stays in mediation. >It is available anytime. The parties can initiate mediation either before, during, or even after, one or both have sought relief in court. Generally, it is good practice to mediate in advance of initiating litigation. >The parties participate. Instead of the lawyers acting as the parties’ mouthpieces in court, the parties themselves get to actually speak to each other (either directly or through the mediator). This affords the parties an opportunity to vent emotionally, which often leads to each side understanding the other’s position better. >More creative solutions to problems are available. The remedies that parties may recover in a court of law are limited (e.g., money damages, injunction, and rescission). Conversely, mediation enables parties to reach resolution on any terms upon which the parties agree. As a result, it is far more likely that mediation may result in a win-win solution for all parties concerned. Arbitration is an entirely different animal. Arbitration has been defined as the “voluntary submission of a dispute to a third person or persons for decision.” Arbitration can be either binding or non-binding. Where a mediator is not charged with making a decision, but rather facilitating discussions and ideally a resolution, an arbitrator’s role is very different. Much like a judge, an arbitrator’s job is to listen to the evidence, make findings, and render rulings and awards. If mediation is a collaborative process, arbitration (like litigation) is an adversarial process. Some potential advantages arbitration offers over litigation include: >Speed. Generally, the arbitration process moves quicker than a case in the court system. >Affordability. Though private arbitrators often charge thousands of dollars for their time (as opposed to our court system which is largely subsidized with tax dollars), since the process often is abbreviated, parties may find they spend less in attorney’s fees and downtime, thus realizing a savings. >Dictate qualifications of arbitrator. Parties who provide that contractual disputes will be submitted to arbitration may also prescribe the qualifications their arbitrator will possess (e.g., a minimum of 10 years of industry experience as a licensed real estate broker). Some disadvantages include: >Rights to appeal can be very limited. If an arbitrator misapplies the law or makes erroneous findings relative to facts, absent fraud, there is very little recourse >Limited discovery. Very limited right to conduct discovery unless the parties provide otherwise by contract. >Solomon findings. Many feel that arbitrators are more likely than others to split to proverbial baby. >Limited remedies. Absent petitioning the court for a provisional remedy, arbitrators cannot themselves issue or enforce injunctions, turn over orders, or writs. If you find yourself at odds with another party, it is my view that negotiation is the best first step. If that proves unsuccessful, I urge my business clients to explore mediation. My experience has taught me that an “okay” business result will net my client more at the end of the day than a “great” litigation result. Litigation should be a choice of last resort. Q: My long time vice president just left and started his own competing business. Although we left on okay terms, he has recently started competing for business from my clients and has solicited some of my employees. Is this legal? A: This is a very common scenario. To answer your specific question, one would need a lot more information. What I can do is make some assumptions and then provide a general answer with some comments. I’ll assume your V.P. did not own any equity, and thus didn’t sell any equity back to you or others when he left pursuant to the terms of a shareholder buy-sell agreement which contained certain covenant not-to-compete provisions. I’ll also assume that he did not sign an agreement containing either confidentiality or non-solicitation provisions, as it relates to certain information, clients, and/or employees. Generally speaking, an ex-employee is free to compete with his former employer so long as he does so fairly. But what is fair? Is it fair that your former V.P., who knew nothing about your industry until he came to work with you, now wants to take all you taught him and compete against you? The answer is yes, so long as he does so fairly. Would-be competitors do not have free reign. For example, irrespective of whether they have signed an express agreement, they cannot misappropriate company trade secrets (defined as ” information, including a formula, pattern, compilation, program, device, method, technique, or process that both (1) derives independent economic value actual or potential from not being generally known to the public or to other persons who can economically benefit from its disclosure or use; and (2) is the subject of efforts to maintain its secrecy that are reasonable under the circumstances”), solicit key employees with a goal of putting you out of business, or “highjack” jobs/business by redirecting it elsewhere. A substantive discussion of these topics is far beyond the scope of this Q and A format, although I’d suggest you first determine if your client misappropriated any trade secrets (as defined above). Common means of determining this include conducting an exhaustive forensic search of his computer to determine what files he may have copied, deleted, or emailed. You can also inventory hard files to determine if any information is missing. It is generally a good idea to send your departing executives a letter reminding them of their obligations and limitations under the law. You can also determine if he has solicited your clients. Although your former V.P. would be free to inform clients of his new contact information, the law prevents him from “soliciting” their business. Given that your rights and remedies in this context are very factually driven, I suggest you consult with a business litigation attorney to familiarize yourself with available options. I also suggest you have a business lawyer evaluate your current internal practices to ensure that information that you would hope constitutes trade secrets, is adequately protected so as not to jeopardize that characterization. The bottom line is the law is certainly not going to recognize something as secret if you don’t treat it as such. This column contains general information and under no circumstances constitutes legal advice. This information is not provided in the context of an attorney-client relationship and nothing herein creates an attorney-client relationship. Readers should not act upon this general information without first seeking professional advice. Ira Rosenblatt is a business and corporate lawyer and a co-founder and Director of Stone, Rosenblatt & Cha, a business law firm in Warner Center. Rosenblatt has earned Martindale-Hubbell’s highest rating (“AV”) for legal ability and ethics and is listed in Martindale-Hubbell’s National Bar Register of Preeminent Lawyers. He can be reached at [email protected].

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