NON-BINDING ARBITRATION: AN INTRODUCTION

Dispute Resolution Journal, May-Jul 2006 by Bennett, Steven C

Binding arbitration has received much more attention than non-binding. Steven Bennett, a practitioner who frequently writes about arbitration, remedies this imbalance. Here, he discusses how non-binding arbitration works and the advantages of this process. He distinguishes between private and court-referred processes and discusses how to design the process. He also addresses enforceability and the effect of a non-binding award.

When practitioners think of arbitration, they usually mean a process that results in a final, binding and enforceable award, which serves as an alternative to litigating in court. But there are many circumstances where a process that is not as binding as arbitration may be useful to parties involved in a dispute. Non-binding arbitration may be what the circumstances demand. However, this process rarely receives much attention. This article attempts to fill that gap.

The Spectrum of ADR Processes

Alternative dispute resolution (ADR) processes may be arranged on a spectrum from simple and voluntary to complicated and mandatory. The simplest ADR process involves having settlement discussions. The parties can easily have such discussions on the telephone or at in-person meetings. Unless a court or other legal body mandates that settlement discussions take place, the process is entirely voluntary and generally quite flexible. The parties can meet when they desire as many times as they like, using whatever format for discussion they prefer.

One step up from settlement discussions is mediation. This process introduces a neutral third party into the picture, whose role is to assist and encourage the parties to reach an agreement on some or all of their differences. The mediator facilitates the discussions by, among other things, asking the parties to state their views on the issues, try to see the issues from each other's point of view, identify what each wants and needs from the mediation, and encourage the parties to begin the process of making settlement offers. The mediator may also help the parties evaluate the strengths and weaknesses of their claims, and even suggest an amount (or range) for a reasonable settlement. Although mediation can involve limited discovery and briefing in appropriate cases, the goal that is always at the center of the mediation process is to reach an agreed-upon settlement.

One step above mediation in the spectrum of ADR processes is non-binding arbitration. This process is more formal and involves more mandatory procedures. Indeed, non-binding arbitration resembles conventional arbitration in that some discovery and briefing usually take place, and there are often formal hearings where evidence is presented and witnesses are examined and cross-examined. A non-binding arbitration award differs from a traditional arbitration award only in that it is not binding. However, in some circumstances it could become binding.

Many states sponsor ADR programs that offer non-binding arbitration,1 sometimes for cases valued under a certain amount.2 These programs usually provide that the award will become final unless one of the parties files a request for a trial de novo within the time provided in the statute or rules.3

There is a downside to requesting a trial de novo, which is that the requesting party could be assessed arbitration and court costs, plus attorney's fees, if the judgment in the new trial is not more favorable than the arbitration award.4

Some courts and agencies may direct parties to participate in non-binding arbitration on an ad hoc basis. Others may have standing orders or rules that require all (or some class of) cases to be screened through non-binding arbitration first.5 Only if the results are unsatisfactory must the court or agency decide the matter after a formal hearing de novo.

In addition to these institutional forms of nonbinding arbitration, parties may agree to have a non-binding arbitral process to address their dispute. There is a business purpose to this: The purpose is to provide the parties with an advisory opinion which they can adopt as their settlement, if they wish to. Or the parties may use the award as an indicator of the probable result in the event of a full-scale trial, and proceed with settlement discussions, making use of the arbitrator's opinion as they see fit.

Benefits of Non-Binding Arbitration

On its face, non-binding arbitration may appear to be quite inefficient. The parties go through the motions of traditional arbitration only to end up with an award that has no binding effect. If the parties do not settle, they may be forced to repeat the entire process at a trial, administrative hearing, or in binding arbitration.

Yet, when properly implemented, non-binding arbitration can serve several useful purposes.6 First, it can be a "springboard for discussion"7 because it provides the parties with important information about how a knowledgeable fact finder might decide the case. second, because the award is advisory, there is no need to argue that the arbitrator failed to follow proper procedure or ignored the essential facts and law of the case. Thus, non-binding arbitration eliminates the possible need to appeal an adverse decision, thereby making it less costly in time, money and frustration.