Tell it to the judge should be the last thing you do to resolve problems you’re having with suppliers, customers, employees, landlords, or your co-owners. Litigation is costly, lengthy, and acrimonious, and should be avoided if possible.
There are two main ways to handle controversy without litigation:
- Arbitration. This is the process in which both sides opt to settle questions by using a neutral third party. The results are binding on both parties; typically the parties agree not to bring the results to court (unless there is fraud or misconduct).
- Mediation. This is a process in which both parties agree to work out their differences using a skilled third party, called a mediator. The results are not binding on the parties, but usually they are adopted.
These types of alternative dispute resolution may not be well understood. Here are some aspects you may not be aware of:
Both parties must agree to the arbitrator. You can find a skilled arbitrator through the American Arbitration Association.
The Federal Arbitration Act (FAA) codifies federal law about enforcing arbitration and provides for a binding conclusion by the arbitrator. The conclusion is confirmed by a district court, giving it the force of law. The arbitrator‘s decision can only be overturned if its conclusions of law are erroneous. Or can a court make changes?
About a dozen years ago, Mattel sued its landlord over a lease dispute and the parties went to arbitration. After a decision by the arbitrator in Mattel’s favor, the landlord asked the district court to review the matter, and it decided against Mattel; an appellate court reinstated the arbitrator’s decision. In 2008, the U.S. Supreme Court decided that courts do not have powers to change the decision (except under circumstances spelled out in the FAA) or expand upon arbitration awards. Basically if the arbitrator doesn’t make any big legal mistakes and there is no fraud or misconduct, the court can’t change the arbitration decision. The parties are stuck with the arbitrator’s decision.
No more arbitration with the IRS. Years ago the IRS launched the Appeals arbitration program. The IRS announced it was killing the program as of September 21, 2015. The reason: lack of interest; over the past 14 years only two cases were settled through arbitration.
This process can be an inexpensive and quick way to resolve problems and reach a settlement. Mediation can be done in person or online. Typically mediation is handled over a number of sessions, but, depending on the issue, could be resolved in a single session.
Some resources for online mediation:
- The Mediation Line (you can schedule a free consultation)
- Online Mediation Works
- Your local Bar Association
Before using any mediator or mediation service, check it out (e.g., consult the Better Business Bureau).
Mediation with the IRS. The IRS continues to offer mediation for tax matters for small businesses and self-employed individuals. The Fast Track Settlement Program can produce a settlement within 60 days. The mediator is a trained IRS professional. If you want to use an outsider, you’ll have to pay for it, and the IRS must agree to it.