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What Is Alternative Dispute Resolution (ADR)?

A: Sometimes parties engage in Alternative Dispute Resolution (“ADR”) prior to trial, especially in significant cases. ADR can take many forms, but the most common forms of ADR are mediation and arbitration. In mediation, the parties retain a person (the mediator) to discuss the case together and individually with the parties. The parties separate and the mediator acts as a “go between” and the parties make offers to settle the case back and forth. The mediator is usually another lawyer or a retired judge. The case will only settle if both parties agree on a final settlement figure.

In arbitration, the parties present their case to a third person (the arbitrator). The arbitrator then makes a decision as to liability and damages. Unlike mediation, arbitration is binding. The parties must agree that whatever the arbitrator decides, they will accept. However, parties often come to a “high-low” agreement prior to arbitration. This means that regardless of the arbitrator’s decision, the parties have a side agreement as to the minimum and maximum amount that will be paid. For example, the parties may come to a “high-low” agreement of $100,000 and $25,000 prior to arbitration. If the arbitrator awards less than $25,000, then the plaintiff receives $25,000. If the arbitrator awards more than $100,000, then the defendant only has to pay $100,000. If the arbitrator awards an amount between $25,000 and $100,000, the defendant pays that amount.

Why do parties engage in ADR? Because trials are risky and unpredictable. A lawyer can provide his client with an estimate of what he believes will be the likely outcome of a jury. However, this is just an estimate. No lawyer can predict with absolute precision what a jury is going to do. Sometimes juries return extremely low verdicts (or a defense verdict), and sometimes they return extremely high verdicts. The purpose of ADR is to remove the risk of trial and resolve the case for an amount that each side can live with.