Is alternative dispute resolution all it's cracked up to be? Photo: Royalty free

It's meant to be a quicker, cheaper option, but commercial litigator Ugo Colella of Culhane Meadows in Washington, D.C., says alternative dispute resolution is his last resort.

Colella's biggest gripe is with arbitration—where one client on the losing end had to fork out $1.5 million in attorney fees for a case where the amount in controversy was about $2 million.

"Generally speaking, if you arbitrate, you're going to have to be ready to cut a substantial check," Colella said.

Colella advises clients dealing with contract-based claims to head to trial instead, where he says there are better outcomes, and where appellate rights remain intact.

Ugo Colella partner with Culhane Meadows Haughian & Walsh. Courtesy photo.

"I've seen situations where an arbitrator's refusal to apply the plain terms of a contract and decision to proceed to a hearing results in settlement because nobody wants to pay the cost of a full-blown hearing," Colella said. "You sort of have to go through a song and dance, and discovery and other things before you ever get to the point of getting arbitrators to focus on the terms of the contract."

Colella insists his stance on staying in the courtroom is about what's best for his clients, not his wallet.

"There's really no economic advantage from my perspective to promote court," he said. "In fact, it's to my disadvantage, because if I'm correct and I'm telling the client, 'I think you've got a clear winner here, based on the terms of the contract,' I should be done fairly soon."

He's not alone.

Jeffrey Schneider of Miami's Levine Kellogg Lehman Schneider + Grossman, a commercial litigator since 1991, also advises clients against arbitration.

"Lawyers have figured out over the years how to mess up arbitration, and make them costly and protracted," Schneider said. "They drag them out, they file motions, they try and get discovery, they do various things in arbitration now that didn't exist 10 or 20 years ago."

Schneider once took part in an arbitration that ended up lasting 75 trial days, after years of discovery.

"This was almost the poster child for what not to do in an arbitration," he said. "What we ended up with was a private arbitration proceeding which behaved like it was a court proceeding."

That's because the parties agreed to use the Florida Rules of Civil Procedure, Evidence Code and full discovery. That arbitration cost both sides millions, according to Schneider, who said if clients are going to be spending that kind of money they should keep their appellate rights.

"Absent some truly extraordinary circumstances, it is virtually impossible to judicially review the arbitrator's decision," Schneider said.

That said, Schneider is among the majority who agree mediation can work wonders.

"When you're sitting in a room with the other side and you've got someone there trying to facilitate a settlement, it is your opportunity to take control of your case. Love it or not, it's over on that day," he said. "There's no reason to ever say no mediation."

Freidin Brown's Philip Freidin, a Miami trial attorney of more than 50 years, is also a fan.

"If everybody went to trial, the system would cease to function," Freidin said. "I almost never have a client who hires me to try their case. They hire me to get them a result, and if a settlement gets them the result, that's what I'm supposed to do."

The allure of mediation, Freidin said, is that it offers finality by agreement, rather than force.

'It would have been a disaster'

Miami commercial mediator and arbitrator Gary Birnberg describes mediation as "the business-oriented solution," as opposed to the legal solutions of litigation and arbitration. Because it allows the bending of rules, mediation allows companies to preserve their relationship, instead of becoming enemies.

It's also the only resolution that can guarantee confidentially.

Birnberg recalls one limited-liability insurance claim where the amount in controversy was "closer to a billion dollars than it was a hundred million" and the parties chose mediation because "nobody wanted the publicity." After a year of sticky and intense negotiations, the case was resolved in four days of mediation.

But it would have been a different story in the courtroom.

"The press would've been all over it, to nobody's benefit," Birnberg said. "I don't know who would have won. It was tough. All I know is that it would have been a disaster, whereas now it's finished. It's just gone, and now the parties can go back and do business."

Schneider noted the same can't be said for arbitration, as confidentiality typically goes out the window when the case is over and the winning side moves to enforce an award in court.

"Eventually, it comes out," Schneider said.

Freidin, who specializes in personal injury and medical malpractice cases, also hasn't seen savings in arbitration, where a panel of three arbitrators might charge between $500 and $1,000 per hour.

"You're still going to need the same experts that you would in front of a jury or a judge, so you still have the same expenses, and other than spending the time picking a jury you're still going to spend the same number of days in trial, generally," Freidin said. "It doesn't feel the same as having a jury decide."

Defendants in personal injury cases tend to favor arbitrators, Freidin said, "because they want to avoid answering to a jury that will have a degree of outrage that a lawyer who's a businessperson probably wouldn't." As a result, jurors typically award more money.

Freidin's preparing for an upcoming arbitration trial that he suspects will be costly.

"Let's say there's 20 days … and eight hours a day," Freidin said. "If it's $500 an hour, which would be low, times eight, times three, is $12,000 a day. For 20 days, that's a quarter of a million."

Arbitration has also caused trouble in consumer law, as many companies have introduced contract clauses to stamp out class actions.

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'Two win, one loses'

But it isn't all bad, the way Fort Lauderdale mediator and arbitrator Anne Bloom sees it. Arbitrators must submit reports within 10 days of a trial, whereas judges have more leeway for delay.

Bloom says arbitration is useful when a final judgment is needed before further action can be taken. In one case, an apartment unit caught fire while being retrofitted for sprinklers, but because the plumbing company had left a cap off, seven floors were soaked when firefighters turned on the high-pressure water.

"In order for the plumbing company's insurance to kick in, a finding against them was necessary," Bloom said. "The added value of the arbitration is that when the two sides disputed the figures, they had an opportunity to prove their positions, which resulted in a slightly different damage amount that both sides accepted."

Mediator Elizabeth D. Laporte, who served two decades as a federal magistrate judge in San Francisco, says that arbitration, if done right, can still be the cheaper and more efficient option.

And having handled thousands of settlement conferences, Laporte says she's found mediation can transform cases in ways a trial never could.

"If you set the stage correctly it can make a huge difference," Laporte said. "Where, for example, the family of somebody who's allegedly been abused by the police actually meets a police officer on the other side who apologizes or, at least, explains what measures have been taken to try to avoid that situation."

Colella and other critics claim "splitting the baby" is an all-too-common compromise in arbitration that leaves neither party happy at the end. That "should not happen," according to Birnberg, unless there's some rare internal justification.

"If there are two arbitrators who believe that the outcome should be one thing and the judgment something else, the judgment should not be reduced by one-third," Birnberg said. "Two win, one loses."

In Bloom's view, the best place to take a dispute is away from the courtroom.

"One very wise attorney said to me once about alternative dispute in general: Initially he was reluctant to embrace it, because after all, why would an attorney want a case to stop before it reached the end? " Bloom said. " Then he realized that a case that finishes creates a happy client, and a happy client either returns with more business, or sends other people."

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