Forum selection is critical. In disputes not involving a contract (which usually specifies the forum), the most appropriate forum depends on the contract, the issues, the amounts in dispute, and the parties. If possible, the benefits and disadvantages of each available forum should be given careful consideration before one is chosen. Options may include state or federal court, administrative litigation before various regulatory agencies, or some form of ADR, such as mediation or binding arbitration.
When a dispute involves issues of federal law or parties from different states, federal court may be an option. Given the plethora of federal and state regulatory agencies, litigation before various regulatory agencies is often a prerequisite before any litigation in state or federal court. If the dispute concerns a contractual matter, the contract will frequently specify the forum in which the litigation must be filed and which law should govern the dispute. The contract may also specify that some form of ADR must be used, either before or instead of litigation in state or federal court. Even if not required to engage in ADR pursuant to the terms of an existing contract, the parties may also choose to engage in ADR after the dispute develops.
Experienced parties do not automatically choose court resolution or ADR for all their business relationships. Instead, they evaluate the advantages and disadvantages of each available method and choose the one best for them in each situation. ADR can consist of mediation and arbitration or other novel methods created by the parties. Mediation is a form of negotiation guided by a neutral mediator. Experienced parties may decide during contract negotiations to specify by name in the contract language an industry expert to serve as the mediator, should mediation become necessary. Mediators have no authority to resolve the parties’ dispute. Their role is to help the parties to communicate settlement offers and other information. Because the communications between a mediator and a party are not disclosed unless the party gives permission, mediators are well suited to give candid and objective assessments of each party’s position in a dispute. They may also help the parties formulate a negotiation strategy that leads toward settlement.
Arbitration is a form of dispute resolution in which a private party, the arbitrator, is given authority to resolve the parties’ dispute. The parties can agree to the rules governing the arbitration process, which may be similar to the rules of court governing litigation in state or federal courts. Some ADR providers (such as the American Arbitration Association) publish sets of arbitration rules.
Alternatively, a dispute resolution board (“DRB”)—a panel of persons experienced in the industry—can be assembled, usually at the beginning of the parties’ relationship. Its use is generally limited to major construction projects. The DRB members become familiar with the parties and the project and are available to respond to disputes that arise. Because they are chosen by both parties for their expertise, DRB members’ opinions may have considerable weight. Sometimes DRBs are given quasiarbitral powers to decide disputes.
The chief benefit of ADR is that the parties are usually able to choose their own mediators, arbitrators, and DRB members. This gives parties the opportunity to select someone who has expertise in the industry and the issues involved in the dispute. By contrast, judges are simply assigned, giving the parties little control over who will decide the dispute.
Other aspects of ADR to consider include the parties’ control over the rules of the process, which may speed a just resolution (or may deny a party a fair opportunity to present its case); the private nature of ADR proceedings, which can protect sensitive business information (or remove a threat of publicity that might have made a party more willing to settle); and the finality of arbitration decisions, which saves the costs of appeal (but could leave a party disadvantaged by an erroneous decision that cannot be challenged effectively).