126. MEDIATION vs ARBITRATION: WHAT ARE THE DIFFERENCES?

As you know, the C.A.R. Purchase Agreements provide for both mediation and arbitration, listed under Dispute Resolution.

The Mediation provision is part and parcel of the purchase agreement – that is,.the provision applies whether or not the Arbitration provision is initialed. Buyers and sellers are duty bound to Mediate.

The Arbitration provision does not apply unless it is initialed by both Buyer and Seller. Therefore, regarding mediation, Buyer and Seller agreed that they will mediate any problems they may have before they take any other action, such as Arbitration or Litigation. In the event Buyer or Seller or both do not mediate first, and they elect to proceed with Arbitration and/or Litigation, which they could do if they wanted to, but if they do, they would not be entitled to recover attorneys fees from the losing party.

Mediation is casual. The Buyer and Seller sit down with each other and explain to a mediator their problem. There are no formal requirements for the Buyer or Seller to follow in making their presentation and the decision of the mediator is not binding. In fact, the mediator does not make a decision. The parties decide for themselves to settle their differences and end it then and there. The mediator can assist them in writing their agreement.

Mediation is the quickest and the cheapest of dispute resolutions. Arbitration, as per the C.A.R. contracts, is much more formal, following specific Arbitration Rules and Regulations. Anyone can be a mediator but only certain experienced litigation professionals can be an Arbitrator. And unlike Mediation, which is not binding, the decision of the Arbitrator is binding.

Arbitration is more expensive than Mediation and takes much longer, but it is still preferable to litigation. Why? Time and cost are the imposing factors in litigation. After all the time and monies spent on filings and motions and discovery and pre-trial preparations, most lawsuits are settled on the courthouse steps. Thats right. Most lawsuits do not get to a judge or jury to decide. Why? Because attorneys know the outcome of a lawsuit in the hands of a judge or jury is too uncertain. “Open and shut cases” are only for the foolish and television shows.

Do we recommend Buyers and Sellers to initial Arbitration? Yes we do. Why? Principally because the State of California has deemed it to be a preferable resolution to disputes. Why does the State prefer Arbitration? To free up the court system. The state would rather people settle their differences out of court.

As for the agents/brokers in a transaction, they cannot be forced to mediate or arbitrate unless the agent/broker elects to participate. Why is this true? Because the agent/broker is not a party to the contract, so we are not bound by the Mediation or Arbitration condition

By using the CAR purchase contract, Buyer and Seller automatically agree to mediate a conflict before they take the problem to the next step. They are required to mediate first. However, the results of the mediation are not binding unless they agree with the results. A mediator has no power to make a binding decision. In fact, all a mediator can do is offer possible solutions; the parties then decide upon which solution they agree upon. For this reason, mediation is usually very fast, over within 30 to 60 days, and mediation is usually very inexpensive, from $50 to $1,500, usually split equally between the parties. The parties can be represented by counsel at their own expense. The arguments made during mediation may not be used against the parties if they sign a pre-mediation confidentiality provision. Mediation is becoming the prevalent first step in dispute resolution. After mediation fails, the next step should be “arbitration”.

The Arbitration of Disputes clause must be initialed by both buyer and seller before it is part of the purchase contract. The reason this arbitration clause must be approved is that it is binding! You are often asked if your clients should initial the arbitration provision? Gilleran Griffin thinks they should! The next step beyond arbitration is a lawsuit which may take years to resolve, which will cost unknown hard dollars out of pocket to prosecute and defend, and which suits are usually settled out of court just prior to trial.

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