A Legal Times article entitled Considering Arbitration’s Costs and Dangers does a good job of pointing out arbitration’s hidden costs within the context of commercial disputes.  The same pros/cons apply in the probate litigation context. The article concludes by asking:

Why not mediate instead? Because it is nonbinding, mediation may at first glance seem to be a waste of time — if you’re in a dispute, why would you want to spend time in a process that cannot guarantee a resolution? But in many respects, mediation offers all the benefits of arbitration — lower costs, faster results — without the limitations. It provides a less formal opportunity for both sides to present their views on a dispute, without having to engage in expensive discovery. It can be performed at the outset of a dispute, or later, within the context of a raging litigation (and in fact, courts more and more require parties to attend nonbinding mediation before permitting a case to be brought to trial). Mediation therefore does not preclude litigation, as arbitration does, but complements it. And the average mediation can be performed in a day.

The nature of the mediator’s function is the hidden strength of the mediation process. Arbitrators are essentially private judges, paid to determine an outcome in an impartial fashion. Although arbitrators often seem interested in reaching equitable outcomes to the benefit of all parties, they in fact have no intrinsic interest in the outcome. Mediators, by contrast, are brought to a dispute expressly to find common ground, if possible, and thus have a strong interest in ending a dispute in a manner most fair to all parties.

In the probate-litigation context, mediation is almost always the right answer.  Probate disputes lend themselves to resolution in the mediation context because the costs of litigation are often prohibitive: for BOTH sides.  A good mediator will take a personal interest in brokering a deal both parties can live with . . . and making it happen all in one day.  When I take off my litigator hat and put on my “estate planner” hat, I usually include the following mediation language in my wills and trusts:

Dispute Resolution. If there is a dispute or controversy of any nature involving the disposition or administration of my estate, I direct the parties in dispute to submit the matter to mediation or some other method of alternative dispute resolution selected by them. If a party refuses to submit the matter to alternative dispute resolution, or if a party refuses to participate in good faith, I authorize the court having jurisdiction over my estate to award costs and attorney’s fees from that party’s beneficial share or from other amounts payable to that party (including amounts payable to that party as compensation for service as fiduciary) as in chancery actions.

When is arbitration a good idea?

In the probate litigation context, arbitration may be the right tool if formerly waring parties enter into a settlement agreement or some other type of deal requiring them to work together on multiple issues prior to finally parting ways forever. Examples would include closing down or selling a large family business, partitioning real property, or otherwise liquidating a large and complex estate.  In these cases you have two elements that argue for arbitration: [1] frequency and [2] no bet-the-farm decisions.

[1]  Frequency: In a complex settlement situation, there will be multiple “forks in the road” that all have the potential for bringing the entire process to a screeching halt.  An arbitrator can step in at any time, make a ruling, and keep the parties moving forward.  Here’s how this point was made in the linked-to article:

Where companies are wise to think of arbitration as a means of resolving their contractual problems, the common denominator in all such circumstances is frequency. Companies whose businesses inevitably involve transactions with numerous entities are more likely to benefit from designating arbitration as a means of resolving disputes. Arbitration clauses can, in such circumstances, help companies avoid becoming entangled in multiple concurrent court proceedings. The savings and efficiencies clearly outweigh foreseeable disadvantages.

[2]  No bet-the-farm decisions: The fact that appellate rights are almost non-existent in arbitration means you have to be willing to live with wrong or manifestly unjust arbitration rulings from time to time.  In a complex settlement situation, all the arbitrator should be doing is resolving minor “intermediate-step” disputes so that all parties can arrive at a mutually-agreed upon end point.  In this context, the costs of a wrong arbitration ruling should be something the parties can live with.

If the issue being disputed is important enough that you want to make sure your client can appeal a wrong decision, then arbitration is probably not the way to go (mediation, however, remains an excellent choice).  Here’s how the linked-to article addressed this point:

[I]t is extremely difficult, if not impossible, to get arbitral decisions overturned through the court system — let alone reviewed. The proof is in the small number of decided cases in which an arbitral decision or procedure is challenged. For example, according to Stephen Huber’s article “The Arbitration Jurisprudence of the Fifth Circuit” for the Texas Tech Law Review, between June 2002 and May 2003, the 5th Circuit issued 155 written opinions, with only 21 of them involving issues relating to arbitration. Indeed, the trend is for courts to conclude that an enforceable arbitration clause swallows up just about every dispute under the contract — including whether a dispute could be decided by arbitration in the first place. Once you’ve committed to arbitrate a potential dispute, you’re not likely to attract a lot of sympathy from a court if things don’t work out as you would have hoped.