Got a beef? Try arbitration

November 21, 2003

"Alternative dispute resolution" is quicker and more private than going to court. We review the advantages and disadvantages.

 

Got a beef? Try arbitration

Jump to:Choose article section... Letting an arbitrator help work things out Is arbitration right for everyone? How the arbitration process works Nonbinding arbitration and mediation

"Alternative dispute resolution" is quicker and more private than going to court. We review the advantages and disadvantages.

By Gail Garfinkel Weiss
Senior Editor

Dr. Gray, a longtime family physician who wanted to work fewer hours, took on a young partner, Dr. Green, to see patients and help modernize the practice clinically and administratively. Dr. Green did a first-rate job upgrading the computer system and he instituted a number of procedures that increased revenue.

However, several patients complained to Dr. Gray that they felt Dr. Green was pressuring them to accept treatments of questionable medical value. Dr. Gray (we're not using real names) became concerned that the reputation of the practice he had spent years building was in jeopardy. He decided that Dr. Green had to go.

Their partnership agreement provided for arbitration of disputes before the American Arbitration Association and ultimately they selected Dirk Metzger, a San Diego attorney who has handled cases for the AAA since 1985, to be their arbitrator.

"Witnesses at the hearing included staff members and patients," Metzger recalls. Each side brought in an accountant to testify about who had contributed what—patients, new business, and professional techniques—to the current value of the practice. There were allegations of deceit and breach of fiduciary duty. "I listened to the testimony, placed a value on the practice, and determined what I believed to be a fair allocation of that value—along with some options for each buying the other out. I also ruled on allegations of misconduct. Later, when the doctors couldn't agree on the distribution of patient lists, I arbitrated that dispute as well."

Letting an arbitrator help work things out

Arbitration, while hardly a new concept, is gaining popularity as a means of resolving disputes quickly and privately—among partners, employers and employees, and even doctors and patients. And while arbitrated disputes typically involve lawyers, accountants, and other well-paid professionals, the arbitration process is more informal than a court proceeding and is usually completed in far less time (though not necessarily for far less money). An arbitrator can handle a variety of matters, such as determining a new compensation formula, or helping you enforce a noncompete agreement.

"An arbitration is like a small trial and the arbitrator is basically a private judge," Metzger says. "That is, the parties to a dispute agree that they're going to hire someone to render a decision and they're going to be bound by that decision."

Among the advantages of arbitration:

Convenience. Instead of being at the mercy of a court calendar, you can schedule an arbitration hearing at the time and place that's best for you and the arbitrator.

Expertise. The parties in a dispute get to agree on the arbitrator they'll use, and "often people will choose someone who has knowledge of the industry, so they're dealing with someone they don't have to educate," says Metzger.

Confidentiality. Arbitration procedures take place out of the public eye.

Simplicity. "An arbitration is more laid back than a trial because you don't have formal pleading, pretrial motions, and rules of evidence," says Metzger. "These rules are needed because juries are typically very unsophisticated. An arbitrator, on the other hand, can sort out what's important. If, say, a disputant wants to talk about a fist fight that broke out at a cocktail party five years ago, the arbitrator will know to disregard it."

Flexibility. "A judge sits like a passive observer, then declares a winner," Metzger explains. "An arbitrator can say things like, 'Please get Dr. Jones. I want to ask him some questions.' He can actively seek out information he needs to make a decision."

Speed. Arbitration proceedings usually take place within a few months of the initial contact with the arbitrator.

Finality. "Opportunities to appeal under the Federal Arbitration Act are limited," says Peter Leibold, executive vice president and CEO of the American Health Lawyers Association in Washington, DC. "You can allege that there was fraud, or you can claim that the arbitrator was so biased it was tantamount to fraud. But if you choose to arbitrate a dispute, federal law supports the notion that the arbitrator's decision should be respected."

Is arbitration right for everyone?

While all agree that arbitration works well for disputes among equals, like practice partners, critics of the process argue that it puts employees at a disadvantage.

Employed physicians will probably get a more favorable hearing from a jury—which is more likely to identify with a wage-earner—than from an arbitrator, according to Steven I. Kern, an attorney in Bridgewater, NJ. "Practice owners know this," Kern says, "and increasingly they're inserting arbitration provisions in employee contracts. The other way arbitration agreements are slipping into the workplace is through employee manuals. Courts around the country are upholding these provisions if they're satisfied that employees understood they were giving up the right to a jury trial."

The reduced availability of discovery in arbitration favors employers, too, Kern argues. "Discovery allows parties in a court proceeding to obtain information from each other, including financial records and other data that employees aren't privy to," says Kern. "While discovery is a right in court proceedings, in arbitration—with the exception of limited document discovery—it's a privilege granted at the discretion of the arbitrator."

Moreover, the court system is publicly subsidized, whereas arbitration is not, Kern notes, so a litigant without a large bankroll is better able to press his case in court. Arbitration expenses include lawyer's fees, the arbitration service's filing cost (the AAA charges $500 for claims up to $10,000), and the arbitrator's fees, which range from $150 to $300 an hour or up to $2,000 a day for preliminary and evidentiary hearings and time spent reviewing documents, doing research, and writing the award.

"There are pluses and minuses to every choice, including the forum where disputes are resolved," Metzger notes, but he adds that "since arbitration is a creature of agreement, the parties involved can select any features they want—including discovery." As for the costs of court vs arbitration, Metzger indicates that "in some jurisdictions it takes three to five years for a court case to get to trial. Work—and lawyer work is no exception—expands to fill the time available. Pound for pound, the court system is more expensive than arbitration."

How the arbitration process works

Whether or not your partnership agreement or employee contract contains an arbitration provision, you can decide to arbitrate a dispute any time you want, says Metzger. Your accountant or lawyer might be able to recommend an arbitrator—or even be your arbitrator, if the other side is amenable to that. Arbitration services and individual arbitrators advertise in law journals and maintain Web sites. Or you can opt for an alternate dispute resolution service provider like the AAA (www.adr.org), JAMS (www.jamsadr.com), or the American Health Lawyers Association (www.healthlawyers.org), which maintain national panels of lawyers, retired judges, and other professionals.

"Disputants write to us, indicating what the dispute is about and what they're looking for in an arbitrator," says the AHLA's Leibold. "We go through our database and list 10 people we think meet their criteria. Each side gets to strike one name, and then rank the remaining names in order of preference, from 1 through 9 (with 1 the most preferred). The person who gets the lowest total score is selected." AAA has a similar selection method, with each side getting lists of 10 to 15 names, crossing off several, and ranking the rest.

How do you choose from such lists? "The parties in a dispute get detailed descriptions of the background and experience of each potential resolver, along with references and fee schedules," says Leibold. "You might prefer someone who has experience in physician practice employment issues, or, if you're an employee, you might exclude an attorney who has a long history of representing practice managers."

When you use an arbitration service, you'll need to follow its conflict resolution procedures. If you've engaged an arbitrator directly, your lawyer or the arbitrator can help you draft appropriate guidelines. Generally, the process includes not only the selection of an arbitrator, but also determining the time and place of the hearing (a conference room is the most common venue), giving the arbitrator any necessary documentation, and presenting evidence. The disputants and their witnesses are examined and cross-examined by attorneys, just as they would be during a court trial.

The arbitrator's decision—submitted in writing—is binding on both parties. If the losing side doesn't comply, the winning side can get a court order mandating that the decision be honored.

Nonbinding arbitration and mediation

Disputants who want to hedge their bets can opt for nonbinding arbitration, which, Metzger says, amounts to "paying a third party for an informed opinion." Or they can try mediation—characterized by the American Arbitration Association as a "facilitated negotiation process" that, if successful, produces "voluntary, party-driven" settlements.

"At its base, arbitration is an adversarial process," says Steve Kern. "And an incompetent or troublesome arbitrator can make an arbitration as difficult, costly, and cumbersome as a judicial proceeding." Mediation, arbitration's more laid-back cousin, doesn't require lawyers and has no formal rules—and neither party is forced to accept the result.

"Mediation is less adversarial," says Metzger, who also works as a mediator. "And because a solution isn't being imposed on the parties, all concerned are more likely to buy in."

Select a mediator who's trained and certified, Kern advises. "A skilled mediator will meet with the parties individually and jointly, listen carefully to each party's grievances and goals, calm emotions, assess the relative merits of the dispute, and work to fashion a resolution in the best interests of both parties. Indeed, a mediator may be able to find avenues where all concerned can profit, rather than have one party benefit at the expense of the other."

Like arbitrators, mediators may be attorneys, retired judges, or even physicians. Peter Pardoll, a gastroenterologist in St Petersburg, FL, and a consultant with Medical Education Associates, has mediated disputes involving partners who are attempting to ease into retirement. "It's very difficult for an older physician to start to cut back," Pardoll says. "The younger doctors don't want him to stop taking night call or drop out of emergency room coverage. Yet if the pay formula is adjusted, everyone can see things in a different light. To me, the key to mediation is presenting ideas that people haven't thought of and getting the parties to realize that adopting these ideas will benefit everyone."

If mediation doesn't work, litigation and arbitration remain available options. "Arbitration gets the matter resolved," says Metzger. "A decision is made, and in many situations it's more important that there be a resolution than it be the optimum resolution. Sometimes you have to have a war and a victor, then you negotiate the peace."

 

Gail Weiss. Got a beef? Medical Economics Nov. 21, 2003;80:21.