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BUSINESS LAW PAGES 28-55
Alternative Dispute Resolution
Many firms find that using alternative dispute resolution (ADR) methods to resolve their legal problems offers many benefits. The term ADR refers to the resolution of legal disputes through methods other than litigation, such as negotiation, mediation, arbitration, summary jury trials, minitrials, neutral case evaluations, and private trials.
alternative dispute resolution (ADR)
The resolution of legal problems through methods other than litigation.
Why might a business prefer ADR to litigation? First, ADR methods are generally faster and cheaper. According to the National Arbitration Forum, the average time from filing a complaint to judgment through litigation is 25 months.9 Because ADR is faster, it is usually cheaper. According to the American Intellectual Property Law Association, for cases valued in the $1 million to $25 million range, the average total cost of patent litigation for each party through the close of discovery is $1.9 million.10 Through the end of trial, the average cost to each party is $3.5 million. Thus, if a party can resolve a dispute through alternative dispute resolution, this can save a significant amount of money.
Second, a business may want to avoid the uncertainty associated with a jury decision; many forms of ADR give the participants more control over the resolution of the dispute. Specifically, the parties can select a neutral third party, frequently a person with expertise in the area of the dispute, to help facilitate resolution of the case. Third, a business may want to avoid setting a precedent through a court decision. Fourth, a business may prefer ADR because it is confidential. Fifth, because many forms of ADR are less adversarial than litigation, ADR allows the parties to preserve a business relationship.
Courts also generally support the use of ADR, which alleviates some of the pressure on the overwhelming court dockets. Congress has recognized the benefits of ADR methods through its enactment of the Alternative Dispute Resolution Act of 1998. This act requires federal district courts to have an ADR program along with a set of rules regarding the program. Additional evidence of congressional support for ADR comes from the passage of the Administrative Dispute Resolution Act, which mandates that federal agencies must create internal ADR programs.
Primary Forms of ADR
LO 3-5 How are the various forms of alternative dispute resolution used by businesses today?
Negotiation
Many business managers make frequent use of negotiation, a bargaining process in which disputing parties interact informally, either with or without lawyers, to attempt to resolve their dispute. No neutral third party is involved. Thus, negotiation differs from other methods of dispute page 51resolution because the parties maintain high levels of autonomy. Some courts require parties to negotiate before they bring their dispute to trial.
negotiation
A bargaining process in which disputing parties interact informally to attempt to resolve their dispute.
Before negotiation begins, each side must determine its goals for the negotiation. Moreover, each side must identify the information it is willing to give the other party. Because negotiation generally occurs in every case before a more formal dispute resolution method is chosen, negotiation is not necessarily considered an alternative to litigation.
Mediation
An extension of negotiation is mediation. In mediation, the disputing parties select a neutral party to help facilitate communication and suggest ways for the parties to solve their dispute. Therefore, the distinguishing feature of mediation is that the parties voluntarily select a neutral third party to help them work together to resolve the dispute. The neutral third party frequently has expertise in the area of the dispute.
mediation
A type of intensive negotiation in which disputing parties select a neutral party to help facilitate communication and suggest ways for the parties to solve their dispute.
Mediation begins when parties select a mediator. Each party then typically writes a mediation brief to explain why it should win. An important feature of mediation is that it allows multiple parties to participate in a dispute. The parties take turns explaining the dispute. One of the mediator’s main goals is to help each party listen carefully to the opposing party’s concerns. The mediator asks the parties to identify any additional concerns. The parties begin generating alternatives or solutions for the disputed points. The mediator helps the parties evaluate the alternatives by comparing the alternatives with the disputed points and interests identified earlier. Finally, the mediator assists the parties in agreeing on a solution.
The mediation concludes when the agreement between the parties is reached. The agreement is then usually put into the form of a contract and signed by the parties. The mediator may participate in the drafting of the contract. If one of the parties does not follow the agreement, that party can be sued for breach of contract. However, parties typically abide by the agreement because they helped to create it.
If mediation is not successful, the parties can turn to litigation or arbitration to resolve their dispute. However, nothing said during the mediation can be used in another dispute resolution method; the mediation process is confidential.
Advantages and Disadvantages of Mediation The primary advantage of mediation is that it helps the disputing parties preserve their relationships; this is especially attractive for businesses with a working relationship they would like to continue. A second advantage is the possibility of finding creative solutions. The goal of mediation is to find a compromise between the needs of various parties rather than to find one party right and all the others wrong. A third advantage is the high level of autonomy mediation gives the participants. Instead of a neutral third party pronouncing a solution, the interested parties work together to create a solution, and this can make them more committed to following the agreement afterward.
These benefits can obviously be very worthwhile. However, we need to pay attention to the critics of the mediation process. One criticism of mediation is that it creates an image of equal parties working toward an equitable solution and thereby hides power imbalances that can lead to the party with greater power getting an agreement of greater benefit. A second criticism is that some people who enter mediation have no intention of finding a solution but, instead, use mediation as a tactic to draw out the dispute.
Uses of Mediation Mediation is most commonly used in collective bargaining disputes because it allows the workers to maintain a relationship with their employer while still having their needs addressed. Under the National Labor Relations Act (NLRA), a union must contact the Federal Mediation and Conciliation Services to attempt to mediate its demands before beginning a strike to achieve higher wages or better working hours.
Similarly, the Equal Employment Opportunity Commission (EEOC) encourages the mediation of employment discrimination claims. The EEOC has a mediation program that uses mediators employed by the EEOC as well as external mediators trained in mediation and discrimination law. Mediation is also used extensively in environmental law because environmental disputes are often best served by finding a compromise between the frequently multiple parties.
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Arbitration
One of the most frequently used methods of dispute resolution is arbitration, the resolution of a dispute by a neutral third party outside the judicial setting. Arbitration is frequently used in disagreements between employees and employers, and it is increasingly being used between consumers and businesses. Arbitration is often a voluntary process in that parties have a contractual agreement to arbitrate any disputes. This agreement may stipulate how the arbitrator will be selected and how the hearing will be administered.
arbitration
A type of alternative dispute resolution in which disputes are submitted for resolution to private nonofficial persons selected in a manner provided by law or the agreement of the parties.
Lawyers, professors, and other professionals typically serve as arbitrators. The general qualifications for being an arbitrator are honesty, impartiality, and subject-matter competence. Additionally, arbitrators are expected to follow the Arbitrator’s Code of Ethics. Typically, parties choose arbitrators from the Federal Mediation and Conciliation Services (FMCS), a government agency, or the American Arbitration Association (AAA), a private, nonprofit organization.
The Arbitration Hearing The arbitration hearing is similar to a trial. Both parties present their cases to a neutral third party; parties may represent themselves or use legal counsel. During this presentation, the parties may introduce witnesses and documentation, cross-examine the witnesses, and offer closing statements. The fact finder offers a legally binding decision. However, arbitration is also different from a trial in several ways. First, the arbitrator often takes a much more active role in an arbitration hearing than a judge takes in a trial, and the arbitrator can question witnesses. Second, no official written record of the hearing is kept in most arbitrations. Third, the rules of evidence applicable in a trial are typically relaxed in arbitration.
The Arbitrator’s Award The arbitrator typically provides a decision within 30 days of the arbitration hearing. The arbitrator’s decision is called an award, even if no monetary compensation is awarded. The arbitrator’s decision differs from a judge’s decision in several ways. The arbitrator does not have to state any findings of fact, conclusions of law, or reasons to support the award, and he or she is not as bound by precedent as a judge is. Also, because the arbitrator was hired to resolve a dispute between two parties, the arbitrator is more likely to make a compromise ruling instead of a win-lose ruling.
Unlike the case in most other forms of ADR, the arbitrator’s decision is legally binding. In certain cases, a decision may be appealed to the district court. However, few of these cases are appealed. The courts give extreme deference to arbitrators’ decisions.
The Federal Arbitration Act (FAA), the federal law enacted to encourage the use of arbitration, explicitly lists four grounds on which an arbitrator’s award may be set aside: (1) The award was the result of corruption, fraud, or other undue means; (2) the arbitrator displayed bias or corruption; (3) the arbitrator refused to postpone the hearing despite sufficient cause, refused to hear relevant evidence, or otherwise misbehaved to prejudice the rights of one of the parties; (4) the arbitrator exceeded his or her authority or failed to use that authority to make a mutual, final, and definite award. In a 2008 decision, the U.S. Supreme Court held that these grounds are the only grounds for appeal and that the parties in an arbitration proceeding do not have the ability to give the courts additional grounds to set aside a decision.11
Consequently, in the United States, arbitration decisions are generally upheld. In fact, the Fifth Circuit recently held that “manifest disregard of the law and contrary to public policy are the only nonstatutory bases recognized by this circuit for the vacatur of an arbitration award.”12
Advantages and Disadvantages of Arbitration Arbitration may be preferable to litigation for several reasons. First, arbitration is more efficient and less expensive. Second, parties have more control over the process of dispute resolution through arbitration. They choose the arbitrator and determine how formal the process will be. Third, the parties can choose someone to serve as the arbitrator who has expertise in the specific subject matter. Fourth, the arbitrator has greater flexibility in decision making than a judge has. Unlike judges, who are bound by precedent, arbitrators generally do not have to offer reasons for their decisions.
Other ADR Methods
Med-arb
Med-arb is a dispute resolution process in which the parties agree to start out in mediation and, if the mediation is unsuccessful on one or more points, to move on to arbitration. In some cases, the same neutral third party may participate in both the mediation and the arbitration. Some critics argue that if parties know that the mediator may become the ultimate decision maker, they will be less likely to disclose information during the mediation stage. Others argue that having the same neutral mediator-arbitrator offers faster resolution because the third party is familiar with the facts of the case.14
med-arb
A type of dispute resolution process in which both parties agree to start out in mediation and, if unsuccessful, to move on to arbitration.
Summary Jury Trial
A summary jury trial is an abbreviated trial that leads to a nonbinding jury verdict. Two advantages are inherent in this method of dispute resolution. First, it is quick; a summary jury trial lasts only a day. Second, because a jury offers a verdict, both parties get a chance to see how their case would fare before a jury of their peers. Each judge can set his or her own rules. The judge advises the jury on the law, and each party’s lawyer presents an opening statement and a limited amount of evidence before the jury. The lawyers have limited time for their presentations, and witnesses do not usually testify. The jury reaches an advisory verdict, although the jury does not know that its verdict is nonbinding. The parties then enter into a settlement conference, where they decide to accept the jury verdict, reject the verdict, or settle on some compromise. Approximately 95 percent of cases are settled at this time. However, if the case is not settled, it will go to a regular trial. At that trial, nothing from the summary jury trial is admissible as evidence.
summary jury trial
An abbreviated trial that leads to a nonbinding jury verdict.
Minitrial
A minitrial is similar to arbitration and mediation because it involves a neutral third party. However, despite the presence of a neutral third party, business representatives of the disputing corporations participate and have settlement authority. Lawyers for each side present their arguments before these executives and the neutral adviser, who then offers an opinion as to what the verdict would be if the case went to trial. The neutral adviser’s opinion, like the jury’s verdict in a summary jury trial, is not binding. Next, the corporate executives discuss settlement options. If they reach an agreement, they enter into a contract that reflects the terms of the settlement.
minitrial
A type of conflict resolution in which lawyers for each side present their arguments to a neutral adviser, who then offers an opinion as to what the verdict would be if the case went to trial. This decision is not binding.
Early Neutral Case Evaluation
With early neutral case evaluation, the parties select a neutral third party and explain their respective positions to this neutral, who then evaluates the strengths and weaknesses of the case. page 55The parties use this evaluation to reach a settlement. Eighteen federal district courts currently use early neutral case evaluation.15
Exhibit 3-10
Forms of ADR
Private Trials
Several states allow private trials, an ADR method in which a referee is selected and paid by the disputing parties to offer a legally binding judgment in a dispute. The referees do not have to have any specific training; however, because retired judges often serve as referees, this method is often referred to as “rent-a-judge.” The cases are often heard privately to ensure confidentiality. The referee writes a report and files it with the trial judge, but a dissatisfied party reserves the right to request a new trial before a trial court judge. Private jury trials with experienced jury members are becoming more popular today as well. Private trials have been criticized because they seem to provide faster and cheaper justice for those who can afford the initial fee and because they hide the trial from the public eye.
private trial
An ADR method in which a referee is selected and paid by the disputing parties to offer a legally binding judgment in a dispute.
