If your business has a claim or lawsuit from or against another business, sooner or later your lawyer is going to turn to you, shrug his shoulders, and inquire, "Should we submit this to some kind of ADR?" If you can speak the same language, you will find that you are way ahead of your lawyer in the matter of ADR. In the last few years ADR has been a hot topic among business lawyers, but it is really nothing more than an attempt to avoid formal litigation. Business managers have been doing that ever since formal trials were invented, and they didn't even know they were on the cutting edge of legal philosophy. This paper will help you speak the same ADR language as your lawyer and discuss if, when, and how to use alternative dispute resolution.
Why do we need an alternative to the modern judicial system? After all, court trials as a means of dispute resolution have survived for centuries despite all of humankind's complaining about lawyers and judges. They have survived not because anyone particularly like them, but simply because they work. Once the appeals are exhausted, the resolution is final and it has the full power of the government behind its enforcement. The judgment can be enforced by the sheriff levying on property of the defendant or even jailing the defendant for contemptuous violation of the court's order. Do we need an alternative to that?
Anyone who has been through a court trial can answer that question without doubt. To reach that certainty of resolution and enforceability, each party must pay and pay and pay. Not only are the economic costs high, but the time is long, the inconvenience is great, the privacy is non-existent, the feelings of the parties are bitter, and the fairness of the judge or jury may be questionable or in a highly technical case may indeed be irrelevant.
One primitive method of dispute resolution outside the court system is the club. One party picks up a club and bops the other on the head until the other either (1) agrees, (2) says he agrees, or (3) at least can no longer disagree. That actually bears a great deal of similarity to modern litigation when you think about it. Another slightly less primitive method of dispute resolution outside the court system is the trial by battle. Each party selects a champion and the champions battle until Divine Providence, knowing where justice lies, intervenes and awards the decision to one party or the other. That also bears a great deal of similarity to modern litigation where the parties hire lawyers to do battle until the judge or the jury intervenes and dispenses "justice" whether or not it is what the parties really want. But where can we turn for an alternative to the head bopping, champion paying, spectacle which modern lawsuits can become?
The most popular alternatives to court room trial are called (in descending order of formality "arbitration," "summary jury trial," "minitrial," and "mediation." Each of these seeks to come as close as possible to the certainty of court resolution without the accompanying cost, delay and inconvenience. Each ADR technique more or less reaches that goal, and each has its own advantages, disadvantages, and appropriate uses. Most can also be used to reach resolution of part of the dispute - perhaps only liability or only damages.
Arbitration is most nearly like a court trial. Usually there are discovery like procedures so each side will be fully aware of all the facts and "trial by ambush" can be avoided. Many arbitral decisions also can be enforced by proving them up in court and utilizing the court's powers to obtain compliance. Arbitration - particularly the typical international arbitration before a three member panel - can be just as formal, just as long, just as costly, and just as irritating as a regular law suit. But the process is usually secret and can be less formal, particularly if the dispute arises out of a contract with a carefully drafted arbitration provision.
Summary Jury Trial was invented by a US federal court judge. It involves a lay jury to which the attorneys present their cases by document, illustration, and argument, but without examination and cross examination of witnesses. The idea is to see "How it plays in Peoria" and with that knowledge to pressure the parties to a negotiated settlement. It usually comes fairly late in the litigation/discovery process and so fails to save much time or money. At this late stage, all written discovery and depositions of potential witnesses will probably have been finished so, while the trial can be held in secret, your opponent will know all about your case. Even if not successful in resolving the dispute, summary jury trial is sometimes helpful (to you and your opponent) in planning the course of the ultimate full trial.
Minitrial means different things to different people. Sometimes the term describes a litigation preparation technique - a way of testing out one's arguments before a private "jury" (of laity or experts) but without tipping one's hand to the opposition. A dispute resolution technique, however, the term describes an informal presentation of the competing positions to some type of advisory panel. The panel may be composed of laity or experts, but one of the most common minitrial presentations is before one or more executives from each party - usually executives with some background in the field of the dispute, but without any direct personal stake in the outcome of this particular dispute.
The executives can then render an advisory opinion, or can themselves become negotiators trying to work our a fair resolution for their companies. The minitrial is fair, private, quick, and cheap. If done before a formal lawsuit is filed, however, there is really no way to know if your opponent is concealing damaging evidence, and there is no certainty of decision, as either party may refuse to cooperate despite the opinion of the panel. Two advantages of a minitrial over normal negotiation are that it virtually eliminates lawyers from the ultimate decision making process, and it places the decisions in the hands of managers who have no personal point to prove and thus probably do not have a damn-the-torpedoes-ful-speed-ahead-attitude. In short, the minitrial can inject sanity into negotiations if one or the other party is "stonewalling."
Mediation is really a variation of the minitrial in which the panel is a "neutral" outsider (usually with some expertise in the field) who, unlike an arbiter, actually takes an active part in the negotiation process. For this reason the mediator is often referred to as a "facilitator" of the negotiations and will actually go back and forth between the parties thus avoiding the rancor or posturing so often present in face to meetings between warring factions. The presentation of issues and evidence to a mediator/facilitator can be more or less formal depending on their complexity, but the process itself is less formal as there is usually only one mediator involved and the evidence and issues can be presented in bits and starts in various meetings or phone calls over a period of time. Sometimes there is no need for lawyers in mediation, although their training in marshaling and presenting facts can be very helpful.
Usually the mediator will make private inquiries of each party regarding undisclosed facts, and, while keeping such facts confidential, will take them into account in shaping the mediation process or any ultimate recommendation. Such secrecy can be a distinct advantage for each party, and know that one's secrets will not be disclosed to the other party often allows one to be more forthright about the actual settlement value of the case. Mediation can come at any time during a dispute, before or after a formal lawsuit is filed. In virtually all cases actually filed, the Court itself will try to mediate a resolution under the name of Conference on Status of Settlement, or Final Pre-trial conference, or something similar. There is no essential difference whether it is ordered by the Court or it is suggested by one of the parties before reaching Court. Mediation is fair, private, quick, and cheap, but it lacks any certainty that a resolution will be reached or can be enforced.
In Summary: Indications for ADR: the contract or court requires it; there is a willingness to compromise; there is an ongoing relationship between the parties which needs to be protected; there is a need for privacy; there is a lack of confidence in the fairness or competence of judicial forum; there is a need for a resolution that is quick, easy and cheap relative to the amount at stake; or publicity, delay, expense, etc., give your opponent an extra advantage. Remember, even if suit has already been filed, ADR is still available - 97% of suits filed are settled by some process before they reach judgment. Contraindications for ADR: the opponent is intransigent and a lawsuit will serve as a wake-up call; you need the power of a court to obtain needed information from the other side or the attendance of third party witnesses; you need the force of a legal precedent as a message to the world; you need the enforcement powers of the government; and obviously, when publicity, delay, expense, etc., give you the advantage.
The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright, 2003 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.