Alternative dispute resolution: What is it?

I.

INTRODUCTION

As litigation becomes increasingly more costly and more time consuming, Alternative Dispute Resolution ("ADR") offers a means to resolve cases more expeditiously and more economically. With the growing need to reduce litigation costs, lawyers and clients must become more familiar with ADR and its different forms. All too often even the most common forms of ADR arbitration and mediation - are confused. Other ADR forms are nearly unknown or totally ignored. Yet each method of ADR offers unique functions that can be tailored to a particular case.

II.

ARBITRATION

Arbitration is one of the most widely known forms of ADR. Basically, any civil case can proceed to arbitration either through court-annexed arbitration, mutual agreement of the parties or contractual arrangements. Arbitration, like court adjudication, involves the presentation of proof and arguments by the parties to a neutral third party or panel of neutrals who issue a binding decision.

However, although the outcome is binding on the parties, arbitration awards are not self- enforcing. Failure of the parties to abide by the outcome cannot be sanctioned unless the award has been judicially confirmed. The Federal Arbitration Act and the Uniform Arbitration Act provide courts with the power to confirm or vacate an arbitration award. Supported by a strong public policy that favors relieving calendar congestion, courts have begun interpreting arbitration clauses more broadly, ordering parties to arbitrate and then upholding the decisions made by arbitrators. The Federal Arbitration Act and the Uniform Arbitration Act, which have been adopted in nearly every state, make arbitration agreements specifically enforceable.

Unless the parties agree, arbitration does not involve pre-trial discovery. The arbitration hearing is usually more informal than a court proceeding and the rules of evidence are not strictly applied. The parties may agree, either by contract or by mutual agreement, to have their case heard before a single arbitrator or a panel of arbitrators. Generally, the parties agree to jointly select the arbitrator or panel and to split the costs of arbitration.

The parties can choose anyone to act as arbitrator. However, there are several for-profit arbitration services, as well as non-profit organizations such as the American Arbitration Association and the Center for Public Resources, which can provide assistance in selecting an arbitrator and conducting the arbitration hearing. These organizations maintain panels of qualified arbitrators from which the parties may select either a single arbitrator or a panel of arbitrators to hear their case. The arbitrators are usually lawyers or persons with expertise in the particular business or industry involved in the suit. Arbitrators are generally compensated on either an hourly or daily basis.

While the arbitrator's expertise and a degree of informality are advantages provided by arbitration over courtroom litigation, other advantages of arbitration include generally lower costs and quicker resolution of matters. Furthermore, arbitration is private; therefore, there is no disclosure of the outcome of arbitration awards.

Some jurisdictions provide for court-annexed arbitration which is mandatory and non-binding. Usually, the statute or court rule provides that cases of a certain nature must be directed to arbitration. The arbitration hearings are often heard before a retired judge or a lawyer selected by the court from an approved panel of arbitrators. The arbitrator renders an opinion that is deemed final after a certain period of time if neither party objects. If a party objects to the arbitrator's opinion, that party may seek a trial de novo in the courts. Some courts have factored disincentives into seeking a trial de novo, such as penalties on the party seeking the trial if that party's position is not improved at trial.

III.

MEDIATION

Mediation is an appropriate form of ADR for nearly every civil case. Mediation gives the parties an opportunity to be heard without constraining either side with a binding adjudication of the case. In mediation, the parties negotiate their case toward resolution with the assistance of a neutral third party. The mediator is a powerful tool in helping parties realize and accept the inherent weaknesses in their cases, which is a necessary precursor to a reasonable and realistic resolution. Some but not all jurisdictions require that mediators be "certified," and it is strongly suggested that any mediator be trained in the act of mediation and negotiation. Being a good mediator requires talents and training different from those negotiation skills otherwise acquired by most trial lawyers.

The mediation process generally involves a short introduction by the mediator followed by an opening statement from each party, during which the parties outline their case for the benefit of the mediator and opposing counsel. Each party usually has prepared a position paper stating the legal and factual basis of their case. The position paper is submitted to the mediator prior to mediation. Following opening statements, the mediator meets separately with each party in the case and that party's attorney. In doing so the mediator is able to determine the desires of each party and is able to help the parties realistically evaluate weaknesses.

While the settlement reached by the parties is not itself binding, it can be a binding and enforceable resolution if reduced to writing and signed by the parties. The mediator cannot force a settlement; however, the courts can enforce a settlement reached by the parties through mediation in the same manner as any legal settlement reached outside of mediation.

One great advantage of mediation over court adjudication or arbitration is that the parties themselves arrive at a resolution of their case. For that reason, there is a greater feeling of satisfaction in the result. Another advantage is that mediation is completely confidential. The discussions between the parties are private and, absent an agreement by the parties, the only persons present at mediation are the parties, their attorneys and the mediator. Furthermore, the cost of mediation is minimal, and the parties generally share that cost.

A number of jurisdictions order mediation of those cases set for trial. Even with court-ordered mediation, however, any settlement reached by the parties is strictly voluntary. The parties may still proceed to trial should they fail to resolve the case during mediation.

IV.

MED/ARB.

Med/Arb is a hybrid form of ADR, in which the neutral initially acts as a mediator, aiding the parties in trying to resolve their case. If the parties reach a settlement, it can be reduced to writing and signed by the parties, thus making it binding. If the parties fail to resolve the matter through mediation, the neutral then acts as an arbitrator, rendering a decision which can be either binding or non-binding, depending on the agreement between the parties.

The advantage of Med/Arb is that the same neutral acts as mediator and, if necessary, as arbitrator. This advantage gives the process a greater degree of efficiency than does mediation followed by arbitration, since the latter requires a separate neutral for each process. Since the Med/Arb neutral has served as a mediator prior to arbitration, there is less need for educating the neutral regarding the facts of the case. However, this is not to say that the neutral would not require additional argument or proof from the parties in certain instances.

The procedure through which resolution is reached in Med/Arb can be very different from that of pure mediation. In pure mediation, the parties' goal is to reach a final resolution of the matter that is satisfactory to each of them. With Med/Arb, the parties may place greater emphasis on the strengths of their case. In addition, they may be less likely to divulge confidential information or discuss the weaknesses of their case in an effort to influence the neutral.

The neutral may stress to the parties during the mediation phase that, should the parties not accept a certain agreement, resolution will be enforced in the arbitration phase. Therefore, the Med/Arb form may result in a greater number of settlements by the parties themselves, since the outcome will otherwise be the result of the arbitration phase should the parties reject the offer of settlement during mediation. This may result in a slight degree of dissatisfaction between the parties because settlement was not reached entirely by mutual decision.

In an effort to utilize the advantages of Med/Arb while minimizing its disadvantages, some parties have used the neutral first in the function of a mediator and then in the capacity of an advisory arbitrator, should the parties fail to reach settlement. As an advisory arbitrator, the neutral advises the parties about the likely outcome of the case should they arbitrate, but the neutral does not act as an arbitrator. If the parties fail to resolve the matter after the advisory arbitrator renders his or her opinion, a different neutral is then summoned to arbitrate the matter. Med/Advisory Arb has been very successful in labor disputes.

V.

MINI-TRIAL

Mini-trials are most often used to resolve business disputes. The basic elements of a mini-trial are: (1) the parties voluntarily agree to proceed with the mini-trial; (2) the parties draft and sign a "protocol" or agreement outlining the procedure of the mini-trial and the effect of the process on the litigation; (3) the parties exchange important documents and short briefs outlining their case in advance of the mini-trial; (4) the parties select a neutral to preside over the mini-trial (the neutral is usually someone uniquely qualified to render an opinion in the complex business matters involved); and (5) the proceedings are confidential.

Each attorney makes a presentation for the respective party to a panel formed of a neutral and a high level executive of the parties, each of whom has settlement authorization. Following these presentations, the executives begin negotiations. If the negotiations do not prove successful, the executives may ask the neutral to intercede and render an advisory opinion on the likely outcome of the matter. Thus, the mini-trial gives those with settlement power a brief display of their case in its best light. Generally, the mini-trial is non-binding, but it can become binding by agreement of the parties.

VI.

SUMMARY JURY TRIAL

The summary jury trial is a form of mini-trial differentiated by the fact that the parties receive some direct indication of how a jury will decide their case. Summary jury trials take place in a courtroom before a presiding judge and an advisory jury, which is drawn from the regular jury pool. Representatives from each party are generally required to attend.

The attorneys for each party offer summary presentations of their case, generally based on information that is subject to discovery and admissible at trial. After hearing the presentations, the advisory jury deliberates and then returns a verdict, which is non-binding. The jurors then answer questions posed by the attorneys about their determination.

Following the question and answer session, the attorneys and representatives begin settlement negotiations. If the parties fail to reach a settlement, the advisory jury verdict cannot be admitted at trial. However, there exists a strong impetus toward settlement because the parties have been able to preview their case before a jury.

The summary jury trial is more costly and more time consuming than other forms of ADR. Therefore, it is generally reserved for cases that are expected to be time-consuming if tried. It is particularly useful in cases that involve novel issues.

VII.

EARLY NEUTRAL EVALUATION

Early Neutral Evaluation ("ENE") began in the United States District Court for the Northern District of California and is now utilized in a number of jurisdictions. Most civil cases are appropriate for ENE, but it is particularly useful in situations where one party has unrealistic expectations regarding the outcome of its case.

An experienced neutral, often an attorney skilled in a relevant area of law, renders an assessment of the case after briefly hearing from the parties. The neutral is often a volunteer who is selected by the court. If the parties do not reach settlement, the determination of the neutral is kept confidential.

An attorney and his or her client can use ENE alone as a "reality check" for the client. ENE may help an unrealistic client or attorney face the weaknesses of their case and, as a result, encourage settlement. Furthermore, ENE may allow the parties to narrow the issues involved in a particular case and may lead the parties to a more expeditious resolution of the matter.

VIII.

PRIVATE JUDGING

While private judging is helpful in any civil dispute, it is particularly useful in actions in which there is a great need for confidentiality or actions that are particularly time sensitive. Private judging involves adjudication by a referee or a pro tern judge. The neutral is a private ADR provider who hears the case in essentially the same manner as would a judge at trial. The parties share the cost of compensating the judge, as well as the cost of the entire procedure. Private judging is binding upon agreement of the parties. In some states, including California, the private judge is authorized by statute to render a judgment that has the same finality, precedent and appealability of a judicial decision. Many of the non-profit ADR providers, as well as the for-profit agencies, are able to provide parties with private judges.

The confidential nature of private judging is one of its greatest advantages over litigation. It also provides a much more expeditious resolution of a matter.

IX.

LAST OFFER ARBITRATION

Last Offer Arbitration is often used in the resolution of money claims or in the resolution of salary disputes. During arbitration, the parties each submit their last offer of settlement to the arbitrator. The arbitrator must then choose one offer or the other, and the parties agree to be bound by that decision. Thus, the parties set the limits of the arbitrator's award. Last Offer Arbitration may be less likely to freeze negotiations between the parties before they reach the arbitration phase, since mutuality is aided by the fact that the neutral will decide between one party's offer or the other. Therefore, it is in the parties' best interest to be as realistic as possible in submitting their offers.

X.

MEDALOA

MEDALOA combines mediation with Last Offer Arbitration. The parties agree to proceed to mediation. They also agree that, if mediation produces no settlement, they will then submit their last offer (if any) made during mediation to the neutral, who chooses one or the other and renders a decision. Since the neutral is limited to the last offer of the parties, once again the parties have some degree of control over the arbitration process. Thus, they are less likely to complain about the outcome. As with Last Offer Arbitration, the parties are encouraged to make a realistic settlement offer, anticipating that the neutral will choose between one of the offers. Therefore, the openness of mediation between the parties is not thwarted by the fact that the parties have agreed to submit the matter to arbitration should they fail to reach a settlement.

XI.

FACT FINDING

With fact finding, the parties submit information regarding their case to the neutral, who reviews the information. The neutral may also conduct some independent fact-finding and submit those findings to the parties. While factfinding may be used in any civil case, it works best when settlement attempts have failed because the parties cannot reach agreement concerning certain factual issues. It may also be helpful in matters involving scientific issues that can be better understood through the use of an expert. The factual findings of the neutral may be binding or non-binding, and the determination of the neutral is confidential.

XII.

PARTNERING

Partnering is used to help parties prevent future disputes, and it is best utilized when multiple parties must work together to resolve a matter or to achieve a common goal. The neutral facilitates discussion about resolution or achieving project goals. The neutral also identifies where problems exist and then helps the parties determine how best to resolve those problems before they hinder resolution of the project.

Partnering was developed for use in the construction industry and is still most commonly used in that area. It is also prevalent in land use planning and within state and federal agencies to negotiate regulations with interested parties.

XIII.

CONCLUSION

Each form of ADR has unique qualities and particular advantages to traditional litigation. While every case may not be right for all forms of ADR, analyzing each case and locating a particular form of ADR may save time and money needlessly spent in litigation.

HELEN JOHNSON ALFORD KATHLEEN COBB KAUFMAN

Helen Johnson Alford is a partner in the law firm of Carr, Alford, Clausen and McDonald, L.L.C. She practices in the litigation field with an emphasis on product liability, insurance defense, workers' compensation and health care law. Ms. Alford is a member of the Alabama, Mississippi and Texas Bar As

sociations, American Bar Association (ADR Committee), Alabama Defense Lawyers Association, Defense Research Institute, and Federation of Insurance and Corporate Counsel (Chair of the Workers' Compensation Section).

Kathleen Cobb Kaufman is an associate with the firm of Carr, Alford, Clausen & McDonald, L.L.C. She is a member of Alabama State Bar, American Bar Association, Alabama Defense Lawyers Association and Defense Research Institute. She is li

censed to practice in Alabama state and federal courts and before the Eleventh and Fifth Circuit Courts of Appeals. Her areas of practice include appellate, commercial litigation, insurance fraud, bad faith, workers' compensation and general business matters.

Copyright Federation of Insurance & Corporate Counsel Summer 1999
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