Business Conflict Blog
The Unified Court System of the State of New York is considering a modification to its Rules that would require attorneys to include in their letters of engagement reference to the ADR options and resources available at the courts’ web site.
The proposal (available here) is subject to public comment until September 8 at email@example.com. The suggestion may be a unique one.
I know that Colorado has an ethical requirement that its attorneys advise clients of alternatives to litigation, and of course many states have court-annexed programs either encouraging or requiring mediation of litigated cases. But I am unaware of a Court Rule requiring attorneys to give notice of the availability of ADR in the course of their being engaged.
From Liz Kramer’s Arbitration Nation (via Paul Lurie) comes notice of a delightful ruling from the Texas Supreme Court vacating an arbitration award because the panel was insufficiently prejudiced.
In Americo Life, Inc. v. Myer, the Texas Supreme Court was confronted with an arbitration agreement providing that disputes were to be brought before a three-person panel, with each party naming a panelist and the third selected by the first two. It also provided that (with modifications irrelevant to this case) the panel was to conduct the proceeding using AAA Rules.
At the time the agreement was entered into, AAA Rules did not require that party-appointed arbitrators be neutral. By the time the dispute arose they did. Americo’s first choice of arbitrator was objected to as partial, and so was its second choice. The AAA struck the appointed panelist in each case. Myer didn’t challenge Americo’s third choice and the case went forward. But when Myer tried to confirm the final award, Americo successfully argued that the AAA’s striking its choice of panelist was in derogation of the parties’ arbitration agreement. The trial court vacated the award, the appellate court reversed the trial court, the Supreme Court reversed the appellate court and remanded, the trial court again vacated, the appellate court again reversed, and the Supreme Court again reversed and confirmed the vacating of the award — almost 10 years after the arbitration had begun.
The Supreme Court observed that an arbitration panel derives its authority from the agreement of the parties, and by obverse deduction an arbitration panel that was selected by a method in derogation of the agreement lacks jurisdiction. The practice of party-appointed arbitrators’ advocating with a neutral chair was “commonplace” when the parties agreed to this process, held the court.
(Indeed, I remember that when I joined CPR in 1998, one of the distinctions in its Arbitration Rules was a requirement that all arbitrators be neutral. It even had a provision by which a party could appoint an arbitrator without the arbitrator knowing which party appointed her.)
And, held the court, where the arbitration agreement indicates a term at variance with the AAA Rules, then the terms of the agreement must prevail. In light of the contemporaneous provisions of the Rules — allowing party-appointed arbitrators to be advocates — and the absence of any requirement of neutrality in the agreement, the refusal to allow Americo to appoint an arbitrator of its choice robbed it of the benefit of its agreement, and robbed the panel of its jurisdiction.
Prof. Stacie Strong of the University of Missouri sends this notice:
As some of you may know, the United Nations Commission on International Trade Law (UNCITRAL) has been holding its forty-seventh session in New York these last two weeks. During the meeting, the U.S. Department of State presented a proposal (click here) suggesting that UNCITRAL Working Group II begin work on a convention on the enforcement of settlement agreements that arise out of conciliation/mediation and that involve international commercial disputes. The Commission decided to have the Working Group consider the proposal at its spring 2015 session and report back to the forty-eighth session of the Commission regarding the feasibility of the project and what form any instrument should take.
The U.S. Department of State will be holding a public meeting of the Advisory Committee on Private International Law (ACPIL) on July 31, 2014, to discuss this project. Interested parties may attend in person or by conference call. More details about the ACPIL meeting, including details on how to RSVP, can be found in the Federal Register notice (click here).
The State Department is keen to hear from various stakeholders, so I encourage you to join into the conversation.
Deborah Masucci, Chair of IMI, has also reported on these proceedings and encouraged the ADR community to monitor them or engage itself.
Andrew Olejnik of Jenner & Block and Olivier André of the CPR Institute have co-authored an article that appears in Bankruptcy Law Reporter on the growing use of ADR tools in bankruptcy. Dating the trend from a 2009 conference convened by the American Bankruptcy Institute Law Review, the authors conclude that “many large, complex cases increasingly have turned to ADR tools as a means to resolve disputes.” The full article appears here.
In some cases the ADR phase is statutorily required. For example, the city of Stockton, California underwent a state-required “neutral evaluation process” before being eligible to file for bankruptcy in 2012. Some were quasi-contractual. It is understood that “the bankruptcy court generally does not have discretion to deny enforcement of a valid prepetition arbitration provision.” And some are aimed at judicial economy. Lehman Brothers requested and obtained ADR procedures to streamline the process of capturing the value of certain “in the money” derivatives contracts. And the court ordered mediation of certain tax disputes in the Ambac Financial Group Chapter 11 proceeding.
Along with precatory mediation plans in many federal bankruptcy courts, and the new presumptive mediation plan in the District of New Jersey, we can expect, as the authors observe, increased ADR activity in this field, which so centrally relies upon negotiated outcomes.
Straus Institute Academic Director Thomas Stipanowich reports:
The Straus Institute recently conducted two major surveys of dispute resolution professionals: a survey of experienced arbitrators with the cooperation of the College of Commercial Arbitrators, and a survey of experienced mediators with the cooperation of the International Academy of Mediators. These studies produced a wide array of new information on arbitrator and mediator practices and perspectives that we hope will contribute to debate and discussion on many current professional issues. We are presently writing these up.
The first fruit of these studies is the just-completed article Commercial Arbitration and Settlement: Empirical Insights into the Roles Arbitrators Play, which leads off the new Penn State Yearbook on Arbitration and Mediation. The role of arbitrators in setting the stage for settlement has received relatively little attention despite the fact that, as our survey shows, the rate of pre-award and pre-hearing settlement is increasing. Moreover, different arbitrators are experiencing very different rates of settlement and have different attitudes toward their roles in settlement. However, the survey shows that many arbitrators are engaged in activities that have an impact on settlement.
The survey may be download here.
The Court of Appeals for the Federal Circuit has held that “mediators have disclosure obligations which are similar to the recusal requirements imposed on judges.” This is so despite the acknowledgement that mediators have no authority whatsoever over the parties they are assisting, and despite the fact that a bad mediator can cause very little harm.
The dispute giving rise to this peculiar result is Ceats, Inc., v. Continental Airlines Inc., a patent dispute brought before the District Court for the Eastern District of Texas and appealed to the Federal Circuit. The claimant sought review of a denial of its motion pursuant to F.R.C.P. 60(b) for relief from a judgment that its patents were invalid. The basis for that motion had been that the court-appointed mediator had failed to disclose his close business and professional relationship with counsel for the defendants. This nondisclosure was also the basis for a state court’s vacating an arbitration award issued by the same neutral (in an unrelated proceeding) in which he had failed to disclose that same relationship.
The Court of Appeals “recognize[d] that mediators perform different functions than judges and arbitrators,” but also noted that “mediators still serve a vital role in our litigation process.”
Because parties arguably have a more intimate relationship with mediators than with judges, it is critical that potential mediators not project any reasonable hint of bias or partiality. Indeed, all mediation standards require the mediator to disclose any facts or circumstances that even reasonably create a presumption of bias.
Reviewing the ABA Model Standards, the court noted a similarity with the recusal requirements imposed on judges pursuant to 28 U.S.C. 455(a). It then reasoned that “parties must have absolute trust that their confidential disclosures [in mediation] will be preserved.” Partiality, reasoned the court, eroded that trust and mediators’ disclosure requirements were therefore similar to judges’ recusal requirements.
A good-old Texas mediator of my acquaintance, Jeff Abrams, always says that “the worst thing that can happen in a mediation is that you have a bad day.” The very prospect that mediators share any professional attribute to judges is difficult to entertain. Yes, of course mediators should disclose relationships before accepting an engagement. But different from judges, mediators are often sought out because they have relationships with the parties. Franchisees may seek a mediator who has worked with the franchisor. A Chinese friend once explained that an arbitrator who was the cousin of a party is often chosen by the adversary because he has guanxi with her. Certainly the intentional disclosure of confidential information is disreputable, but seems to have no logical connection with partiality.
What would happen if a partial mediator slipped into the process? Would she try to persuade the other side that it has no case? That there were no damages? That it is likely they will lose summary judgment? So what? A competent attorney in mediation makes her own assessments and agrees only to agreeable options. It really is quite difficult to imagine what harm even the most biased mediator could do. The same could hardly be said for a biased judge.
Disclosure requirements for mediators are found where they belong — in bar association “standards” and mediator provider organization “rules.” To enshrine them in the law seems to reflect an inaccurate understanding of how mediations really work, and why litigants settle.
Deborah Masucci, Chair of the International Mediation Institute, has sent around a forceful message asking the international mediation community to support initiatives to ensure that agreements reached during mediation have the status of enforceable contracts, in all jurisdictions around the world.
I write to ask that you lend your support to a proposal now pending within the UNCITRAL Commission for Working Group II (Arbitration and Conciliation) to initiate work on a multilateral convention on the enforceability of international commercial settlement agreements reached through mediation. IMI supports this effort and asks that you contact your country’s delegate to this Working Group to encourage them to support adding this task to its work. IMI believes this proposal makes eminent sense in the increasingly complex commercial world in which we operate.
She points out, quite correctly, that an agreement to resolve litigation may need to be enforced in a jurisdiction where a party who breached that agreement has assets. It is a situation with which international businesses (and international arbitrators) are familiar, and it should not require an expensive and antagonistic arbitration to get a piece of paper that someone can enforce.
The proposal will be presented by the United States and considered by the UNCITRAL Commission at its 47th Session in July in New York. I hope that we can count on your support to encourage your delegate’s agreement to add the proposal to the Working Group’s Agenda. I will be attending the Session on behalf of IMI and the Joint IBA-IMI Taskforce to support the proposal. The IMI Board and executive team are available to discuss the reasons we believe the proposed convention is ideally suited to the way business is conducted in today’s world.
The full text of the proposal is below. More information on the upcoming 47th Session of the UNCITRAL Commission is here. This looks like an issue worth pursuing, and we look forward to its progress as the work unfolds.Proposal by the United States: Future Work for Working Group II
As the draft Convention on Transparency in Treaty-Based Investor-State Arbitration will be considered by the UNCITRAL Commission at its 47th Session, Working Group II (Arbitration and Conciliation) has completed the transparency-related projects within its mandate. The Commission now needs to decide what future projects, if any, might merit the use of Working Group resources. The United States proposes that the Working Group address the enforceability of settlement agreements resulting from international commercial conciliation.
Background: The U.N. General Assembly has recognized that the use of conciliation “results in significant benefits, such as reducing the instances where a dispute leads to the termination of a commercial relationship, facilitating the administration of international transactions by commercial parties and producing savings in the administration of justice by States.” Because promoting the use of conciliation may help achieve these benefits, UNCITRAL has previously developed two important instruments aimed at increasing its usage: the Conciliation Rules (1980) and the Model Law on International Commercial Conciliation (2002). (In this paper, as in the Model Law, the term “conciliation” is used to refer to “a process, whether referred to by the expression conciliation, mediation or an expression of similar import, whereby parties request a third person or perso ns (‘the conciliator’) to assist them in their attempt to reach an amicable settlement of their dispute arising out of or relating to a contractual or other legal relationship. The conciliator does not have the authority to impose upon the parties a solution to the dispute.”  Thus, this paper does not intend to differentiate conciliation from mediation.)
When UNCITRAL completed this earlier work, it was already recognized that “[c]onciliation is being increasingly used in dispute settlement practice in various parts of the world,” and that it is “becoming a dispute resolution option preferred and promoted by courts and government agencies,” in part because of its high success rate. Since then, conciliation’s acceptance and use have continued to grow. For example, in 2008, the European Union issued a directive on mediation, requiring that its member states implement a set of rules designed to encourage the use of mediation in cross-border disputes within the EU. Increased use of conciliation can be expected as parties continue to seek options that reduce costs and provide faster resolutions.
One obstacle to greater use of conciliation, however, is that settlement agreements reached through conciliation may be more difficult to enforce than arbitral awards, if a party that agrees to a settlement later fails to comply. In general, settlement agreements reached through conciliation are already enforceable as contracts between the parties. However, enforcement under contract law may be burdensome and time-consuming. Thus, if even a successful conciliation simply results in a second contract that is as difficult to enforce as the underlying contract that gave rise to the dispute, engaging in conciliation to address a contractual dispute may be less attractive. Moreover, unlike arbitration, which generally provides a definitive resolution to a dispute, conciliation does not guarantee that the parties will reach an agreement, and even a party that agrees to a resolution may later fail to comply. Thus, in deciding whether to invest their time and resources in the process of conciliation, parties may want greater certainty that, if they do reach a settlement, enforcement will be effective and not costly. “Many practitioners have put forward the view that the attractiveness of conciliation would be increased if a settlement reached during a conciliation would enjoy a regime of expedited enforcement or would, for the purposes of enforcement, be treated as or similarly to an arbitral award.” Thus, the Commission has supported “the general policy that easy and fast enforcement of settlement agreements should be promoted.” Bolstering enforceability across borders also helps promote finality in settlement of cross-border disputes, as it reduces the possibility of parties pursuing duplicative litigation in other jurisdictions. For these reasons, i nitial consultations with the private sector have indicated strong support for further efforts by UNCITRAL to facilitate the enforceability of conciliated settlement agreements.
Proposed Convention: To further these goals, the United States proposes that Working Group II develop a multilateral convention on the enforceability of international commercial settlement agreements reached through conciliation, with the goal of encouraging conciliation in the same way that the New York Convention facilitated the growth of arbitration. Just as the New York Convention has been successful in part due to its relative brevity and simplicity, an analogous convention on conciliation should also avoid unnecessary complexity.
With respect to the scope of a convention, the United States proposes that the Working Group address the following issues, among others:
- Providing that the convention applies to “international” settlement agreements, such as when the parties have their principal places of business in different states;
- Ensuring that the convention applies to settlement agreements resolving “commercial” disputes, not other types of disputes (such as employment law or family law matters);
- Excluding agreements involving consumers from the scope of the convention;
- Providing certainty regarding the form of covered settlement agreements, for example, agreements in writing, signed by the parties and the conciliator; and
- Providing flexibility for each party to the convention to declare to what extent the convention would apply to settlement agreements involving a government.
The convention could then provide that settlement agreements falling within its scope are binding and enforceable (similar to Article III of the New York Convention), subject to certain limited exceptions (similar to Article V of the New York Convention).
Such an approach would build on existing law. To encourage use of conciliation, many legislative frameworks and sets of rules make some conciliated settlement agreements easier to enforce by treating them in the same manner as arbitral awards. For example, the UNCITRAL Model Law on International Commercial Arbitration (adopted in many jurisdictions around the world) provides in Article 30 that if parties settle a dispute during arbitral proceedings, the tribunal can make an award on agreed terms, with the same status and effect as any other award on the merits of a case. The result relies on a legal fiction: although the parties resolve the dispute themselves, rather than waiting for a neutral third-party decision-maker to impose a resolution, the settlement is still categorized as an award. This fiction gives the parties the same benefits in terms of finality and ease of enforcement that a normal award would have provided.
Other jurisdictions have gone further by treating conciliated settlement agreements equivalently to arbitral awards even if arbitral proceedings have not yet commenced. These jurisdictions thus provide parties with an incentive to settle disputes at earlier stages. For example, UNCITRAL has noted that India and Bermuda provide for settlement agreements reached through conciliation to be treated as arbitral awards. A number of U.S. states, including California and Texas, have statutes on international commercial conciliation that provide for settlement agreements to have the same legal effect as arbitral awards. Various sets of arbitration rules around the world take a similar approach. The Korean Commercial Arbitration Board’s Domestic Arbitration Rules provide that, if conciliation succeeds in settling a dispute before arbitration commences, &ldqu o;the conciliator shall be deemed to be the arbitrator appointed under the agreement of the parties, and the result of the conciliation shall … have the same effect” as an award on agreed terms. The Mediation Rules of the Arbitration Institute of the Stockholm Chamber of Commerce similarly provide that the parties can appoint the mediator as an arbitrator for the purpose of confirming a settlement agreement as an arbitral award.
A convention for conciliation modeled on the New York Convention would draw upon the approach taken by these jurisdictions, but would address the enforceability of settlement agreements directly, rather than relying on the legal fiction of deeming them to be arbitral awards. This approach would also eliminate the need to initiate an arbitration process (with the attendant time and costs) simply to incorporate a settlement agreement into an award.
Any convention along these lines would, of course, need to include a limited set of exceptions similar, but not identical, to those provided in Article V of the New York Convention. For example, an analog to Article V(1)(d) (regarding the composition of the arbitral authority or the arbitral procedure) may not be necessary. By contrast, the Working Group could consider whether to allow a party to a settlement agreement to prevent enforcement if it can demonstrate that it was coerced into signing that settlement agreement.
The Working Group could also consider several possible structural limitations on enforcement under the convention:
- Whether to provide that other courts could give effect to an originating jurisdiction’s determination that a settlement agreement is not enforceable (similar to the New York Convention’s treatment of set-aside proceedings);
- How to avoid duplicative litigation caused by simultaneous attempts to enforce a settlement under the convention as well as under contract (or other) law; and
- How to ensure respect for restrictions on enforcement chosen by the parties to a settlement (e.g., settlements containing forum selection clauses or other limitations on remedies).
Moreover, settlement agreements can contain long-term obligations regarding the parties’ conduct years into the future, and might address such issues more commonly than arbitral awards would. The Working Group should consider whether limits on enforcement under the convention would be appropriate in such cases. For example, enforcement under the convention could be made available only for a limited period of time, after which other mechanisms—such as domestic contract law—might be more appropriate (e.g., to deal with issues such as changed circumstances). Other methods of limiting the convention’s application to non-monetary elements of settlements could also be considered.
During the development of the Model Law on International Commercial Conciliation, it was noted that drafting uniform legislation regarding enforcement would be difficult because the methods for achieving expedited enforcement of settlement agreements varied greatly between legal systems and depended on domestic procedural law. However, the Working Group could minimize these difficulties by addressing enforcement via a convention that, like the New York Convention, sets forth the result that states would need to provide through their domestic legal systems (in this case, enforcement of conciliated settlement agreements) without trying to harmonize the specific procedure for reaching that goal.
Similarly, efforts to develop a convention should not seek to develop harmonized rules for the conciliation process itself, just as the New York Convention does not set forth mandatory rules for conducting arbitral proceedings. However, the Working Group could consider whether additional topics, such as the confidential nature of conciliation discussions, could be addressed through further projects after completion of an initial convention.
Next Steps: In view of the potential benefits of such a convention, as well as the background work already done by the Secretariat in the context of the development of the Model Law, the United States urges the Commission to assign this project the highest priority within the Working Group, including at its next session in September 2014. While other efforts under consideration by the Working Group (such as updating the Notes on Organizing Arbitral Proceedings) should continue, they should not delay work on this project.
 A/CN.9/812 (2014).
 A/Res/57/18 (2003).
 Model Law on International Commercial Conciliation, art. 1.3.
 Guide to Enactment of the Model Law on International Commercial Conciliation (“Guide to Enactment”), para. 8.
 Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on Certain Aspects of Mediation in Civil and Commercial Matters, 2008 O.J. (L 136).
 Guide to Enactment, supra note 4, at para. 89.
 Id. para. 87.
 Id. para. 88.
 Id. para. 91 (citing Bermuda, Arbitration Ac t 1986; and India, Arbitration and Conciliation Ordinance, 1996, art. 73-74).
 E.g., Cal. Civ. Pro. § 1297.401; Tex. Civ. Prac. & Rem. Code Ann. § 172.211.
 Korean Commercial Arbitration Board, Domestic Arbitration Rules 18.3 (2011).
 Arbitration Institute of the Stockholm Chamber of Commerce, Mediation Rules 14 (2014).
 Guide to Enactment, supra note 4, at para. 88.
 Similarly, although this convention would provide for enforcement of settlement agreements, it would not address matters related to the attachment or execution of assets, just as the New York Convention did not do so.
In AT&T Mobility v. Concepcion, the Supreme Court held that a waiver of class action that was part of an arbitration clause in a consumer contract was enforceable despite state law to the contrary. Subsequently, in Oxford Health Plans v. Sutton, it upheld an arbitrator’s ruling that a class action could be sustained in a commercial arbitration agreement, because the arbitrator’s finding had drawn its essence from interpretation of the arbitration agreement itself. And in American Express v. Italian Colors Restaurants, the Court held that class action waivers in commercial arbitration agreements are enforceable even if collective action is the only practical method to enforce a claimant’s statutory rights.
In order to assess the consequences of these cases, and their impact on the way businesses might conduct themselves, we can look to examples of disputes involving the assertion of a class waiver outside the context of an arbitration agreement. What is the result of challenges to purported class waivers that are asserted in the course of litigation, not arbitration? Does arbitration promise effective class waiver that litigation does not? Put otherwise, would a business seeking to avoid class claims gain advantages in arbitration that are not available in ordinary litigation?
The answer appears to be “probably.” Companies might be well advised to enter into arbitration agreements for the sole purpose of avoiding class action. And in the current state of the law, companies anticipating consumer, employee, and perhaps even business complaints can accomplish a protection from class actions unilaterally, without negotiation or agreement, by promulgating a “policy” pursuant to which individuals who engage with them have, by virtue of that engagement alone, entered into an arbitration “agreement” and waived the exercise of F.R.C.P. 23.
Some cases are discussed in Thomas Stipanowich, “The Third Arbitration Trilogy,” 22 Am. Rev. of Int’l Arbit. at 381 (2011). Those and others include:
- In Grant v. Convergys Corp (E.D. Mo. 2013), Plaintiff employee asserted claims of violation of the Fair Labor Standards Act, and also alleged that a class action waiver contained in the employment application was unenforceable because it violated her rights to collective action under Section 7 of the National Labor Relations Act. The court agreed that “collective and class litigation, engaged in by employees for the purpose of mutual aid and protection, is protected concerted activity under the NLRA.”
- In Copello v. Boehringer Ingelheim Pharmaceuticals Inc. (N.D. Ill. 2011), plaintiff’s class action claim was dismissed on grounds of waiver and estoppel because he had agreed, as part of the separation agreement with the former employer, to release the employer of all claims of any sort, and to opt-out of any class action asserting such claims.
- In Doe 1 v. AOL LLC (9th Cir. 2009) a contract for services containing choice of law, forum selection and class waiver provisions was found unenforceable as to California members of the class making claims under the federal Electronic Privacy Act, pursuant to California policy protecting consumers in adhesion contracts that contain class waiver, whose claims are foreseeably small, and who allege fraud.
- In In re Yahoo Litigation, 251 F.R.D. 459 (C.D. Cal. 2008), plaintiff advertisers alleged breach of an agreement that Yahoo would place their ads on “targeted” web pages. Defendant Yahoo moved to dismiss the class action, relying on the advertising agreement that provided “You agree to submit to the exclusive jurisdiction of the state and federal courts located in the County of Los Angeles, California or another location designated by Overture. Any claim against Overture arising from this Agreement shall be adjudicated on an individual basis, and shall not be consolidated in any proceeding with any claim or controversy of any other party.” The court allowed the class to continue, extending the California consumer doctrine to commercial settings where there may be evidence of unequal bargaining power.
The issue is clearly drawn by the Washington Supreme Court in Scott v. Cingular Wireless. There, in defeating a motion to dismiss class claims of violation of the state’s Consumer Protection Act (“CPA”), the court found no distinction between a class waiver in litigation and a class waiver in arbitration:
Congress simply requires us to put arbitration clauses on the same footing as other contracts, not make them the special favorites of the law. See 9 U.S.C. § 2. As we held above, contracts that effectively exculpate their drafter from liability under the CPA for broad categories of liability are not enforceable in Washington, even if they are embedded in an arbitration clause. The arbitration clause is irrelevant to the unconscionability. Class action waivers have very little to do with arbitration. Clauses that eliminate causes of action, eliminate categories of damages, or otherwise strip away a party’s right to vindicate a wrong do not change their character merely because they are found within a clause labeled “Arbitration.”
As Fricka says to Wotan in Act II of Die Walküre, “Nicht so.” However appealing the Washington Supreme Court’s rationale, it seems no longer to be the law. Class waivers in forum selection clauses anticipating litigation are subject to judicial scrutiny, while class waivers in arbitration agreements are not. And as the recent General Mills experience has taught us, you can consider the term “agreement” to be the operative equivalent of “unilateral policy.” Whether this distinction is “substantive” would appear to be conceded, inasmuch as the Supreme Court, in American Express, held it a matter of complete indifference that a class waiver effectively denied plaintiffs the ability to enforce their federal rights under the Sherman Act.
We teach, and learn, that arbitration is a mere change of forum, and that the same claims, rights, defenses and damages cognizable in court are cognizable in arbitration. Well, I don’t think we’re in Kansas anymore.
I had the recent privilege of interviewing Lord Harry Woolf of Barnes, former Master of the Rolls and Lord Chief Justice of England and Wales. We touched on the seminal Halsey Case, which levied costs against a party that had prevailed, but had unreasonably refused to mediate as urged by the counterparty, thereby burdening the courts and the parties in requiring litigation of a matter that might have been resolved earlier.
We discussed the onus upon judges to “put teeth into” orders or suggestions to mediate, but Lord Woolf (surprisingly) backed off a bit from Halsey. He cited the difficulty of distinguishing between parties who, pursuant to court order, mediate “in good faith or no faith,” and noted that a small but growing area of litigation was arising from the question. And so it is in the United States, as two recent court decisions illustrate.
In Grenion v. Farmers Insurance Exchange, (E.D.N.Y. March 14, 2014), plaintiff was awarded costs of its expenses in participating in a court-ordered settlement at which the defendant insurance company had allegedly acted in bad faith. The court had ordered each party to be represented at the settlement conference by a person “who has full authority to settle the matter. Having a client with authority by telephone is not an acceptable alternative.” The representative of Farmers stipulated that “the decision has been made that we don’t want to make an offer to settle,” and that he was “not in a position today to change the decision of the company that it will not pay any money on the case.” The court held that, while it is “axiomatic that a court may not try to coerce parties into settlement,” the troublesome issue was not whether the defendant made an offer to settle, but rather “whether defendant failed to participate in good faith in a mandatory settlement conference.”
The holding: “Where, as here, a corporation produces a representative who lacks authority to change the settlement position of the corporation, sanctions may be imposed” pursuant to Rule 37.
The second case of note is the outcome of an appeal from a previously posted case from the U.S. Bankruptcy Court for the Southern District of New York, In re A.T. Reynolds & Sons, Inc. There the lower court had sanctioned Wells Fargo for failing to comply with a mediation order. Wells Fargo and its counsel had taken a no-pay position and the mediator had reported to the court [sic] that they had failed to “go through risk analysis, [and] simply reiterate[d] the position they walked into the room with.”
Upon review, the District Court reversed. “Contrary to the Bankruptcy Court’s determination, Wells Fargo was within its rights to enter the mediation with the position that it would not make a settlement offer. It was also within its rights to predetermine that it was not liable and to insist on being dissuaded of the supremacy of its legal position” (internal quotes removed). It is not required that a party undergo risk analysis where “it determined that it was not liable and adhered to this position at the mediation; such conduct is entirely consistent with a rational analysis of risk.”
Lord Woolf was right to note that Halsey — and indeed all court-annexed ADR — is a “double-edged sword.” Courts require (or strongly encourage) mediation because, as the court in Grenion observed,
Most cases settle. The juncture at which voluntary resolution is reached has a significant impact upon the parties and the public; prolonged litigation processes impose significant litigation expense, disruption and, in some cases, distress on litigants and increase the cost to the public of managing congested dockets. In response, courts have created mechanisms — including streamlined discovery and court-supervised settlement discussions — designed to facilitate early settlement.
In purely voluntary mediation or settlement negotiation, no one seeks judicial relief for “bad faith negotiation,” yet in court-annexed mediation entire standards of law are being promulgated to apply consistent measures to the bevy of claims that are asserted. Litigating “bad faith negotiation” was a nonsense until the courts became involved in requiring parties (and counsel) to talk to each other.
How ironic that judicial efforts to reduce litigation have had the effect of promoting it!
(The interview with Lord Woolf is available as a podcast to members of the ABA Business Law Section.)
My friend and colleague Jonathan Hyman asked me to visit his ADR Survey class at Rutgers Law School a few weeks ago. Teams within the class had been assigned special topics to study and then present to the larger group, and one team was concentrating on the Corporate/Community Dialogue films that I had worked on and that CEDR had recognized.
The team’s presentation was very capable. What blew me away, however, was a half-page handout that they distributed at the end of the presentation.
The text of the handout, in its entirety, was:
LESSONS TO YOUNG LAWYERS FROM THE DOCUMENTARY:
Approach issues as a problem to be solved and not as a statutory obligation.
Put away the idea that you are well-read and that you know what is best of others, because you don’t. You should listen, talk to different people and get involved in the communities where you operate.
At the root of human rights lies the concept of human dignity and respect. Mediation processes build people’s sense of personal dignity and their sense of being respected.
Mediations do not necessarily provide happy endings. They are positive mid-points in processes where people feel that they have gained something from the conversation.
Negotiations set the stage for relationship building in which the community and company could come together in the future to solve new issues that may arise.
Be humble; always have a listening attitude.
Never get sued for a problem you don’t already know about. Identify problems early.
Look beyond your borders. Try to have a complete vision of the problem.
When the students had finished, Prof. Hyman asked me if I had anything to add. I said nope.
We had previously noted the recent, extraordinarily ambitious and incisive report addressing the current state of the European Directive on ADR. We now hear from one of its authors, Prof. Giuseppe De Palo, of a conference on the topic in London, that is available worldwide by internet link. The announcement follows.
Mandatory mediation - A worthwhile experiment?
A presentation and debate at Ashfords LLP, London
It is six years since its adoption, but the Mediation Directive (2008/52/EC) has not yet solved the ‘EU Mediation Paradox’. Despite its proven and multiple benefits, mediation in civil and commercial matters is still used in less than 1% of the cases in the EU.
The European Parliament commissioned a study which solicited the views of some 816 experts from all over Europe, which clearly showed that this disappointing performance results from weak pro-mediation policies, whether legislative or promotional, in almost all of the 28 Member States.
The experts strongly supported a number of proposed non-legislative measures that could promote mediation development. But more fundamentally, the majority view of these experts suggested the introduction of a ‘mitigated’ form of mandatory mediation is worth experimenting with.
- Presentation of the European Parliament Study entitled ‘Re-Booting the EU Mediation Directive’
A summary and overview of the key points of the Study as presented to the European Parliament Professor Giuseppe De Palo, President ADR Center, Rome
- Panel Debate
A panel of leading ADR professionals will debate and comment on this study and assess the impact a proposed change in mediation policy
- The Rt. Hon. The Lord Mance, The Supreme Court
- Diana Wallis, President of the European Law Institute
- Prof. Dame Hazel Genn, UCL, London
- Constantin Adi Gavrilă, Romania
- Bill Marsh, Independent Mediator
- Matthew Rushton, JAMS, London
- Prof Giuseppe De Palo, ADR Center, Rome
1 New Fetter Lane
London EC4A 1AN
Thursday, 1st May 2014
from 16.45 – 18.45
Spaces are limited. Pre-registration for the event is required.
Please email Rosie Slade at Ashfords LLP on firstname.lastname@example.org or call on 0207 544 2424
For those unable to come to London, or to follow the event “live” from your computer, the webcast will be available via the same YouTube link at a later stage. See: https://www.youtube.com/watch?v=xBGtZjVOBwQ
The European Parliament Study on Mediation that will be presented and debated is available here: http://www.europarl.europa.eu/RegData/etudes/etudes/join/2014/493042/IPOL-JURI_ET(2014)493042_EN.pdf
An interesting panel at the recent Spring Meeting of the ABA Business Law Section addressed questions of the ethical obligations of business lawyers in various hypothetical situations. Chaired by Ellen Pansky, the panel included Jeff Kraus, Jacqueline Unger and Lois Mermelstein.
Hypo #1 A friend, Bob, tells attorney Anne that his business is in distress. Later, Bob asks Anne for legal assistance and Anne recommends her firm’s bankruptcy department, whom Bob retains. Later still, Anne tells another acquaintance, Charlie, of Bob’s company’s bankruptcy, of which Charlie had been unaware. The panel agreed that a duty of confidentiality is created retroactively once the firm commenced representation of Bob. But the fact that Bob commenced bankruptcy, if generally known, is not confidential; legal communications, not facts, are privileged. No legal advice was revealed that was prohibited under Rule 1.1. However, best practice would be not to reveal anything about a client’s affairs for which the firm is in service, rather than testing whether the matter revealed is already known. This is particularly true because even the fact of the representation of Bob is itself confidential. For example, if during the representation a client reveals she has a felony conviction, that fact (though on record) may not be revealed even after the representation is concluded.
Hypo #2: Client Push negotiates an alternative fee arrangement with attorney Fair on a matter that was represented to be simple and straightforward. In fact, client Push turns difficult, is dissatisfied with the outcome of the representation, posts a negative review on a web site, and refuses to pay the outstanding fee to attorney Fair. The transaction is independently covered in the press in a manner favorable to Fair. Attorney Fair responds to Push’s publicly posted criticisms by truthfully quoting the favorable news article and truthfully saying that client Push still owed the fee. Client Push files a grievance against the attorney. The panel suggested that the client waived any privilege of confidentiality, and that the attorney is entitled to respond factually and in a restrained and narrow way to clarify the facts. The attorney can certainly pursue fees, but may not introduce information regarding the representation outside the fee dispute.
Hypo #3: An attorney using Microsoft XP on an older computer is now without Microsoft-supplied security updates. Has she an ethical duty to switch to newer operating systems? Ms. Mermelstein opined that only if that computer were never connected to the internet would a client’s confidences be appropriately protected. The extent of the duty may be indistinct at this point, but it seems clear that lawyers must take steps to protect client confidences, and placing those confidences on an insecure data system is likely to be found inadequate. If you are going to use technology, then you are charged with a duty to take reasonable steps to understand it and be assured of its adequacy before placing client confidences on it.
Hypo #4: A lawyer sitting in Starbucks communicates to his office and edits files on his home office’s system using Starbucks’ Wi-Fi. He also uses his cell phone to communicate with his office. Has he breached his duty of confidentiality? Some jurisdictions have imposed a duty on the lawyer to investigate the degree of security, mixed with concerns of whether the communication was urgent, whether the information was sensitive, and so on. A question arises, however, whether adverse consequences have ensued from such use, or from the use of a cell phone in an airport, including phones’ identifying information that would place a lawyer in a certain location at a certain time. There seems not (at this point at least) to be a duty to encrypt information sent on publicly accessible networks, but it is a field that necessarily is advancing. One speaker said that her firm’s retainer agreement includes the client’s permission to use electronic communications in the course of representation. And the duty of preventing being overheard when talking to a client on the phone is longstanding and persists.
Our final report from the 2014 Spring Meeting of the ABA Dispute Resolution Section addresses Ellen Waldman of Thomas Jefferson School of Law and Lola Akin Ojelabi of La Trobe University in Australia’s discussion of “Mediation Ethics and Substantive Justice: A View from Rawls’ Original Position.”
The question is whether mediation has anything to do with substantive justice. Conventionally, mediators are trained to seek party agreement. Some (but hardly all) mediators encourage the transformation of disputants into people who are somehow better or more capable of living with frustration. The ideal among such a school of thought is that the mediator might serve as the impartial and neutral facilitator of others’ growth: self-determination, impartiality. But even then, not of justice.
Indeed, nowhere in the ethical codes may one find the term “justice.” In court, social ideas of fairness (as encapsulated in the law) govern outcomes; by contrast, outcomes in mediation are governed by perceived private benefit. In that context, when we mediators observe a well-resourced and sophisticated defendant negotiating with a naïve and inexperienced claimant with an inadequate understanding of legal rights, do we do nothing? Is it ever appropriate for a mediator to take steps in order to avoid an unjust outcome? Or is our responsibility merely a procedural one – to ensure that everyone’s concerns are aired and their options are laid out?
Various ethical codes seldom mention substantive justice, but rather procedural justice – a fair process and a neutral facilitation. In some cases (NMAS, IMI, EU Codes), mediators are permitted to assess fairness, legality or unconscionability of proposed agreement, and in some circumstances can withdraw. But this is a kind of watchdog for enforceability — an obligation to ensure that agreements are not unlawful, and will be enforced. In a way this means that the mediator is charged with the durability of the agreement. But do the parties care about durability? And is durability a euphemism for justice? The speakers posed the question: As economic and income inequality rises, power imbalances are more frequent and have greater consequences, thus imposing upon a facilitator some office of monitoring substantive, not just procedural, justice.
Enter John Rawls and the theory that justice is fairness. If we need to constitute rules to guide an actor in society, we assume that all social stakeholders are equal at origin, and inequality (if any) develops later. His two principles: (1) each person has an equal right to basic liberties in a scheme equally available to others; and (2) inequalities are to be arranged so as to be to the greatest benefit of the least advantaged. It is procedural justice through which fair and just outcomes are arrived.
The speakers outlined three “systems” that exemplify Rawls’ theory. A “pure” system is gambling on a football game: every winner gets the same proportion of the amount betted as every other winner. The “perfect” system is exemplified by a cake cut in equal portions according to the rule “you cut, I choose,” providing an incentive for – but not necessarily assuring — a high degree of fairness in the way the cake is actually cut. An “imperfect” system is one that determined the outcome on the basis of interpreted facts – for example, a jury verdict at the end of criminal trial, a process by which there is no assurance of correct or fair outcomes.
The questions then are posed: In which of these three categories does mediation fall? Isn’t the process of mediation susceptible to imperfections by virtue of error, subjectivity, and (most blatantly) power imbalance? If fairness is what the parties ultimately decide it is, then the tether that is meant to relate the process of dispute resolution to notions of justice becomes frayed. Irrespective of the procedure used, there are unfair outcomes, and there is nothing in the mediation procedure that inhibits the likelihood of those results. Self-determination ceases to be a social virtue in an environment of power imbalance.
Say the presenters: “We are not asking mediators to become judges or impose their personal views on parties. Neither are we asking mediators to steer parties to particular outcomes.” But I think they are. Justice as perceived by the small fish is different from justice as perceived by the large fish, and the presenters’ confidence that any of us can identify what is just and what is not is enviable. And, in a diverse and pluralistic society, perhaps just a little bit dangerous?
At the Miami ABA Dispute Resolution Conference, James Coban, Janice Fletcher, Art Hinshaw and Susan Yates addressed the provocative topic, “Cosmetologists Are Licensed, Why Aren’t Mediators?”
Ms. Yates, of Resolution Systems Institute, clarified some terms of art for the sake of the discussion. “Credentialing” is the big umbrella, the widest term. “Certification” is what a court does. “Licensure” goes beyond courts and is similar to how doctors or lawyers professionally practice. She noted in passing that 1500 hours of training are required to practice as a licensed cosmetologist in Illinois.
Art Hinshaw, of Arizona State University, related a story of an Arizona mediator who claimed (impossibly) to have mediated 3000 divorces over a period of 8 years. He was a disbarred lawyer from Vermont who moved to Arizona, and held himself out as “Superior Court Trained.” A female client seeking divorce mediation became emotionally attached to him. He prepared and filed documents on her behalf with the court, at all times asking her for money. After the (uncontested) divorce was granted he did not inform her of the facts, but rather demanded another $25,000 to “wrap up her case.” She ended up paying him over $87,000 over a year. This also went on with more than 30 other victims. The Bar could do little – he was not a lawyer and not practicing as a lawyer, and suits for Unauthorized Practice of Law or other civil claims were only partially effective. He was, however, charged with criminal fraud, convicted, and is in prison until 2024.
Hinshaw articulated strong public policy arguments for licensing: protecting the public from bad mediators (meaning evil, not unskilled); getting information to the public to prevent their being duped; providing a standard of care for negligence claims against mediators; improving mediator quality by imposing a professionally responsible barrier to entry; and enhancing the credibility of licensed mediators. He added that there is nothing “special” about mediators that should exempt them from a licensing requirement that is imposed on hundreds of other professions.
Jim Coben, who teaches at Hamline, argued against, citing his recent co-authored article in Dispute Resolution Magazine titled “There Ought Not to Be a Law.” He first replied to Hinshaw’s story by saying that the law does not provide a remedy to every deserving claimant. What are the unintended consequences of a legislative response to the sad story? How would licensing affect the parties expenses? Administrative expenses? Process flexibility? Party autonomy? Public confidence in mediation? In all cases the answer is unattractive. Regulated monopolies impose higher costs on customers and regulators. Parties’ choices are more restricted. And consumption of services is lower.
So taking aside the single horror story, there is no evidence of harm. No claims are brought for mediator malpractice, and damages from bad mediation are even more elusive. Nor is there a distinction of lodged grievances among states that regulate mediators and states that don’t. Indeed, in no state is there a big problem of asserted claims against mediators. That is, there is no consumer-led demand for licensing mediators. Defining the profession is itself difficult: the UMA’s definition would be rejected by a transformative mediator and is different from the EU Directive’s definition. Finally, said Coben, “Often, those crying loudest for regulation are those whose vision of mediation isn’t selling well in the free market.”
Janice Fleischer, Director of the Florida Dispute Resolution Center, got Coben to concede that lawyers should be licensed, and noted that of the 97,000 lawyers in Florida only 0.4% are subject to grievances. So just looking at whether people bring grievances is not how one should make a decision about professional licensing. Florida mediators include both lawyers and non-lawyers, most of whom welcome credentialing licensure for marketing purposes. In Florida a consumer can look up whether a mediator is certified, in what areas, and whether any sanctions have been levied against her. Fleischer also noted that, in Florida, mediators giving evaluations constitute a “problem” that certification would address (evaluation being prohibited under Florida’s court-annexed rules). This point did little to advance her argument in some quarters.
Indeed, that consequence alone is enough to turn my thumb down. Parties in Florida who seek to learn from a retired judge the likely outcome or probable value of their dispute can’t get it without violating ethical rules? I can’t believe it. Maybe they do it, but call it something other than mediation. “I’ve scheduled a giraffe on our case next Tuesday at 10:00.”
David Hoffman from the Boston Law Collaborative offered a program at the ABA Dispute Resolution Section Spring Meeting on “Mediator as Moral Witness: Right and Wrong.” The question presented was: What happens when moral issues arise in the course of a mediation? And, according to Hoffman, they always do.
Despite what we mediators are trained to anticipate, clients come to mediation charged not with frustrated interests, but with grievances that implicate their own experiences of right and wrong. Disputes at their core have moral dimensions. People involved in arguments consider themselves “right” and the other guy “wrong” — or worse. And that sense of moral violation imbues the process itself. Hoffman cited frequently-hear protestations from disputants in mediation: “We are arguing in good faith and they are just jerking us around.” “They never had any right to terminate the contract.” These are pleas to the mediator to vindicate their conduct. They want to be acknowledged on some moral level and they examine us, as mediators, for signs that, in the eyes of the neutral observer, their behavior was correct.
Beneath the primary level of conflict — that they are owed the money, say — this is a secondary level of conflict – that they are negotiating appropriately and the other side is not. The affirmation they seek is not from the adversary, but from the mediator. So a critical role of a mediator — whether she seeks it or not — is as “moral listener” The party expects that the mediator will acknowledge that the claimant has been heard; and, moreover, that their concern that the issue is about more than just them, and instead has social or moral dimension, has been heard.
Hoffman stated that most of us are passionately concerned with other people’s praise or blame. Your ability to do deals with people is your “Social Capital,” the purchase we have on other’s moral trust. And this is fundamentally implicated in facilitated negotiation. It involves what is right, what is fair, as well as what is due and what is recoverable.
In Negotiation class, I often play the “Ultimatum game.” Someone is given $100 on the condition that part of it is to be offered to someone else and, further, that that person accepts the offer. If the second person refuses the offer, neither keeps the money. Any offer, no matter how small, is rationally acceptable, because it is “found money” and leaves the recipient better off than she had been before the offer was made. But in practice there is a level of niggardliness beyond which the offer is refused, because the offeree perceives that it violates some notion of fairness – some notion of having been humiliated or exploited, even where the money is free and there is no question of exploitation on any true meaning of the term. There is also some facet of the game that is socially re-enforcing – that people who are too piggy should be told they have crossed some line, and it is worth a certain amount of money to be the person who delivers that message. Whether or not I gain, it is important that the other loses.
Mediators witness this and other examples of moral behavior every day, but we don’t always develop a principled skill in dealing with it in a helpful way. How do we respond when people shoot themselves in the foot because they are morally engaged, and reject economically rational outcomes? In large part it is “rule-assertion.” People who do not reciprocate, for example, lose social capital and, over time, find it more difficult to do deals. Mediators are sometimes called upon to distract disputants from their moral indignation and concentrate on practical or secular concerns. As an example of an extreme instance of moral neutrality, Hoffman cited “The Fugitive,” in which Tommy Lee Jones’ character continues to hear that the fugitive did not kill his wife, by replying, “I don’t care.” The mediator’s job is to concentrate on resolution, not to affirm innocence.
One participant offered that, sometimes, when someone says “It’s not the money, it’s the principle of the thing,” they mean it. Principles do drive behavior. Perhaps the perfect role of the mediator is as a morally aware and empathetic listener. Another participant said that, after several years of coming into the room with her own sense of morality, she eventually developed the ability to encourage parties to express their narrative privately, and ultimately in ways that the other party could hear – but never herself being personally engaged in subscribing to, or rejecting, the moral concern that drives the disputes. It’s not “I don’t care” – it’s “Your story matters enough to be worth others’ listening to.”
Hoffman provided these answers of his own: Stories have great power, and everyone’s portion of the truth is their reality. Telling a story overrides the facts, and stories add moral dimension to the facts. It is always possible for a mediator to validate an intention – “It sounds like you were doing the right thing.” “It sounds to me like you were operating as well as you could in a difficult situation.” Said to the disputant, it may be heard as vindication. Said in the presence of her adversary, it may lend insight and empathy.
Intentions are important; intentions are the things that implicate trust in the process of creating “social capital.” Both disputants can be “good,” and a mediator can facilitate that discovery.
Continuing the series of reports from the ABA Dispute Resolution Section, Colin Rule, Ethan Katsh, Jeff Aresty and Daniel Rainey offered a panel on “Building an Online Justice System: ODR and the Courts.”
Colin Rule said he was attracted not to the algorithmic powers of technology and the internet, but rather its promise to interact in, and facilitate, human-to-human communications. He spoke via Skype from Ohio, where he is working with courts to assist the resolution of cases. His company is working with other governments to assist the resolution of property tax assessments, tax challenges, and other high-volume, low-value streams of disputes. He noted that case management and problem diagnosis are strengths of technology, quite apart from resolution processes such as negotiation, mediation and arbitration. He said he’d innovated in devising platforms for online processes, but that the challenge now was to provide tools to community, corporate and government users so that they can build tools themselves. It is utilization of technology to leverage case management and other service provision, not replacing mediators in individual cases.
Dan Rainey differentiated between access to justice and access to courts or to judicial processes. For example, private justice through online arbitration addresses and satisfies the justice expectations of the parties in many instances. The National Mediation Board receives 5000 cases a year, and must maintain the level of services in a restricted budgetary environment. It has to do with better ways to handle information, and better communication channels. The Board’s web site has a “knowledge store” that is easily accessed and features a searchable data base of decades of arbitration awards. This data assists parties in drafting arbitration documents, and be informed on the outcome of similar claims. The goal is to permit anyone who can do research in the Board’s office, to do that work anywhere. An example of communication channels is the “Arbitrator Workspace,” a single portal for arbitrators to manage cases. Traditional arbitrations are still conducted, but are far more informed. Submissions and awards can be made online, and synchronous technology like web video platforms that allow hearings to be held without travel. As a result, the Board is handling more cases for less money. About 30% of hearings are being done online, and 100% of awards are submitted online.
Jeff Aresty noted that, as long as law is jurisdictionally based, the law itself will pose obstacles to access to justice in a multi-jurisdictional world. By way of example of “non-jurisdictional” thinking, a billion users of EBay all agree to a single usage agreement, abide by it, and enjoy the protection of a voluntarily policed marketplace. So, he suggests, the Rule of Law in cyberspace can benefit business, sociopolitical and individual interests, only as long as they collaborate. He proposed a paradigm shift away from dispute resolution and into preventive law, where digital identities, online contractual rights, and an ability not only to identify but to predict disputes and create a “digital multi-door courthouse” to address them at a very early stage. Using the concept of “dispute resolution” and attaching the word “online” in front of it is an inadequate understanding of the implications of collaborative economies and leverages human-to-human communications.
The skepticism I have about ODR is differently seated than many others’. Supplying disputants with accurate data in a timely way often has little to do with dispute resolution. People do not make dispute resolution decisions based on data, or even on perceived advantage. Disputes are laden with emotional and moral attributes, and decision-making in the field of conflict is prone to familiar psychological errors such as cognitive barriers and professional overconfidence that do not appear as decisively in other aspects of management such as interest rate hedging or inventory control. Conflict is sloppier and, when accepted for what it is, defies pure reason. So once again, we find that ODR is a blessing in small-value large-volume claims, but more problematic in matters in which someone has something at stakre that they regard as both material and implicating the “rightness” their own behavior.
This is the first of a series of posts on panels presented at the 16th ABA Dispute Resolution Section Annual Meeting, in Miami, Florida, April 2-5, 2014.
John Lande, Kurt Dettman, Phil Armstrong and Deborah Masucci gave a panel on early planned dispute resolution. The goal of the integrated approach is “to satisfy the parties’ interests at the earliest appropriate time.”
Collaboratively among counsel and client, an Early Case Assessment is made, and a determination is made when to negotiation, use mediators and experts as needed. Lande talked about “escaping lawyers’ prison of fear” of departing from conventional case management approaches. In particular, he refers to the fear of initiating the suggestion of negotiation, of losing clients’ confidence, and of losing income from working the case. These can be managed by routinely and predictably using PEDR, explaining the proposed strategy to the client, and negotiating a fee enhancement for early resolution.
Phil Armstrong and Debbie Masucci addressed how these management principles are applied in the corporate environment. Masucci, formerly of AIG, noted the role of the claims professional, whose job is to settle the case. It is necessary to acknowledge the diverging interests of the insured and the insurer, particularly where the self-insured retention might settle the case. There are also primary, excess and coverage issues that drive parties’ negotiating strategies into potentially divergent interests. Insurance companies should be using PEDR with greater effectiveness than other industries, according to Masucci.
Armstrong, formerly of Atlanta-based Georgia-Pacific, reported that his former employer would receive 250-300 lawsuits per year. Businesspeople would resolve informal business disputes every day, but if formal litigation were threatened, the process ceased to be a business problem to be solved, but a war to be won; business people would be instructed not only to cease seeking a business solution, but indeed affirmatively not to talk to the other side. This practice wasted money and compromised relationships. The dispute always settled, but only after nearly all transaction costs had been incurred. An ADR program was initiated in 1995-96, one part of which was to invite counterparties to meet with business people to resolve the problem. Discussions took place early, and if they were unsuccessful a mediator was brought it. Problem-solving became the goal. Nevertheless, the approach was unevenly applied and litigation practice continued. Armstrong was unable to have an integrated management system accepted. Adoption of such an integrated method across the company would require education, support of the C-suite, and a culture change. Hiring an outside law firm and asking to be kept posted is an indication of lack of managerial control.
PEDR has a web site with resources such as a User Guide; power point presentations for business and legal audiences; a podcast produced for the ABA Litigation Section.
Toro’s program was cited as a success story of the use of PEDR. By contrast, AAA’s Sandy mediation program was less successful because many cases were sent to mediation too early, before claims adjusters had reported and critical information needed to resolve the case was at hand. An audience member cited the medical school policy of “disclose and offer,” resolving matters that could otherwise evolve into medical malpractice suits.
THE EXERCISE: Imagine a market with fully successful commercial mediation. (Its success is measured by the breadth of take-up by commercial disputants and the infrequency of litigated cases involving business disputes.) What are its attributes? What conditions gave rise to this broadly-accepted use of mediation as a day-to-day method of doing business?
Put otherwise, who are the stakeholders in the business dispute resolution process and how are their interests satisfactorily addressed by the mediation of commercial disputes?
COURTS: Courts in the jurisdiction we’re imagining contribute to the broad use of commercial mediation in two ways: Their commercial irrationality and their powers of coercion.
In the first instance, obtaining an outcome from a court in this jurisdiction is expensive, prolonged, uncertain, antagonistic, and subject to appeal prior to finality (a process that has its own costs, delays and uncertainties). Outcomes from this court are restricted to damages recognized by the law of the jurisdiction — usually only money — and do not address certain remedial necessities that progressive commercial relationships dictate. The delay is commercially irrational and the cumulative cost is prohibitive for all but the largest commercial claims. Thus, no rational business is comfortable managing its disputes relying on this institution.
In the second instance, these courts are empowered to require litigants to mediate certain types of disputes. Motivated in part by a desire to provide early voluntary resolution of disputes that, historically, end up being resolved, and also in part by a concern to preserve their own resources in order to provide appropriate attention to disputes that require it, the court in our hypothetical jurisdiction has adopted a “presumptive mediation” rule pursuant to which litigants filing certain types of claims may expect that, barring a motion to be exempted, they will participate in a mediation regarding their claim.
(The obverse is that, in a jurisdiction where the courts are easily accessible, outcomes are prompt and reliable, and judges are reluctant to “outsource” dispute resolution, it is unlikely that mediation will take hold.)
BUSINESS MANAGERS: Within the management of the commercial entities doing business in this jurisdiction, there is a manager charged with handling the portfolios of disputes in which the company is engaged. At any one time, these may include disputes with employees, competitors, government regulators, suppliers, customers, communities, or contracting parties. This person may or may not be an attorney, but is certainly a skilled and trained manager. The charge of this manager is to handle the portfolio in a way that avoids expense, maximizes return, and avoids long-term contingent liabilities (i.e., the same goals of any other profit center of the business). Thus, in this jurisdiction, business conflicts have been de-mystified, impersonalized, and recognized as manageable contingencies similar to hedging against fluctuating currency values and interest rates, or maintaining just-in-time inventory controls.
ATTORNEYS: Attorneys in this jurisdiction may be divided into two groups: Those who are busy and those who are not. Those in the first category are economically incentivized to devise early and favorable dispute outcomes for their clients. Indeed, they are retained pursuant to engagement terms that are “front-loaded,” with premiums awarded for early resolution of disputes and penalties for failure to hit target goals. These arrangements yield value to both the lawyer and her client, and both constantly seek methods to provoke early and meaningful negotiated resolution of claims. The attorney successfully engaging in these processes gets a satisfied client, an early and boosted fee, and the opportunity to turn to the next case on similar terms and with identically promising outcomes.
Those in the second category don’t have a “next case” to turn to and may be reluctant to obtain early resolution, foregoing the fees associated with old-fashioned document exchange, depositions, motion practice, and other features of litigation. These lawyers are motivated to settle the case eventually, but as late in the litigation as possible. In this jurisdiction, however, their practice is regulated. The bar associations, in conjunction with the courts, have promulgated certain ethical rules that require, among other things:
(i) that all lawyers must advise clients of alternatives to litigation, including the courts’ presumptive mediation program;
(ii) that all clients must be handed an approved pamphlet explaining the nature of mediation, as well as its costs and benefits; and
(iii) that all lawyers must prepare and submit to the client and the court, prior to the first conference with the judge, a litigation budget. The budget, which is confidential, must set forth estimated costs (a) for a motion to dismiss the case; (b) through discovery to a motion for summary judgment; and (c) through trial.
These ethics rules are designed to empower clients to make informed decisions about whether to proceed with litigation without investigating early and voluntary mediation.
MEDIATOR COMMUNITY: In our ideal conditions, the forces of the service market that arose from the initial growth of mediation has yielded a group of skilled (and expensive and in-demand) business mediators and acceptable (and more affordable and more available) business mediators. These professionals enjoy the legal protections of privilege and confidentiality pursuant to court rule and legislation. Fees, styles, selection and qualifications are market-driven and there are no barriers to market entry. Some mediators are attorneys trained in dispute resolution and can assist disputants to assess the likely outcome and costs of litigation in the event the mediation process fails. Some are people of deep business management experience and can assist disputants in identifying their business interests and probe how an outcome can be framed that addresses those interests. Some combine those attributes. Incompetent mediators (like incompetent plumbers, lawyers and teachers) left the market as it matured and assumed the characteristics of any well-developed service industry.
BUSINESS ORGANIZATIONS: The purpose of a Chamber of Commerce is to protect the interests of its members and to advocate policies that promote healthy and growing businesses. The Chamber of Commerce of this jurisdiction has recognized that the belligerence, uncertainty and economic waste associated with business-to-business litigation hampers overall commercial growth. It has therefore elevated the use of business mediation to the level of a requirement, like paying dues. Mediation is obligatory: Any member of the Chamber who is in a dispute with another member, and who refuses to mediate the dispute upon demand, is expelled from membership.
The same rule applies to industry-specific business organizations. The Insurance Roundtable, the Retail Association, the Healthcare Provider Association, and all other affinity groups have identical rules. Their mission is to promote growth in their respective fields and to address hindrances to that growth, and they all recognize that inter-company conflicts are such hindrances.
CONCLUSION: The implications of this portrait are perhaps a bit unsettling. What is the role of coercion, whether by courts or by business associations? Are we comfortable with the notion that efficient justice hinders the growth of private dispute resolution? And where is the “real” “brave new world” — the one in which conflicts are identified early, just as smoke is identified in a building, and resources are brought to bear to extinguish them creatively before they destroy their surroundings?