Alternative Dispute Resolution (ADR): Overview

Alternative dispute resolution (ADR) refers to the methods of resolving a dispute other than going to trial. A wide variety of processes and techniques fall within this definition. Arbitration and mediation are the best-known and most-used types of ADR. They aren't the only ones, though.

Other forms of ADR are minitrials, early neutral evaluations, and summary jury trials. Many ADR techniques have little in common except that negotiation plays a big role. Parties generally agree that a negotiated settlement is worth pursuing before civil litigation or a drawn-out trial.

This article provides an overview of each of the types of ADR. It also discusses when utilizing alternative dispute resolution may not be effective.

How Arbitration Procedures Work

Arbitration is the process of referring a dispute to a neutral third party chosen by the parties. Usually, there is a sole arbitrator. The parties agree in advance to abide by the arbitrator's award. The arbitrator's award is issued after a hearing at which all parties have the opportunity to be heard. As a matter of public policy, some subject matters aren't arbitrable.

The arbitration process resembles traditional civil litigation in some ways. A neutral intermediary or arbitration tribunal hears the parties' arguments and imposes a final and binding decision. Arbitration parties, however, elect to settle any disputes by arbitration before a dispute arises. With civil litigation, in contrast, the judicial system is generally chosen by a disgruntled party after a dispute has arisen.

Another difference is that arbitration parties select the arbitrator. Parties to civil litigation have little to no control over who will be the judge. Many parties use arbitration as a springboard to negotiation. Parties often only commence serious negotiations shortly before or after arbitration hearings begin.

Negotiations sometimes continue at the same time as arbitration proceedings. This means the parties' representatives will discuss settlement options outside the hearing room while the hearing is underway. Arbitration can even speed negotiations along. The parties know that once the arbitrator issues a decision, the decision is usually final and can't be set aside.

Private Arbitration

There are two different forms of arbitration: private and judicial arbitration. Private arbitration is the most common form of ADR. This type of arbitration is sometimes referred to as contractual arbitration. Private arbitration is the product of an agreement to arbitrate signed by the parties. The parties have entered a relationship anticipating that disputes will arise. They desire to keep any disputes out of the courts. They give the arbitrator binding authority to decide the case.

Arbitration provisions usually identify the person who will be the arbitrator. The arbitrator doesn't have to be a judge or government official. The arbitrator can be a person the parties believe has adequate knowledge and experience to resolve a dispute.

A private arbitrator's power comes from the arbitration agreement. The agreement can limit the issues the arbitrator has the authority to resolve. In many states, private arbitration agreements are supported by statutes. These statutes provide for judicial enforcement of arbitration agreements.

However, the statutes often lay out criteria for an arbitration agreement to be binding and enforceable. A court will generally deem the arbitrator's decision final and enforceable if those criteria are met. Federal and state law provides that a party can seek to vacate the decision or award only upon a showing of:

• Corruption and/or fraud
• Partiality or corruption of the arbitrator
• Misconduct of the arbitrator that prejudiced the rights of a party
• Conduct by the arbitrator that shows they exceeded or failed to execute their powers in a manner so that they did not provide a final award

In limited circumstances, a party can appeal to the court to modify an arbitrator's decision or award where:

• There was an evident material miscalculation or evident material mistake
• The arbitrator made an award on a matter not before them
• The award is imperfect in form

Private arbitration is the primary method of settling labor disputes between unions and employers. For example, unions and employers usually include an arbitration clause in formal negotiations. These are known as collective bargaining agreements. Parties to collective bargaining agreements often agree to arbitrate future employee grievances. These grievances can include:

• Wages
• Hours
• Working conditions
• Job security

Since the 1980s, the U.S. Supreme Court has expressed a presumption for arbitration in cases that raised issues under the Federal Arbitration Act (FAA). In 1991, in Gilmer v Interstate/Johnson Lane Corp., the Court upheld the use of arbitration for an age discrimination claim. This led to many more statutory rights claims by employees moving from courts to arbitration.

Certain matters cannot be subject to forced arbitration due to acts of Congress. This includes claims of sexual assault or sexual harassment.

Many real estate and insurance contracts also make arbitration the only method of resolving disputes. Often, the FAA governs these and other commercial disputes.

The use of arbitration occurs frequently in international business as well. The International Chamber of Commerce pushed for an international agreement on the arbitration of business disputes in the 1950s. By 1958, the United Nations adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention).

Over 170 nations signed the convention. It provides that states under the convention will recognize private agreements to arbitrate disputes. Likewise, an award issued in one nation can be subject to enforcement in another.

Working hand in hand with the New York Convention, many nations set up their own arbitration laws based on a model law developed by the UN. The UN Commission on International Trade Law (UNCITRAL) developed and adopted the model law in 1985. Individual countries can adopt the model law into their own laws.

If parties agree to arbitrate an international business dispute, they may use any reputable private arbitration company. The London Court of International Arbitration (LCIA) is one such company, providing arbitration and mediation services to international clients.

Judicial Arbitration

Judicial arbitration, sometimes called court-annexed arbitration, is a non-binding form of arbitration. This means that a dissatisfied party can go to trial rather than accept the arbitrator's decision. Most jurisdictions prescribe a set time for rejecting the arbitrator's decision and going to trial. If this period expires before either party has rejected the arbitrator's decision, the decision becomes final. It is as enforceable as a private arbitrator's decision.

Judicial arbitration is usually mandated by arbitration laws, court rules, or regulations. Many statutes govern disputes for amounts that exceed small claims court jurisdiction but fall short of the amount needed for a civil court trial. For example, New York State claims for $6,000 or less must be submitted to non-binding judicial arbitration.

Judicial arbitration often serves as a way to facilitate negotiation between the parties to a dispute. This is because it is mandatory but non-binding. Civil court calendars are often backlogged with hundreds of lawsuits. Mandating nonbinding arbitration for certain disputes encourages parties to see the value of a negotiated settlement. It's rare that litigants receive everything they ask for in their petitions.

Private and judicial arbitration are generally less costly and more efficient than civil litigation. The average arbitration takes four to five months. In litigation, parties may wait years for court decisions. The cost of arbitration is minimal compared to civil trials. The American Arbitration Association (AAA) charges only a nominal filing fee. Arbitrators' fees will add up based on the length and complexity of the case.

Mediation

Mediation is a growing ADR technique. It consists of negotiations in which the parties agree to enlist the help of a neutral intermediary. The neutral mediator's job is to facilitate a voluntary, mutually acceptable settlement. The mediator's primary function is to:

• Identify issues
• Explore possible bases for agreement
• Discuss the consequences of reaching an impasse
• Encourage each party to accommodate the interests of other parties through negotiation

Mediators lack the power to impose a decision on the parties if they don't reach an agreement on their own.

Mediation is sometimes referred to as either conciliation or conciliated negotiation. The terms aren't necessarily interchangeable. Conciliation focuses more on the early stages of negotiation, such as:

• Opening the channels of communication
• Bringing the parties together
• Identifying points of mutual agreement

Mediation focuses more on the later stages of negotiation and includes:

• Exploring weaknesses in each party's position
• Investigating areas where the parties disagree but might be inclined to compromise
• Suggesting possible mutually agreeable outcomes

Conciliation and mediation usually work well when the parties are involved in a long-term relationship. These methods can be beneficial for:

• Married or formerly married partners
• Wholesalers and retailers
• Manufacturers and distributors

Mediation and conciliation also work well for problems that aren't easily solved by all-or-nothing solutions. These methods are useful for antitrust suits involving complex issues.

Most mediation proceedings are voluntary for both parties. A mediator's influence is limited by the autonomy of the parties and their willingness to negotiate in good faith. A mediator can only go as far as the parties themselves are willing to go.

Minitrials

A minitrial is a process by which the attorneys for the parties present a brief version of the case to a panel. The panel is often comprised of the clients and a neutral intermediary who leads the process. Expert witnesses, and sometimes lay witnesses, may be used in presenting the case.

After the presentation, the parties attempt to negotiate a dispute settlement. Sometimes a negotiated settlement isn't reached. In that case, the parties may allow the intermediary to mediate the dispute. The intermediary may also render a non-binding advisory opinion about the case.

Minitrials are used by businesses to resolve large-scale disputes involving:

• Product liability questions
• Antitrust issues
• Billion-dollar construction contracts
• Mass tort or disaster litigation

The federal government also makes use of minitrials for disputes involving telecommunications. The Code of Federal Regulations establishes procedures for individuals and entities under investigation by the Federal Communications Commission (FCC) to request a minitrial.

More About Minitrials

Minitrials often bring top management officials together to negotiate legal issues underlying a dispute. Early in the negotiation process, upper management can be preoccupied with the business side of a conflict. Minitrials tend to shift management's focus to outstanding legal issues.

Minitrials also allow businesses to share information with each other and their attorneys. They provide a forum for initial face-to-face negotiations. Management generally prefers minitrials' time-saving, abbreviated nature as compared to civil litigation.

Minitrials also speed up negotiations by making them more realistic. Once the parties have seen their case play out in court, they're less likely to posture over less relevant or meaningless issues.

Summary Jury Trials

Summary jury trials are an ADR technique used primarily in federal courts. They allow parties to try their cases before an advisory panel of jurors. There is no final and possibly adverse decision of a regular jury in civil court.

The summary jury trial aims to help end cases at the pretrial stage. Like minitrials, summary jury trials give the parties a chance to reach a preliminary assessment of the strengths and weaknesses of their positions. The parties can then proceed with negotiations from a common starting point. The common starting point is the advisory jury's findings. Summary jury trials and minitrials can usually be scheduled and completed before formal court proceedings reach a court's docket.

Summary jury trials are presided over by a judge or magistrate in a federal district court. The court may draw a 10-14 member jury panel for counsel to consider. The attorneys receive a short character profile of each juror. Counsel has two challenges to arrive at a final six-member jury for the proceeding.

Each attorney is given one hour to describe their client's case to the jury. After these presentations, the presiding judge offers the jury a brief statement of the applicable law. At that point, the jury deliberates.

Juries are encouraged to return a consensus verdict. Juries may return a special report anonymously listing the view of each juror on liability and damages. Counsel then meets with the presiding judge to discuss the verdict and establish a timetable for settlement negotiations. Evidentiary and procedural rules are few and flexible.

Early Neutral Evaluation

Early neutral evaluation is an informal process. A neutral intermediary is appointed to hear the facts and arguments of counsel and the parties. After a hearing, the intermediary evaluates the strengths and weaknesses of the parties' positions. The intermediary considers the parties' potential exposure to liability for monetary damages, too.

The parties, counsel, and the intermediary then engage in discussions designed to assist the parties in:

• Identifying the agreed-upon facts
• Isolating the issues in dispute
• Locating areas in which further investigation would be useful
• Devising a plan to streamline the investigative process

Settlement negotiations and mediation may follow, but only if the parties desire. In some jurisdictions, early neutral evaluation is a court-ordered ADR technique. However, even in these jurisdictions, the parties can hire their own neutral intermediary or have the court appoint one.

The objective of early neutral evaluation is to get an early assessment of the parties' dispute by a credible outsider. The outsider doesn't have an interest in the outcome of the dispute. The outsider has sufficient knowledge and experience to sift through the facts and issues. The neutral party helps the parties find common ground.

The success of an early neutral evaluation depends on the parties' faith in the intermediary. Success also depends on the parties' willingness to compromise and settle the dispute.

Conclusion: Negotiation, ADR, and Civil Litigation

The procedures and techniques discussed above are the most commonly employed methods of ADR. Negotiation plays an important role in each method.

There are countless other ADR methods, many of which modify or combine the above methods. For example, it's common for parties to start negotiations with early neutral evaluation and then move to nonbinding mediation. If mediation fails, the parties may proceed with binding arbitration.

The goal of each type of ADR is for the parties to find the most effective way of resolving their dispute without resorting to litigation. Alternative dispute resolution proceedings aren't always successful. Still, many participants in unsuccessful ADR proceedings believe it's useful to know their disputes aren't amenable to negotiation before bringing a lawsuit.

Alternative dispute resolution isn't the appropriate choice for all disputes. Some parties resist ADR because it lacks the substantive, procedural, and evidentiary protections available in formal civil litigation. Parties to ADR typically waive their rights to object to evidence that might be inadmissible under court rules. Hearsay evidence is a common example. It can be considered in arbitration forums but is generally excluded from civil trials.

If a party believes they will be sacrificing too many rights by waiving the formalities of civil litigation, ADR is unlikely to be the appropriate method of dispute resolution for them.

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