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Neutral Case Evaluation

Source: The Metropolitan Corporate Counsel (Consultants Corner)
Date: July 2002
Over the past two decades, counsel seeking cost-efficient and effective ways to resolve disputes that corporations commonly experience have acquired a potent new resource, namely, a nationwide cadre of highly skilled professionals available for engagement through a variety of alternative dispute resolution (ADR) providers. For example, JAMS, the nation's largest ADR company, now maintains a panel of over two hundred skilled neutrals, both retired judges and senior attorneys, located in twenty offices around the country. The question for counsel today is not where to find help, but how best to utilize the available resources for specific cases.

Most company attorneys recognize that, if they require a final and binding resolution that can be judicially enforced but also want a streamlined adjudication in which they choose the judge, the rules, and the time and place of hearing, arbitration is the way to go. On the other hand, if the dispute cries out for a mutually agreeable solution which accommodates the essential needs of all the parties, and perhaps allows them to preserve a beneficial business relationship, and then mediation is often the best option. What if parties truly want to settle but are thwarted by the fact that their respective honest evaluations of the matter are sharply divergent and irreconcilable? Increasingly, sophisticated companies and counsel are coming to rely on another form of ADR, namely, neutral case evaluation (NCE), to get them over that obstacle to settlement.

What is NCE?

Neutral case evaluation is an ADR process in which one or more neutral experts review the merits of a dispute, or some aspect of it, and provide the parties with an in-depth, considered but nonbinding evaluation. That evaluation is then used as the basis for an effort to arrive at a voluntary settlement, either through unassisted negotiations between the parties or, more commonly, through mediation conducted by the same or a different neutral. While some amount of case evaluation, often informal and impromptu, occurs in many mediations, NCE is distinguished by a focus on explicit, comprehensive case evaluation as the critical foundation for settlement efforts. Its essential feature is to provide the parties with a low-cost, well-informed, advisory opinion about how the case, or a particular aspect, is likely to turn out so that the parties can use this information to fashion an appropriate settlement.

Many Forms Of NCE

How does NCE work? The answer is that there are many different forms and parties can choose, or customize, the version that best fits their particular needs.

In the typical example, a single neutral retained by all parties receives and studies legal briefs, key evidence, and sometimes oral argument, and then delivers to the parties, separately or together, a detailed evaluation - oral or written, as the parties prefer - of how the matter will probably be decided if it proceeds to trial or an arbitration hearing. After each party has had an opportunity to discuss this evaluation with critical decision-makers (e.g., senior management, board of directors, insurance carriers, etc.), the parties undertake settlement negotiations or mediation, often using the case evaluator as a mediator.

If the case presents novel or cutting-edge legal issues, the parties may wish to have three neutrals evaluate the matter, separately or together, and compare the results. One technique that some parties find useful is to employ three (or more) neutrals as a focus group. After the case is presented to the neutrals jointly, they are asked to discuss, in the presence of counsel, a series of pre-agreed questions which seek to illuminate how each neutral would have decided the case as a judge or arbitrator and why. The interchange between such knowledgeable neutrals can provide highly valuable, nuanced insight into likely case outcomes.

Usually, NCE focuses on critical legal issues which the parties see quite differently but recognize as likely to be dispositive. Sometimes, NCE centers on factual aspects of the case - for example, how is a judge, jury, or arbitrator likely to react to particular witnesses or evidence? What findings will they probably make from a mixed record? Or, how will controlling legal precedents probably be applied to such findings? While NCE is often performed before a trial or arbitration hearing is held, it can also be very helpful with cases on appeal. Moreover, although most NCEs include participation by all the parties to the dispute, sometimes a single party will request an NCE for its own use, for example, when it is trying to decide whether to accept the other side's "best and final offer" or to press on with trial or appeal.

NCE can be utilized in virtually any type of dispute. If the critical subject matter is highly technical (tax or patent law, for instance), it may be wise to engage a specialist in that substantive area. For the vast majority of commercial disputes, a retired judge or senior attorney with broad litigation experience is generally the best candidate.

A Creative Example

To see how NCE can be creatively and productively employed in major corporate litigation, let's look at a recent example.

Sometime ago, I was retained as a mediator in a dispute involving alleged misrepresentations and breaches of warranty in the leveraged buyout of a high tech company. The sales agreement contained an arbitration clause. Because of the technical issues involved, arbitration would have involved many experts and considerable expense. The parties tried to avoid these costs by attempting mediation first. However, the gap in settlement offers was great and was only partly closed during mediation, largely because each side was convinced that the arbitrator would believe its witnesses on certain critical issues. Neither side was willing to expose those witnesses to interrogation by the other prior to the arbitration. Thus, the parties found themselves at impasse.

Sensing that each side truly wanted to settle, I made a proposal. I would spend one day in Dallas, where all the witnesses were located, and would interview - alone and off-the-record - three from each side. I would then provide the parties with an evaluation of the case, without ascribing comments to particular witnesses, along with a "take it or leave it" mediator's proposal for settlement. Each side would have twenty-four hours to advise me privately if they accepted the proposal. If I received two acceptances, I would tell the parties the case had settled. If I received one or two rejections, I would simply report that the case did not settle. (This way, if one party agreed to the mediator's number and the other party didn't, the latter would not learn of the former's willingness to settle at that number.)

The parties enthusiastically embraced the process and it worked! After interviewing and sizing up the witnesses for a day, it was apparent to me that the most plausible explanation for what got the company in trouble was a hybrid of the parties' respective theories and that the likely arbitration result was in between the parties' final offers. I made a mediator's proposal, which both sides promptly accepted. Thus, my one day of work as a neutral case evaluator spared each side from substantial litigation risk, saved them hundreds of thousands of dollars in experts and legal fees, and permitted each side to get on with its own business endeavors.


NCE is not the perfect choice for every dispute a company may encounter. In the ADR world, one size does not fit all. Indeed, the genius of ADR is the flexibility it affords to adapt standard formats to particular circumstances or, as in the above example, to blend different ADR processes in promising combinations. However, NCE is a useful device for cases in which the parties want to settle but are stymied by sharply different assessments of critical factual or legal issues. Keep NCE in mind the next time you find yourself in such a situation.

Copyright 2002 Metropolitan Corporate Counsel. Reprinted with Permission.