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ADR Avoids Court, Saves Money

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ADR Avoids Court, Saves Money

Source: Corporate Counsel
Date: June 2005
All companies face disputes ... from employees,suppliers, customers. How effectively and inexpensively an organization manages the risks of conflict depends largely on corporate counsel. Because of its winner-take-all, public approach to problem resolution, traditional courtroom litigation fails to promote long-term, mutually acceptable solutions in a cost-effective, confidential manner. To avoid court and to increase profit rather than just decrease loss, corporate counsel should introduce dispute resolution techniques at every level of the corporate enterprise.

Begin Within
First step: review the company's contracts. Do they encourage early identification of disputes, impartial intervention and litigation alternatives? It's easier to include such clauses in agreements before a conflict arises rather than after the parties start fighting.

Also, review the company's training programs. Managers, supervisors and even customer service personnel can learn conflict-management techniques, to resolve problems before they escalate to litigation.

Many companies also opt to hire an ombudsperson, an in-house advisor authorized to tell the company when it has erred and to counteract the inclination of organizations to simply "deny and defend." With in-depth knowledge of the company's policies, personnel and culture, the ombudsperson can ensure that each conflict is addressed by appropriate decision makers and that the company's resolution proposals reflect consistent policies, corporate values and fairness. Professional ombudspeople are guided by a code of ethics requiring neutrality and confidentiality.

If internal preventative measures fail, another technique to avoid litigation is mediation. An impartial third party confidentially helps disputants negotiate a mutually satisfactory resolution. Mediation clauses can be included in vendor contracts, executive compensation agreements, personnel policies and even customer bills of rights. Mediation is especially useful in exploring creative ways to achieve beneficial results (including preserving future business opportunities and developing improved quality control methods) and in avoiding the win/lose bilateralism of adjudication.

Mediation fees are often split between parties but can be assumed by one side. To ensure the mediator's impartiality, the fee should be channeled through an administrative entity so the mediator is unaware of payment arrangements.

Arbitration – confidential adjudication before a neutral arbitrator chosen by the parties – is another effective alternative to the public drama of the courtroom. An arbitrator should be hired for special expertise in impartial fact-finding, legal analysis and decision-making.

Arbitration clauses can be included in purchase orders, leases, license agreements, construction contracts and insurance policies. Parties can agree to special procedures such as videoconference testimony by distant witnesses, relaxed evidentiary rules and a schedule that isn't subject to unforeseen interruption by other judicial priorities. Parties can even control the potential risk of an award by negotiating minimum and maximum amounts that are not disclosed to the arbitrator. Agreements to arbitrate are enforceable in court.

Because of its flexibility and privacy, arbitration now occurs more frequently in complex, high-stakes cases when speed and simplicity may not be primary goals. As a result, the cost of commercial arbitration is increasing. Careful prearbitration planning by corporate counsel is critical to control litigation costs. Specifically, arbitration agreements should define as many of the arbitration parameters – including discovery, scheduling and appeal procedures – as practical. Counsel who invest time negotiating these subjects before arbitration will minimize costly disputes during the process.

Discovery and Scheduling
Unlike traditional litigation, which is guided by statutory procedural rules, arbitration clauses can limit the number and length of depositions, interrogatories or document requests, as well as the scope of expert testimony. Parties can even substitute other discovery methods, including meetings between key executives to directly discuss disputed issues. Consider letting the parties' expert witnesses testify in the presence of each other, with time to comment on the opponent's testimony.

Arbitration allows flexible scheduling. Parties can agree to work late one day to finish an expert's testimony, use video conferencing for a remote witness, or interrupt one witness to accommodate another. Unlike most jurors, arbitrators are experienced factfinders who can be trusted to overlook the order of presentation and stay focused on the separate evidence offered by each party.

Single Arbitrator v. Panel
Arbitrated disputes can be decided either by a single arbitrator or by a panel of arbitrators. Generally, if a commercial dispute can be tried in less than two weeks, involves fewer than 10 witnesses and requires just one area of specialized expertise, a single arbitrator can handle the matter. On the other hand, a panel of three impartial decision-makers is preferred when the factual complexity, legal novelty or public significance may challenge the memory, acumen or courage of a lone arbitrator. The breadth of expertise and expanded ability to attend to details can justify the cost of a panel. Alternatively, to supplement a single arbitrator's expertise, the parties can authorize the single arbitrator to consult an impartial expert approved by all parties.

Partisan Panel
Party-representative a/k/a "partisan" panels can be effective when the panelists are not arbitrators but party executives. True party representatives such as chief financial officers or product managers can provide value not only to the analysis of the case, but also to the design of a resolution, producing a commercially sensible remedy. In cases involving ongoing business relations, participation of executives as arbitrators can promote a vision past the immediate dispute to more profitable future opportunities.

Appeals Panels
Companies can specify an appeal procedure in arbitration clauses. Three-member appellate arbitration panels can review the decision of a single arbitrator. The arbitration agreement should define the standard of review, the briefing schedule and decision deadline. The appellate panel can be less expensive than a panel at trial and provide a comforting safety net to litigants who are concerned about the finality of a single arbitrator's decision.

The Upshot
For in-house lawyers looking for swift and cost-effective means to end conflicts, alternative dispute resolution offers distinct advantages over traditional litigation. Counsels control of the process from the outset will ensure that cost-savings is one advantage.

Maria C. Walsh, Esq. is a mediator and arbitrator with JAMS — The Resolution Experts, the nation's largest private alternative dispute resolution provider. Contact her at or 617-228-0200.