Volume 2, Number 2
|Table of Contents|
AMS -- Arbitration, Mediation, Settlement or other forms of Alternative Dispute Resolution
This article attempts to highlight in checklist form key compensation and expense issues worth considering by mediators, arbitrators and other neutrals as they establish and carry on a neutral's professional practice.
Discussed below are factors relating to (a) fees and income and (b) costs and expenses. Costs and expenses are usually measured both in terms of money and time--administrative, training, networking, etc. While some of the issues will be familiar to attorneys who manage a law practice, many are unique--or at least different--for the practicing neutral. Several of the issues mentioned appear in more than one of the categories below because they may come up for the neutral in more than one setting.
These issues arise principally in three separate contexts of neutral practice:
(1) Private service as a neutral, where the neutral works directly with the parties and administers the neutral proceeding without any involvement of a provider organization. For purposes of this article, "provider organization" includes governmental bodies that administer alternative dispute resolution programs and/or have neutrals' rosters.
(2) A provider organization, at the parties' request, arranges for the neutral from its roster. After the neutral is appointed, he or she administers the proceeding, and bills and collects for the neutral's fees, working directly with the parties. Examples include Alternatives' publisher, the CPR Institute, and many court ADR programs.
(3) A provider organization provides the neutral at the parties' request, administers the neutral proceeding, and collects and remits the neutral's fees. The neutral's primary role is to conduct and complete the neutral proceeding. Examples include the American Arbitration Association, the National Association of Securities Dealers Dispute Resolution, the New York Stock Exchange, Minneapolis-based National Arbitration Forum, and many governmental bodies.
There are hybrids of situations (2) and (3). This article will attempt to point out the differing implications of these separate situations.
A list of upfront and periodic time requirements and costs that usually are incurred in order to meet criteria and qualifications to be able to serve as a neutral, to be in the best position to be chosen to serve as a neutral, and to carry on a professional neutral practice.
a. Marketing/advertising--initially and periodically after the neutral practice is established.
b. Training, initial and periodic. This is particularly relevant for work with provider organizations.
c. Roster/membership fees of provider organizations--initial and periodic.
d. Office and administrative costs.
e. Networking, cultivation, and professional neutral organization efforts, including those professional organizations that are not also provider organizations, such as the Association for Conflict Resolution, the American Bar Association, state bar associations, and arbitrator and mediator professional organizations.
f. Discussion of possible dispute resolution processes with parties or counsel considering using dispute resolution, and providing information on the neutral's qualifications to serve in specific disputes.
g. Preparation and negotiation of mediation, arbitration, confidentiality and neutral compensation agreements.
h. Whether work is via private practice or through a provider organization, there is time and effort in assessing and protecting the likelihood of receiving enough cases to recoup the more-direct time and costs above.
i. Conversely, what commitments of time and availability does the provider organization expect in return for a roster listing?
Fees, specifically: The manner and amount of compensation.
a. Hourly fees--For what time will the neutral be compensated? Work can include discussion of the dispute resolution process; drafting and negotiation of mediation, arbitration, confidentiality, and neutral compensation agreements; study and preparation; meetings; conferences; sessions; review of submissions and evidence; deliberation; writing, including memorandums, orders, summaries, court reports, decisions, and correspondence; telephone calls; research; travel, and administrative tasks. How should neutral hourly rates be set? Factors include the neutral's experience and eminence; comparable rates in the professional community; rates for legal practice, and whether any of the fees have to be shared with a provider organization.
b. Fixed per case, proceeding or session--For what time will the neutral be compensated? Often, provider organizations pay neutrals per case, proceeding or session. If payment is per proceeding or session, other time, such as that discussed in hourly fees above, often is not compensated. Does the neutral share provider fees? Who pays the provider fees? What are the implications for the neutral, ethically or otherwise? How do the fees compare, based on time expended, with what the neutral could charge on an hourly basis for other neutral or professional work?
c. Per diem and/or half-day rates--Provider organizations often pay neutrals on this basis. Again, for what time may the neutral include in charges based upon these daily or one-half day rates, and how do these rates compare, based on time expended, with what the neutral could charge on an hourly basis for other neutral or professional work?
d. Mediator compensation is sometimes based partly or wholly upon a contingent fee arrangement, in which the neutral receives a percentage fee in the event the dispute settles in mediation. The percentage may be based upon some or all of the disputed amount. Ethical and disclosure issues may be raised by such an arrangement.
e. How are fees billed and collected? Is there a retainer, advance or a deposit? Is all payment after service? Is there a risk of non-collection?
f. Can or should the neutral charge cancellation or postponement fees when there is a late postponement of the proceeding, or the case settles? Often, cancellation or postponement occurs after significant preparatory work by the neutral--and when it is no longer feasible for the neutral to schedule another proceeding in place of the postponed or canceled event.
g. Is some pro bono or reduced-fee work required of the neutral in return for roster listing by a provider organization?
h. If the provider organization is a governmental body, are there statutory or regulatory limits or guidelines on neutral compensation?
i. What out-of-pocket expenses can be part of the neutral's charges (e.g., postage, telephone tolls, photocopies, research, travel, and secretarial expenditures)? Some provider organizations may not allow expenses to be charged at all, or have guidelines or limits on the types and amounts of expenses to be paid by the provider organization or charged to the parties.
j. May the neutral use and charge for experts, associates or employees as part of the neutral's service? What are the ethical and disclosure implications for the delegation of neutral responsibilities and confidentiality of the process?
Arrangements for compensation.
a. Include contract provisions on fees and expenses, either as part of a mediation or arbitration agreement, or as a separate compensation agreement between the neutral and the parties. Even if there is no contract, the neutral should establish the fee arrangements and inform the parties in writing, including possible charges for experts, associates or employees.
b. Include initial deposits for estimated fees to avoid post-process payment or collection problems, even when there is a contract specifying fees and party or other responsibility.
c. Should the neutral make arrangements to look to counsel for the parties for payment of fees, as an alternative, or in addition, to contractual arrangements?
d. Special fee and expense arrangements in arbitration may be necessary where applicable law, a pre-dispute contract arbitration clause, or a post-dispute arbitration agreement contemplate arbitrator apportionment or assessment of arbitrator fees and expenses between the parties. If party deposits are made in such a case, should each party deposit the total multiparty deposit in the arbitrator's (or the tribunal chairman's) escrow account to facilitate the return of arbitrator fees and expenses to the prevailing party? Will interest be earned on such deposits? If so, who receives the interest? What disclosures should be made about interest--including Interest on Lawyer Trust Accounts (Iolta)?
e. Is court approval of fees necessary? Most often, this is an issue for court-appointed referees, special masters, and arbitrators.
f. For multi-member arbitration or mediation panels, with or without a party-appointed neutral: Should the chairman deal with the parties on billing matters for all panelists to avoid as much communication as possible between parties and arbitrators on compensation?
g. How are fees and expenses billed and collected? By the neutral or provider organization? Via retainer, advance or deposit? Are bills sent periodically? Or after completion of neutral services?
h. Other payment terms: Include the time period after conclusion of neutral services by which payment is due, and consider and specify whether interest can or should be charged on overdue amounts.
i. Who takes the risk of non-collection from parties: the neutral, the provider organization and/or the parties' attorneys? Can or should the neutral employ a collection agency or attorney to collect the fees? Can or should the neutral bring suit to collect fees? If an arbitration award has been appealed by the delinquent party, should the arbitrator hold off or suspend collection efforts until the appeal is finally resolved? If a settlement flowing from a mediation is being implemented against the delinquent party, should the mediator-- assuming he or she is aware of that fact--hold off or suspend collection efforts until the settlement is finally implemented?
* * *
Resources that may provide guidance to neutrals addressing some of the compensation issues raised in this article include the CPR-Georgetown Commission on Ethics and Standards in ADR--Principles for ADR Provider Organizations (2002); the CPR Model ADR Procedures & Practices (MAPP) Series; the CPR "Drafter's Deskbook for Dispute Resolution Clauses"; and "Commercial Arbitration at Its Best: Successful Strategies for Business Users," (ABA Book Publishing, 2001, published by the American Bar Association Sections of Business Law and Dispute Resolution); the CPR-Georgetown Commission on Ethics and Standards in ADR Model Rule for the Lawyer as Third-Party Neutral (2002); CPR's Mediation Procedure; and CPR's Rules for Non-Administered Arbitration. Information for all is available at www.cpradr.org.
See also the new and revised AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes (2004) (available at the American Arbitration Association's Web site, www.adr.org; click on Rules/Procedures on the home page, and then choose "Ethics and Standards").
Copr. (C) 2006 West, a Thomson business. No claim to orig. U.S. govt. works. This article is reprinted with permission from West, a primary sponsor of the General Practice, Solo and Small Firm Division.
This article first appeared Alternatives to the High Cost of Litigation, November, 2004
Copyright © 2004 by CPR Institute for Dispute Resolution; David Plimpton