September 2007Volume 3, Number 2
Table of Contents

A Baker’s Dozen of ADR Practice Pointers to Boost Your Bottom Line

By Philip B. Ytterberg

“A trial is not always the best way to resolve a dispute. Lawyers have to know when mediation, negotiation and arbitration are the best use of resources to achieve a just solution.”
- Robert J. Grey, Jr., Former ABA President

According to the National Center for State Courts, only about 7.6 percent of civil cases go to trial in the United States, and only 0.6 percent receives a jury trial. That’s not surprising given that the costs of fully litigating a civil case are conservatively estimated to be at least $15,000. The high cost of litigation affects businesses and individuals. In fact, the American Bar Association estimates that 100 million Americans are locked out of court by high legal costs.

The high costs of litigation also affect America’s “main street” lawyers. A small law practice operates like any other small business: on income and cash-flow. Timing is important. If it takes two or three years for income to come in, problems associated with irregular cash-flow can cripple the business.

Lawyers therefore try to be very selective about the cases they will take to trial. The ABA Journal reported that an attorney cannot take a lawsuit worth less than $20,000 on a contingent fee basis, and the National Work Rights institute states that for an employee, the case must be worth $60,000. Despite their selectivity, however, statistics show that in employment cases, for instance, employee plaintiffs only win 14.9 percent of lawsuits. (Source: Arbitration Now, “Private Justice: Employment Arbitration and Civil Rights,” American Bar Association.) Yet the same study found that employees bringing claims in arbitration win 63 percent of cases.

In a study comparing litigation and arbitration of contract disputes, empirical data shows that arbitration cases are significantly speedier than lawsuits. The median case durations from filing to final disposition ranged from four to six months in arbitration. In court litigation, the duration for similar types of contract cases ranged from 15 to 20 months (see http://www.metrocorpcounsel.com/pdf/2006/July/32.pdf). Similar duration results have also been obtained in the context of employment arbitration versus litigation.

That’s a tremendous advantage both for the client and his or her attorney, and a benefit to all of the parties given the greatly reduced time and costs of arbitration compared to litigation.

As to case duration and cost, William Paul, past-president of the ABA estimated, “a ratio of 3 or 4 to one, litigation versus arbitration, is a fairly realistic estimate and a reasonable expectation is that the cost of arbitration will not be in excess of half the cost of litigating.”

Since alternative dispute resolution reduces the cost and shortens the time it takes for claims to be resolved, the practitioner can potentially accept more client matters than would be feasible in litigation and can receive more regular cash flow when enforcing clients’ rights to compensation.

Mediation also gives lawyers the opportunity to represent their client but in a forum that is much less expensive than litigation. In the U.S. parties spend $50,700 on average on each litigated case, and only $7,500 ($3,500 per party) for resolving their case by mediation, a cost-savings of approximately 85%. Trials in the traditional litigation process are not only lengthy and expensive, they are also public. Mediation like most ADR is entirely confidential.

A survey of the GPSolo Division conducted in 2005 found that GPSolo members use ADR frequently in their practice. The Survey (available on the Division Website at http://www.abanet.org/genpractice/sponsors/gpsolo-naf-survey.pdf) assessed the usage and preferences regarding negotiation, mediation and other forms of alternative dispute resolution (ADR) among the membership of the GPSolo Division of the ABA. Among the findings were the following:

• Regarding mediation, more than 80% of ABA GPSolo respondents value mediators who are lawyers or former judges. Of the ABA GPSolo respondents, 76% reported that half, or more than half, of their mediations are private mediation and not court ordered. ABA GPSolo respondents are most likely (37.5% of respondents) to mediate a case when the amount in dispute is up to $25,000, with 27.5% most likely to mediate a case when the amount is more than $100,000.

• Regarding arbitration, the overwhelming majority of ABA GPSolo respondents (72.9%) value arbitrators who are learned in the law (attorneys/former judges), as opposed to lay arbitrators and arbitrators who are required to apply substantive law (60.3%). A wide range of features would encourage ABA GPSolo respondents to use arbitration more frequently: More than two-thirds of ABA GPSolo respondents (68.6%) would use arbitration more often where arbitrators are required to follow the law (67.5%) and where arbitrators are lawyers or former judges (55.4%).

• Most ABA GPSolo respondents want additional information about ADR including: empirical studies comparing litigation to ADR; effective contract drafting techniques; and education about the laws governing mediation and arbitration. More than one in three ABA GPSolo respondents would value opportunities to learn more about the distinctions and implications of the rules and panels of national ADR providers.

Overall, the Survey found that a decided majority (over 85%) of ABA GPSolo respondents believe that their clients' interests are at least sometimes best served by offering ADR solutions. More than half of respondents also believe that: (1) their practice will include offering ADR solutions in the future; (2) offering ADR solutions is an ethical obligation as a practitioner; and (3) ADR use will increase in the future.

So, in light of the continued growth of alternative dispute resolution by lawyers worldwide, here is a round up of some time-tested practice pointers for taking your client matters into ADR:

Mediation Practice Pointers:

A skillful initial presentation is not necessarily “conciliatory.” It is appropriate to provide the reasons that you are prepared to proceed to litigation or arbitration of the disputed issues. Effectively use what you have developed in prior proceedings: prior rulings, deposition testimony, key documents, and any admissions.

When opposing counsel is giving their initial presentation, let them speak without argument or interruption and consider this an opportunity to learn new facts, true interests, common ground, and even the other party’s weaknesses.

The style and tone of your approach will have a substantial influence in persuading the other side to listen and to seriously consider what you are saying. Don’t prevent the mediator from talking to your client or from talking with all the parties. At the same time, don’t be afraid to ask for a moment during the mediation to speak privately with your client. Finally, given the uncertainties of outcomes in litigation, don’t base your settlement strategy on how well you are going to do in court. (see, e.g., http://www.ca11.uscourts.gov/documents/pdfs/medguideAUG05.pdf)

Arbitration Practice Pointers

“If you prefer binding arbitration, put a provision for it in the contract, up front and before the dispute arises and then, and only then, will you have assured arbitration as the preferred dispute resolution mechanism.”
- William Paul, Former ABA President

Attorneys drafting arbitration agreements should ensure that the necessary elements are present. A review of agreements that have failed to meet court challenges—and those that met such challenges—is a logical first step. But that’s just a start.

Crafting an agreement that meets the client’s needs requires a mixture of talents—legal know-how, common sense, a clear sense of objectives, and in some cases, a touch of constructive imagination. Below are tips toward drafting better agreements:

Grease the Wheels: Typically in business disputes, neither party wants to destroy the relationship, and pursuing the least abrasive approach can be advantageous for both parties. Consider creating a agreed dispute resolution process that begins with good faith negotiation for a period of time, followed by mediation, followed by arbitration. To avoid delay, be sure to specify time frames for mediation. The goal is to end the dispute as quickly, fairly and amicably as possible. Here is some sample language:

ARBITRATION. Whether or not mediation is requested by any party, any claim, dispute or controversy between us or arising from or relating to this agreement or the relationships which result from this agreement, including the validity of this arbitration clause or the entire agreement, including any that remain unresolved 120 days after an agreement for mediation, shall be resolved by arbitration by the National Arbitration Forum, under the Code of Procedure then in effect. The arbitrator shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that will be binding upon the parties. Any award of the arbitrator(s) may be entered as a judgment in any court having jurisdiction.

Specify What’s Covered: To ensure that the arbitration agreement governs all disputes, clearly specify that in the contract. Also, indicate that the arbitrator has the authority to decide whether the arbitration agreement is valid and enforceable.

Take Advantage of the Federal Arbitration Act: Different states have different laws governing arbitration. This can be confusing, especially where the agreement is to be used in multiple jurisdictions. To avoid doubts, consider invoking the Federal Arbitration Act (FAA):

This arbitration agreement is made pursuant to a transaction involving interstate commerce, and shall be governed by and interpreted under the Federal Arbitration Act (FAA), 9 U.S.C. Sections 1-16.

The FAA affords parties the flexibility to structure their agreement, as they deem appropriate, while at the same time providing assurance that the arbitration agreement will be uniformly enforced.

Specify What Law Applies: If it’s important that the arbitrator apply the substantive law of a specific jurisdiction, state that clearly in the agreement. Clearly designate both the body of law that governs the arbitration agreement—typically the FAA—and the body of law that governs the substantive agreement.

Require Law-based decisions: Depending upon the procedural rules of the ADR forum selected by the parties, the arbitrator who will render the decision may or may not apply the relevant substantive law. Make sure that the ADR forum you select authorizes the arbitrator to award all remedies allowed by applicable substantive law. In addition, during he contracting process, parties have the right to specifically define which occurrences will give rise to arbitral remedies of replevin, injunction, foreclosure and damages. Case law, as well as the rules of select arbitration organizations, is clear that arbitrators have authority to order provisional remedies, interim relief, and permanent relief.

Remedies Available under Law: Depending upon the choice of arbitration rules and clause drafting, parties to leases and secured lending agreements can have the benefit of arbitral awards granting damages plus interim and permanent possessory relief according to the terms of the parties’ contract. As an example, a typical remedy available under UCC Article 2A is the recovery of the goods (in addition to the rights to all contractual rents), and this can be more easily accomplished with the requisite arbitral order.

Select a Reputable ADR Administrator: The best way to ensure that an ADR agreement and the arbitral award will be enforced in court is to specify that the proceedings will be handled by a reputable ADR administrator with court-tested rules and fees.

Check Whether Your Arbitrator Will Be a Legal Professional: When selecting an arbitrator or administrator, find out whether the arbitrators will be legal professionals or laypeople. Even though you have a legal dispute, some arbitration providers use arbitrators who have no legal background.

Philip B. Ytterberg is Vice President and Assistant General Counsel for the National Arbitration Forum (FORUM).

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