1. Commercial Law (Mgmt 348) Dispute Resolution (Chapters 2 and 3) Professor Charles H. Smith Spring 2011

2. Introduction to Dispute Resolution “Road to justice” in civil lawsuit can consume much time and money – may not conclude for several years due to delays, appeals, etc.; attorney’s fees and costs may be in 10’s of 1,000’s of dollars even in average case. All parties to an actual or potential civil lawsuit should undertake a cost/benefit analysis before proceeding; this may include Probability of winning. Expense vs. relief. Value (financial, emotional, etc.) of early settlement. “The principle of the thing” or “test case.”

3. Introduction to Dispute Resolution cont. Many procedures to follow before, during and after trial, such as filing deadlines, rules of evidence, motions, etc.; noncompliance with these procedures may result in monetary, evidence and/or terminating sanctions. Ultimately, what you can prove may be more important than the truth in court! Therefore, a party to any dispute should consider multiple dispute resolution methods – not just going to court – when deciding what to do.

4. Alternative Dispute Resolution (ADR) ADR is just that – alternatives to resolving a dispute without the need for a court, judge or jury to make the decision for you. While the American court system provides a fine setting for dispensing justice in a fair way, the reality is that the vast majority of legal disputes are resolved out of court; in fact, many disputes resolved without even filing a lawsuit. We will study the three major types of ADR in this class – negotiation, mediation and, arbitration.

5. Why Use ADR Instead of the Court System Result in ADR usually achieved in less time and with less expense than result in court. Parties can control the process in ADR; court has many rules and procedures that are imposed on all participants. Certainty – settlement permits parties to know their result; plaintiff can count on receiving certain amount of money; defendant can budget for paying certain amount of money.

6. Negotiation Parties themselves and/or their representatives communicate with intent to resolve dispute. All of us have experience with negotiation; e.g., curfew. No need for structure – can be accomplished in one or multiple communications, phone calls, e-mails, texts, face-to-face meetings, etc.

7. Negotiation cont. Most common way to resolve disputes – may avoid filing of lawsuit, may avoid having to go to trial if lawsuit filed, or may avoid judgment collection efforts if judgment is final; in other words, negotiation can occur at any time. Parties maintain control in negotiation by (1) agreeing to negotiate since no one can be forced to negotiate and (2) retaining power to agree to settlement since no one can be forced to agree to settlement.

8. Mediation Same as negotiation except for involvement of neutral 3 rd party (mediator, also called settlement judge or officer) whose job is to facilitate the parties’ negotiation – mediation sometimes called “facilitated negotiation.” Mediator is often retired judge but this is not required; can be experienced attorney, person with expertise in the industry, respected community or religious leader, etc.; no qualifications, license, etc.

9. Mediation cont. Need to recognize that legal issues may be just part of dispute since non-legal issues can be very important and even block settlement (e.g., settlement value vs. best possible result, parties’ past relationship and possibility of continuing that relationship, emotions, culture, desire to “save face”). Like negotiation, parties maintain control in negotiation by (1) agreeing to negotiate since no one can be forced to negotiate and (2) retaining power to agree to settlement since no one can be forced to agree to settlement.

10. Mediation cont. Mediation is confidential since evidence about what happened at mediation is not admissible in court; e.g., trial, summary judgment. This confidentiality encourages the parties to be open and honest about the case – both strengths and weaknesses – because nothing said in mediation can be used against them in court.

11. Arbitration Similar to a bench (nonjury) trial since parties present their evidence and arguments to neutral 3 rd party (arbitrator instead of judge) who then makes a decision that is final and binding (but see Questions and Case Problems 2-1 on page 50). Advantages of arbitration Final decision usually achieved faster than it would have been in court – arbitrator’s decision is final; no appeal due to arbitrator’s legal or factual error. Since less time needed for final decision – less expense. Flexibility – parties can create their own procedures and rules.

12. Arbitration cont. Courts will enforce an arbitration agreement just like any other contract Statutes require it (e.g., FAA section 2). Arbitration viewed merely as different – not inferior – place for resolution of legal disputes. Courts always looking to clear their busy dockets. Main defense to enforcement of an arbitration agreement is whether it is unconscionable – both elements must be present Procedural – take-it-or-leave-it agreement presented by stronger party to weaker party or agreement hidden in “the fine print.” Substantive – harsh, one-sided agreement favoring stronger party over weaker party. Case study – Morrison v. Circuit City Stores, Inc. (pages 46-47) – unconscionability not specifically mentioned but analysis is there.

13. Arbitration cont. Arbitrability – should the matter be decided by the court or arbitrator? – is another question that often arises when a party to an arbitration agreement seeks to enforce it. The general rules are (1) if the challenge is to the entire contract (of which the arbitration agreement is just one part), then the matter is decided by the arbitrator, but (2) if the challenge is to the arbitration agreement only, then the court decides whether it is enforceable. Case study – Buckeye Check Cashing, Inc. v. Cardegna (pages 44-45).

14. Personal Jurisdiction Court’s power to decide case involving certain party – is it fair for the court to proceed against this party? If the court does not have personal jurisdiction over a party, then any decision by the court (e.g., judgment, any pre-trial ruling) is void and can be set aside by subsequent motion in the trial court or on appeal. Personal jurisdiction is most often raised by a defendant whose domicile is in a state other than where the court is located. Domicile is permanent resident for an individual or principal place of business (and, for a corporation, state of incorporation) for a business. Personal jurisdiction can be shown by either the general or specific standards (see following slides).

15. Personal Jurisdiction cont. General standard – applies to three types of parties Plaintiff who files lawsuit in the court hearing the case; very rare since plaintiff picked the court where to file the lawsuit. Defendant who is domiciled in the same state where the court is located (forum state); however, venue rules usually mandate that lawsuit is filed in certain court(s) within a state. Defendant’s domicile is out-of-state but defendant has “substantial” relationship or “continuous or systematic” contact with forum state (most common); this could apply to a large company that has no physical presence in the state but sells a lot of products there (e.g., Microsoft, Disney).

16. Personal Jurisdiction cont. Specific (or limited) standard – applies to out-of-state defendants only Defendant “purposefully directed” activities at residents of forum state or “purposefully availed” itself of benefits and protections of laws of forum state (defendant at least tried to have relationship with resident(s) of forum state), and Lawsuit must arise out of or be a result of defendant’s contact(s) with forum state (direct relationship between lawsuit and contact(s)), and Exercise of personal jurisdiction must be “reasonable” (e.g., convenience of witnesses, location of evidence). Case studies – whale-watching boat case; Questions and Case Problems 2-5, 2-7, 2-9, 2-10 and 2-11 (pages 50- 51).

17. Civil Lawsuit Chronology Many steps in a civil lawsuit; particular case may skip steps or stop at a certain step. Accident, breach of contract or other incident(s) – may be one event or series of events over days, weeks, months or even years. Party consults with attorney – initial client interview; review facts, documents, etc.; signing of retainer agreement; evaluate deadlines such as statute of limitations. Informal investigation and/or settlement negotiations prior to lawsuit; note that investigation and negotiation can happen at any time during lawsuit. Exhaust administrative remedies (applicable in cases vs. gov’t only) – can have quick deadlines.

18. Civil Lawsuit Chronology cont. Filing of complaint and summons issued – complaint specifies parties, ultimate facts in support of causes of action and relief sought; summons is pre-printed form identifying parties, court’s and plaintiff’s attorney’s contact information, and admonition to respond within certain time. Service of summons and complaint – notice to defendant of lawsuit as required by due process. Injunction – court order telling defendant to stop doing something (e.g., using trade secret, foreclosure sale); may need immediately if emergency (TRO/preliminary/permanent). Filing of responsive pleading – answer or motion to dismiss/demurrer (can be based on substantive and/or procedural grounds).

19. Civil Lawsuit Chronology cont. Discovery (depositions, written discovery, inspections, examinations) – requires disclosure of information under oath; can be most costly part of litigation. Purpose – gathering information to prepare for trial (or settlement) which can be both Good since party often does not have the “full story” (or way to prove the “full story”), and Bad since process can be abused and even become “the tail that wags the dog.” Motion to compel if party does not respond properly or at all; result can be order to respond and even dismissal/default (plus monetary sanctions).

20. Civil Lawsuit Chronology cont. Status conference – court reviews case with lawyers and may assign to ADR and/or set for trial. Motion for summary judgment – granted only if no triable issue of material fact and moving party entitled to judgment as a matter of law; therefore, difficult to win. If MSJ denied (or no MSJ) – further discovery, including designation and depositions of experts. Pretrial conference – purpose can be settlement conference, final trial preparations, or both.

21. Civil Lawsuit Chronology cont. Trial (12-18 months from filing of complaint to trial) – result is judgment (usually) or mistrial (rarely); usual order of proceedings is Opening statements. Plaintiff presents evidence (witness testimony, exhibits). Defendant presents evidence. Plaintiff presents evidence to rebut defendant’s evidence. Closing arguments. Jury (or judge if bench trial) deliberates and then announces decision. Judge issues judgment and hears post-trial motions (see next slide).

22. Civil Lawsuit Chronology cont. On TV or in the movies, everything ends with the conclusion of the trial; not so in real life because of the following post-trial motions Motion for new trial – ordinarily made due to procedural defect at trial; e.g., juror misconduct, newly-discovered evidence, excessive or inadequate damages (C.C.P. § 657). Motion for judgment notwithstanding the verdict (JNOV) – substantive error since jury verdict has no basis in law or fact (C.C.P. § 663). Motion for attorney’s fees – general (“American”) rule is each party pays his/her/its own fees; exceptions include Lawsuit “on a contract” which says prevailing party entitled to award of fees against loser (C.C. § 1717). Lawsuit based on statute which says prevailing party entitled to award of fees to be paid by loser (e.g., California Lemon Law at C.C. § 1794(d), most civil rights statutes). Costs – prevailing party entitled to award of costs to be paid by loser (C.C.P. §§ 1021, 1033, 1033.5); “costs” can include filing fees, deposition expenses, jury fees, etc.; memorandum of costs filed by prevailing party; motion to tax costs filed in opposition.

23. Civil Lawsuit Chronology cont. Appeal Can take 1-3 years; this delay can be used by stronger party to leverage an advantageous settlement with weaker party who won at trial. About 1 of 8 contested civil cases result in appeal due to cost, post-judgment settlement, and/or difficulty in winning on appeal. Only about 1 of 4 appeals successful due to presumption that trial court made correct decision and appellate court will not review fact disputes. Collection/enforcement of judgment – if losing party does not voluntarily comply with judgment.