1. Legal and Ethical Environment of Business (Mgmt 518) Dispute Resolution (Chapters 2 and 3) – Part 2 Professor Charles H. Smith Summer 2012

2. Introduction to 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.

3. Why Use ADR Instead of the Court System? Time and expense – result in ADR usually achieved in less time and with less expense than result in court. Flexibility/control – 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.

4. Why Use ADR Instead of the Court System? cont. Better outcome? – some maintain that the result obtained due to an early settlement can have same or better economic value than result after trial. Emotional cost – protracted court proceedings can exact heavy emotional cost; sort of like being in a bad relationship. Cost to business – instead of working to grow your business, you will be working on a lawsuit which is not a money-making venture.

5. How to (Voluntarily) Get to ADR? Voluntary – most parties choose ADR to attempt to resolve their disputes; ordinarily, ADR cannot be forced on the parties though there are exceptions (see next slide) The ADR agreement may be made before or after any dispute arises. Note that some parties may not realize they are agreeing to ADR in pre-dispute agreement though ADR clauses are common in employment, real estate, and many other types of contracts.

6. How to (Involuntarily) Get to ADR? Involuntary – court can order parties to ADR Court can order parties to nonbinding ADR – negotiation, mediation, and even nonbinding arbitration; order can be formal or informal. Court may be asked by a party to an arbitration agreement to enforce it by ordering the parties to go to arbitration instead of court to resolve their dispute.

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

8. 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.

9. 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.

10. Mediation cont. Parties and mediator need to recognize that legal issues may be just part of dispute since non- legal issues can be very important and might 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.

11. 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.

12. 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. 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/control – parties can create their own procedures and rules.

13. Arbitration cont. Courts will enforce an arbitration agreement just like any other contract Statutes require it (e.g., FAA section 2) and courts continually recite this “equal footing” rule; case study – Case Questions 4 and 6 (Meiners, pages 84-85). Arbitration viewed merely as different – not inferior – place for resolution of legal disputes. Practical aspect – courts always looking to clear their busy dockets.

14. Arbitration cont. Main defense to enforcement of an arbitration agreement is whether it is unconscionable – both of the following elements must be present in order for arbitration agreement to be invalidated Procedural unconscionability – take-it-or-leave-it agreement presented by stronger party to weaker party or agreement hidden in “the fine print” of contract prepared by stronger party. Substantive unconscionability – harsh, one-sided agreement favoring stronger party over weaker party.

15. Arbitration cont. Usually, the losing party voluntarily complies with the arbitration award; e.g., losing plaintiff does not “re-file” or losing defendant pays the money owed per the award. If no voluntary compliance, the prevailing party files a petition/motion to confirm the arbitration award as a judgment; easier to enforce/collect a judgment since court process can be used; court process not available to enforce arbitration award itself. If some problem with arbitration process or award, either party can file a petition/motion to vacate or correct the arbitration award; but, no vacatur or correction due to arbitrator’s error of law or fact which is consistent with arbitration’s policy of finality.