What are the five methods of dispute settlement?
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. 1990 Jan-Feb;68(1):166-8, 172-4, 176-7. Show Affiliations
Five ways to keep disputes out of courtJ R Allison. Harv Bus Rev. 1990 Jan-Feb. AbstractEven if you win, a lawsuit can be a disaster. Attorney fees eat up $20 billion a year in the United States alone, and that doesn't count the cost of diverting key personnel from productive work or of damaging profitable business relationships. But more and more managers are discovering that litigation can be avoided with inventive use of alternative dispute resolution, or ADR. All forms of ADR are designed to do two things: save time and money and soften the sharp edges of the adversarial system. In the majority of cases, disputants settle their differences quickly and to the satisfaction of both parties. In the best of cases, opponents resolve their disputes cooperatively and forge new ties. Arbitration, the oldest and most adversarial form of ADR, is now a compulsory prerequisite to litigation in about 20 states. Mediation, perhaps the most versatile and the least coercive, depends greatly on the skill and personality of the mediator. Other methods include the rent-a-judge program, summary jury trial, and minitrial, all of which simulate real litigation to one degree or another but with greater speed, more privacy, and less expense. (The last two have settled several bitter disputes in weeks-after years of litigation.) Variations and hybrids of ADR methods are limitless. In picking the ADR method best suited to your circumstances, factors to consider include: the extent to which both disputants are committed to ADR, the closeness of the business relationship between the two parties, the need for privacy, the urgency of reaching a settlement, the absolute and relative financial health of both parties, the importance of the principles involved, the complexity of the case, the size of the stakes, and the ability and willingness of company executives to get involved. Similar articles
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There are few things managers dread more than litigation. Even petty cases have a way of damaging relationships, tarnishing reputations, and eating up enormous sums of money, time, and talent. Most managers know that lawsuits are steadily increasing. Smart managers know that they are also increasingly avoidable. There are now many alternatives to litigation that can nip lawsuits in the bud, resolve long-standing disputes, and even produce win-win solutions to old and bitter fights that would otherwise only leave both sides damaged. U.S. corporations pay more than $20 billion a year to litigation attorneys—an alarming fact that distracts our attention from other and often more important business costs of litigating our disputes. Lawyers’ fees and other direct costs get the most attention because they’re easy to measure. But the indirect business costs of litigation, the cost of diverting key personnel from productive activities, for example, or the cost of destroying a profitable relationship with a former business ally, are perhaps equally important. From the company’s perspective, they may be more important. The high cost of resolving disputes has several causes, but the most important is the mind-set established and nurtured by the adversary system. The essence of this system is that lawyers for opposing parties have the responsibility to present every piece of evidence and make every legal argument that might possibly benefit their clients. Pretrial discovery and other litigation procedures are designed to leave no stone unturned in the search for relevant evidence. By training, temperament, professional duty, and frequently by client expectation, attorneys tend to exploit these procedures to the fullest and to persevere as long as any hope remains. In fact, each lawyer has an obligation to be as zealous an advocate as possible, even—sometimes especially—to the detriment of discovering the truth and of resolving conflicts to the satisfaction of both parties. The idea behind the adversary system is that the truth will emerge when opposing sides present their cases as aggressively as possible. Even though this ideal is not always realized, the principle is probably sound. The problem with the adversary method in civil cases is not theoretical but practical. First, it is not the most effective way to resolve some kinds of disputes. Second, it can be made more effective for most kinds of disputes by borrowing certain of the nonadversarial features of other forms of dispute resolution. Third, from both the societal and the individual perspective, we may no longer be able to afford it in its undiluted form. Alternatives to traditional litigation have been around for many years, but Alternative Dispute Resolution (ADR) as a formal technique and an accepted business practice emerged in the 1970s. If it looks like ADR might be worth a try, it is probably a good idea to go slowly. Experiment with a case in which there is little to lose. One expert even suggests starting with a dispute that looks like a certain loser. One management is completely sold on ADR, many proponents suggest that the company develop a formal dispute resolution policy containing elements like these: Dispute Prevention
Dispute Resolution
Dispute Managment
The ADR Mind-SetJudge Dorothy Nelson of the U.S. Court of Appeals in San Francisco traveled to Israel several years ago to study the laws of divorce as administered by different religious groups. In Jerusalem she attended a court hearing conducted by three Greek Orthodox priests in long black robes and long white beards. Court was conducted in a Quonset hut with paint peeling from the walls, furnished only with a plain wooden table and chairs. A wife was suing her husband for divorce. As her lawyer rose to his feet holding a handful of papers from which to plead her case, he was waved gently aside by the presiding priest, who turned to the wife and asked her to tell her own story. She explained that for five years of marriage she had shared a house with her mother-in-law. The older woman, too old to climb stairs, occupied the ground floor, and the wife lived upstairs. Since there was only one entrance to the house, she had to enter through her mother-in-law’s living quarters to get to her own, and her mother-in-law continually questioned her about her activities and offered unsolicited advice. She loved her husband, she said, but the situation was intolerable. The wife sat down and the presiding priest, waving aside the husband’s lawyer as he had the wife’s, asked to hear the husband’s side of the case. The husband said that he loved his wife but also his mother. As a Christian he felt responsibility for both, but he was a poor man and could not afford two households. The three priests retired by stepping into the dusty street outside and returned five minutes later with their judgment. The husband was to purchase a ladder. When the wife wanted to avoid her mother-in-law, she could climb the ladder directly to her second-floor window. Judge Nelson says that as she watched husband and wife leave the Quonset hut hand in hand, she could only wonder what might have happened to this couple under an adversary system, with its orders to show cause, its lengthy hearings, and its high attorney fees. The modern American manager must operate within just such an adversarial legal system, with all its complications and formalities. And yet there may be more similarities between the Middle Eastern marital dispute and the American business dispute than one might think. Long-term business relationships can be as valuable to a company as long-term personal relationships to people’s lives. The rupture of either can be devastating. Moreover, in either situation, the resolution process itself can take a heavy toll on the participants if creative methods of resolving disputes are not given a chance. Perhaps the most important parallel, however, is that the modern manager can follow the lead of the priests in seeking a better way. To most people, ADR means any method of resolving disputes other than litigation, which is correct only if litigation includes not only cases that actually go to trial but also lawsuits that are settled before they get to court. This point is important for two reasons. First, more than 90% of all lawsuits are settled out of court, most of them virtually on the courthouse steps after months or years of preparation and expense. Some of this expense is necessary, but, on the whole, huge quantities of time and money are spent preparing for events that don’t occur. Second, the very initiation of a lawsuit, even if it is settled prior to trial, gives rise to the adversarial mind-set, which then makes its own prodigious contribution to cost, delay, and acrimony. As we will see, some ADR mechanisms work better than others in any given case. But all share two characteristics: they are all attempts to save legal and managerial time and money, and they all try to take at least some of the edge off the adversarial attitude. The theory behind ADR is that settling disputes as painlessly as possible requires good communication, that good communication requires some degree of trust, and that the adversary system of dispute resolution nurtures distrust, distortion, and animosity. The creation of trust is central to the design of many ADR techniques. The ADR MenuThe manager of today has available an array of ADR methods that were unheard of a few years ago. For these alternatives to be of much use, however, the manager must know something about how they work, why they exist, and what they can and cannot achieve. If nothing else, a familiarity with ADR methods may cause a manager to think seriously about dispute resolution at an earlier stage of any disagreement. Dispute resolution—litigation or ADR—is not an activity that thrives in a little black box. At its best, it is a joint venture between the company and its attorneys, requiring management participation as early and completely as possible. Handled with sufficient skill, ADR can bring an opponent into the venture as well, as all parties join in a nonadversarial search for a mutually beneficial outcome. The most common forms of ADR are arbitration, mediation, the rent-a-judge program, summary jury trial, and minitrial, although techniques can be combined to form hybrids suited to a particular dispute or legal jurisdiction. Arbitration, which is basically adversarial in nature and produces a binding decision made by a third party, is the form of ADR that most resembles litigation. The decision to seek arbitration is sometimes made after a conflict has arisen, but much more often the parties have a clause in their contract committing them to arbitration of disputes arising from their business together. In labor relations, arbitration agreements are usually included as the capstone of the grievance procedures specified in the collective bargaining contract. In theory, arbitration rules are up to the disputants to decide, but in practice most adopt the procedures recommended by the American Arbitration Association (AAA). In essence, the parties to the dispute choose either a single arbitrator or a panel of arbitrators (usually three), who then hear evidence and arguments from attorneys and render a legally binding decision. In the case of interstate or foreign commerce, the United States Arbitration Act of 1925 makes the agreement legally enforceable, and most states have similar laws for agreements not covered by the federal statute. If asked to review a decision, a court can hear complaints only about fundamental procedural fairness or the arbitrator’s conduct, not about the merits of the case. (Though the Taft-Hartley Act provides a separate legal framework for the enforcement of labor arbitration agreements, commercial and labor arbitration are in fact quite similar in both law and practice. The main difference is that labor arbitration is more institutionalized and so a bit more formal. Another distinction is that labor arbitrators are customarily paid, whereas those in domestic commercial arbitration are not usually compensated unless the proceeding is unusually lengthy.) Despite its superficial resemblance to litigation, however, commercial arbitration is truly an alternative mechanism. Under AAA guidelines, parties to a dispute can still make some important exceptions to the rules. For example, arbitrators are not required to have a legal background or even to follow the formal rules of law or evidence unless the disputants so stipulate. And there is seldom any period of prehearing discovery. In general, arbitration is much less formal than litigation and requires much less time and money. Although commercial arbitration has traditionally been purely a creature of mutual consent, one feature of the modern ADR movement has been the development in about 20 states and 10 federal district courts of compulsory but nonbinding arbitration as a prerequisite to litigation. Mediation differs greatly from arbitration in that the neutral third party, the mediator, does not impose a solution. The object of mediation is to help the parties resolve their own dispute, so a mediator’s functions can vary depending on the personalities and wishes of the parties and their attorneys, the nature and history of the dispute, and the personality and skills of the mediator. Arranged in order from the least to the most active, a list of the mediator’s many different jobs and roles can read almost like a diary. In the course of an actual mediation, a good mediator might do every one of the following things, in roughly the following order: urge participants to talk to each other; help them to understand the nature and objectives of mediation; carry messages; help the parties agree on an agenda, or, failing that, set an agenda; provide a suitable environment for negotiation; maintain order; help disputants understand their problems and the source of their conflict; defuse unrealistic expectations; help participants develop their own proposals; help them negotiate; suggest solutions; and, finally, persuade them to accept a specific resolution. Mediation has been used to settle conflicts of every kind, from international political disagreements and labor disputes to landlord-tenant, consumer, and medical malpractice contests. There has been a rapid increase in business use of mediation over the past few years, some of it in imaginative new forms. In 1982, IBM claimed that Fujitsu had illegally copied IBM’s mainframe operating system software. The two reached a settlement in 1983, but further disputes continued to break out, in large part because of the technological complexity and legal uncertainty of many of the issues. In 1985, IBM demanded arbitration as provided for in the 1983 accord. Two arbitrators were chosen as a panel, one a law professor experienced in dispute resolution and the other a retired computer industry executive. The arbitrators quickly saw that without some innovative thinking the proceeding was going to bog down in the same morass of technical detail and fingerpointing that blocked the resolution negotiated earlier. They refused to hear more specific complaints. Instead they issued an order compelling Fujitsu to provide a complete accounting of its use of programs covered by the 1983 accord and requiring the two companies to participate in a mediation procedure covering programs not included in the earlier agreement. The arbitrators then became the mediators and negotiated two new agreements, one resolving almost all of the past-use issues and the other governing future relations. Then the panel switched roles once again by incorporating the agreements into a binding arbitration decision. Fujitsu purchased a retroactive license for the use of designated programs, and IBM dropped its copyright infringement claims. For the future, each company was required to license its operating systems for use on the other company’s hardware whenever customers requested it. The amount of compensation, the duration of the arrangement, and other specific issues were left for binding arbitration as they arose. Although this creative use of mediation was to some extent forced on the disputants, it wouldn’t have worked had the parties not made a good faith commitment to ADR and, specifically, to mediation, once the artibrators had ordered it. The rent-a-judge program is a novel variant of arbitration where the parties to the dispute choose a retired judge to hear their case much as an arbitrator would. Retired judges are occasionally used in traditional arbitration too, but the rent-a-judge program uses normal trial court procedures (sometimes modified by the disputants). Moreover, the judge’s decision has, by statute, the legal status of a real court judgment. The experiment has enjoyed a significant measure of success and acceptance in the jurisdictions where it has been authorized, notably California, but it’s too early to tell how widespread it will become. Since it isn’t necessary to wait for a court date or to conduct the proceedings in public, the program buys a lot of time and privacy. However, some observers are uneasy about starting down a road that might lead to a formally sanctioned class of justice available only to those who can pay for it. Summary jury trial is based on the observation that litigants are often unable to settle their disputes quickly because of the huge gap in their differing expectations of how a jury will view their claims. To overcome this impasse and give disputants a non-binding indication of how their claims might actually be received, federal district judge Thomas Lambros invented the summary jury trial, or SJT, in his Cleve-land courtroom in 1983, and, with a few variations here and there, the procedure has since found its way into many other federal and state courts. The process works like this: opposing lawyers select a small jury, usually six members, from the regular jury pool. (To ensure that the jury will take its responsibility seriously, most judges do not tell jurors beforehand that their verdict will be advisory only.) The judge gives the jury preliminary instructions on the law, the lawyers make short opening statements, then each side has a limited time, typically an hour, to summarize the evidence it would otherwise present at a trial. Following brief rebuttals, the lawyers present closing arguments in which they interpret and characterize the evidence they have previously described. The judge charges the jury, gives it final instructions on the law, and the jury retires to reach its verdict. The disputants themselves, or, in the case of a corporation, an executive with settlement authority, must attend the entire proceeding, which normally lasts one day but occasionally two. Immediately after the verdict, the disputants are sent to a settlement negotiation, usually without their attorneys. If no settlement is reached, neither the occurrence nor the result of the SJT is admissible when the case later goes to court. About 95% of all cases are settled relatively quickly after the jury’s verdict. Evidence to date suggests that the courts that use SJT shave substantial time off their aggregate case-processing time. Federal district judge S. Arthur Spiegel estimated, for example, that in just over a year in his Ohio courtroom, eight SJTs saved more than 100 days of actual trial time. Of course, it is very hard to say whether the parties to any given dispute save time and money because the comparison is between what actually happened with SJT and what might have happened without it. But judges claim that they choose cases for SJT that have a less than average chance of settlement and that suggest considerable savings for winner and loser as well. Although SJT has had several important successes, including settlement of a difficult $2.5 million antitrust case in Judge Lambros’s court, praise for SJT is not unanimous. Some question the ethics of not telling the jury in advance that its verdict is merely advisory, although doing otherwise runs a big risk of lessening jurors’ commitment to the task. Others are concerned that overall community commitment to jury service may decline as more and more jurors discover, and tell their friends, that juries don’t necessarily have any authority. Another danger is that in some cases SJT actually decreases the odds of settlement when the defendant wins. As a result, some courts ask juries for several verdicts. First, who wins? Second, if the plaintiff wins, what are the damages? Third, if the defendant wins, what does the jury believe the plaintiff’s damages should have been if the plaintiff had won? This kind of multiple verdict, however confusing and hypothetical, provides more information on which to base the ensuing settlement talks and helps avoid the all-or-nothing attitude that can so easily encumber any adversarial negotiation. Minitrial is a hybrid of mediation, traditional settlement negotiation, and adjudication. It is a completely voluntary procedure normally initiated by the disputants themselves, although judges may suggest or encourage it where suit has already been filed. Minitrial formats vary somewhat but typically involve one high-level executive from each side of the dispute plus one neutral adviser, sometimes a former judge but often a nonjudicial expert in the subject matter of the contest. To minimize the role of emotion and face saving, the two executives should not have been directly involved in creating or in trying to settle the case, and they must have either settlement authority or, at the very least, substantial influence over the settlement decision. Prior to minitrial, the parties informally exchange key documents, exhibits, short briefs, and summaries of witnesses’ testimony. They also reach agreement on format, timing, and procedures, and they may even engage in very abbreviated discovery and take short depositions from some of the key witnesses. The whole process usually takes from one to four days. At the hearing, each side uses its allotted time to present its best case to the neutral observer and the two executives. Presentations often consist primarily of descriptive summaries of evidence but may include visual aids, exhibits, and brief testimony from lay or expert witnesses. During the presentations, or in a separate session at the end, the three observers are free to ask questions and explore the strengths and weaknesses of each case. At the hearing’s conclusion, the executives may seek the neutral adviser’s opinion about a likely trial outcome before they begin settlement talks, or they may solicit their advice only if they fail to settle on their own. One well-known case of a successful minitrial involved Allied Corporation and Shell Oil. After five or six years of bickering over a contract dispute, Shell finally filed suit. Four years later, legal fees had consumed hundreds of thousands of dollars and pretrial discovery was not yet complete. Attorneys for both companies decided to use the minitrial in a final effort to resolve the case without a trial. After a short hearing, the parties settled the ten-year-old dispute almost at once. We can only guess how much time, money, and grief might have been avoided by attempting a minitrial years earlier. Variations and hybrids of the methods outlined here can take an infinite variety of forms, depending on the ingenuity of disputants, attorneys, judges, and even legislators. In some jurisdictions, legislators have mandated prescreening of medical malpractice cases by a panel with balanced representation of doctors, attorneys, and laypeople. Other possible hybrids might include combinations of mediation and case evaluation by a panel of neutral attorneys, blends of mediation and arbitration like the one in the IBM-Fujitsu case, and mixed fact-finding and conciliation performed by a court-appointed expert. ADR does not always work. But when it fails to produce an acceptable resolution, management can comfort itself with the fact that the effort has not been wasted. Most of the time and money already spent on the unsuccessful ADR procedure will be useful in preparing for trial. Making the ChoiceIn the past, decisions about the use of ADR were often spontaneous or ad hoc, but corporate leadership can now formulate a company ADR policy and analyze each situation to find an effective ADR method—or reject them all in favor of the courts. Aetna Life Insurance, among others, now actively seeks ADR solutions to all its disputes except those involving policyholder claims. Since no single ADR method is necessarily best, and since sometimes no ADR method will work, choices about ADR should take into account at least the following factors: Commitment. The chances of success for any kind of ADR are pretty slim unless both parties are committed to the idea and willing to act in good faith. A disputant who is dishonest, intractable, or suspicious of any procedure short of litigation is not a promising candidate for ADR. (The one method that can sometimes succeed even when one party is opposed to ADR is mediation, for the very good reason that in mediation the disputants retain control of a basically informal process requiring no prior commitment to the outcome.) A company’s lawyers must also be committed to ADR. At the very least, attorneys must be willing and able to set aside their predisposition against ADR when the client wants to use it, but genuine commitment is preferable. It is clearly in a company’s best interests to have the advice of open-minded outside and in-house counsel when putting together an ADR policy or when exploring the use of ADR in an individual dispute. In fact, for companies with frequent disputes to settle, it may be a good idea to have an ADR expert in the general counsel’s office. This person can educate corporate personnel and perhaps outside lawyers about ADR, formulate corporate ADR policy, draft and oversee ADR provisions in the company’s contracts, supervise and coordinate the ADR process in particular cases, and even serve as a devil’s advocate in testing the soundness of proposed litigation. Developing a comprehensive dispute resolution plan is worth time and attention for companies that are large enough or that are in contentious kinds of businesses (construction, say, or insurance). Some companies—ITT, for example—try to include clauses in all their contracts committing all parties involved to some form of ADR. Relationship. ADR is very good at settling disputes between companies with mutually advantageous relationships that both parties want to maintain. Conversely, disputes arising from one-shot transactions between parties with no expected future together are harder to resolve out of court. Litigation usually produces enough acrimony to rupture the most profitable relationship. Even the most adversarial of ADR techniques, arbitration, is significantly less likely to destroy commercial bonds because of its informality and privacy. Privacy. Although judges can issue protective orders covering legally qualified trade secrets, much valuable proprietary information cannot be protected in a trial. Moreover, any hearing in a public forum can lead to embarrassing revelations of business and personal behavior, with predictable and not-so-predictable adverse effects on customers, suppliers, shareholders, employees, news media, and even legislative and regulatory bodies. Direct negotiation clearly offers the most privacy because it does not involve third parties. Failing that, arbitration is generally considered the most private form of resolution because the arbitrator’s code of ethics demands complete confidentiality. Moreover, the privacy value of all ADR techniques can be increased by writing confidentiality obligations into contracts. Urgency. Many disputes need to be settled quickly. A patent or trade-secret struggle could easily cast an intolerable pall over new product development, for example, or a trademark battle might hold up critical marketing plans. For that matter, a new or beleaguered management team might simply need to resolve a dispute quickly for the sake of appearances. In the relatively rare case where two parties find themselves in basic agreement about the facts and disagree only about the law, summary judgment in a lawsuit may actually be the quickest way to settle. But the traditional forms of adversarial negotiation and litigation usually don’t meet anyone’s need for a quick resolution. Mediation often provides the fastest fix because it is completely under the disputants’ control. Minitrials can also be fast, but they work best when preceded by at least a short period of discovery. The same is true of summary jury trial, but so far parties usually have resorted to SJT only after a lawsuit has already consumed a good deal of time and energy. Arbitration can be very fast if the lawyers on both sides want it to be, but disputants cannot completely control the speed of the process because they have to work with an independent arbitrator and within a sponsoring organization’s (like the AAA’s) administrative requirements. Finances. Both the absolute and the relative financial positions of disputing parties are sometimes relevant. A plaintiff’s precarious financial condition can increase its need for a fast resolution but can also cause it to hold out to the very end for a potentially large jury verdict. The course it chooses will depend on how it perceives the strength of its claim but also on just how hard its creditors are breathing down its neck. A financially strapped defendant is likely to benefit from delay if it sees real strength in the other side’s claim, especially if applicable law does not provide for prejudgment interest on the court’s award. According to its many detractors, the civil justice system in the United States is a catastrophe. Americans, they argue, are too litigious, given to filing lawsuits almost as a reflex action in response to any perceived wrong. Juries are too susceptible to attorneys’ tricks and too likely to reach irrational verdicts against defendants with deep pockets. Lawyers are too greedy. As the principal beneficiaries of the system, they encourage unnecessary litigation and do their best to protect the status quo. The system also has its defenders. They argue that we most certainly are not, and would not want to be, a passive people, accepting wrongs with fatalistic resignation. Most of us, they say, are deeply committed to the rule of law in our public and private dealings and to the idea that those who violate this rule should be held accountable. Moreover, our society is relatively well educated and doubtless the most diverse and open the world has ever known. Admittedly, these factors translate into a heavy utilization of the courts, but they also translate into features of American life that are highly desirable, not least among them our jealous guardianship of individual freedoms and the democratic ideal. The system’s defenders also argue that because our legal profession is better educated, more heterogeneous, and more richly rewarded than in many other societies, it is more in tune with the value we place on the rule of law and therefore a better buffer against tyranny. Whatever the truth of these arguments, the U.S. legal system does have some rather obvious and painful shortcomings. There are too many lawsuits—the case load is in danger of strangling the courts—and they do cost too much. Many frivolous claims are not screened out early enough. We do a poor job of handling worthy small claims. Although the use of juries in civil cases does have some definite merits (providing continuous citizen input into the definition of community values, for example, and serving as a limited check on the judicial branch of government), it also contributes to the system’s perceived faults. Juries probably misunderstand issues more often than we would like to admit. They are certainly more susceptible to courtroom histrionics than are judges or other trained and experienced decision makers. And many rules of procedure and evidence that lengthen and complicate lawsuits exist solely to accommodate an untrained and inexperienced fact-finding body. While most courts have experienced dramatic increases in filings during the past two decades, the problems of civil justice in the United States have more to do with quality than quantity. Given the size and complexity of our society, and the value we place on protecting rights, it is at least plausible to view the number of lawsuits as a natural and unalarming phenomenon. The more important questions are qualitative: Does our legal system give us value? Are the costs and delays commensurate with the level of satisfaction we experience? Does the system resolve disputes—or does it offer only conflict, with no one really winning in the end? Large differences in the financial resources of opposing companies can sometimes have perverse effects on settlement efforts. The weaker party may want the protection of a formal court proceeding and be less likely to trust ADR. A court-supervised method such as SJT can reduce this kind of nervousness, as can the involvement of a sponsoring arbitration organization and an authoritative arbitrator. Although the charge is practically impossible to document, some observers feel that any form of non-court-supervised ADR is likely to be unfair when one party has a great resource advantage over the other. They argue that voluntary ADR rests on agreement rather than decree, and in reaching agreement the smaller, weaker party always suffers some sense of intimidation, however subtle, regardless of the merits of its case. A large corporation proposing ADR to a smaller adversary should be prepared to counter this argument. Principle. In some cases, the desire to clear a reputation or defend a principle can be powerful. A corporation is charged with fraud or some other offense tinged with immorality. A manager with a strong sense of innocence is charged with sexual harassment. An individual’s insurance claim is denied on suspicion of arson. Private, informal means of resolution, like mediation or even minitrial, may not meet the need for personal vindication. Short of a fullblown trial, the only acceptable procedures are likely to be SJT or arbitration because they let both sides tell their stories to an impartial referee, who then delivers a clear-cut pronouncement of guilt or exoneration. Principle can also play a role when one or both parties need a legal precedent. A company whose business generates disputes involving questions governed by murky or conflicting points of law may need to win a couple of lawsuits. Complexity. Some experts will disagree, but I believe that ADR has its greatest potential for saving time and money in complex cases. Complexity comes in different shapes and sizes, of course—factual, legal, multiparty, and various combinations of the three. The minitrial works well in cases of factual and legal complexity but doesn’t seem to lend itself well to multiparty disputes. Mediation is suited to all kinds of complexity and may be the best form of ADR for multiparty cases. Some observers claim that SJT is not well suited to highly complex cases because it requires more jury education than the procedure can accommodate. Yet in June 1989, SJT led to the successful resolution of a $300 million class action suit against National Lead Company and the Department of Energy by a group of 14,000 plaintiffs in a case involving the release of uranium waste into the atmosphere in Fernald, Ohio. Due to the complexity of the case, the SJT took ten days instead of the customary one or two, but litigation and appeals could have dragged on for months or years. The summary jury returned a verdict of $136 million, including punitive damages, and the two sides settled a short time later for $73 million, despite the fact that earlier settlement negotiations had reached a complete impasse. Most important, both sides felt vindicated by the outcome. The plaintiffs’ sense of outrage was assuaged by the finding of culpability, and their fears of health effects were lessened by a medical monitoring program, while the defendants felt that the jury’s finding of only $1 million in property damage affirmed their contention that no one had been hurt. Stakes. No type of ADR is inherently limited in terms of the dollar size of the disputes it can resolve, but some disputants may feel that big-ticket cases belong in a court, with its procedural protections and rights of appeal. As with complex cases, however, big-ticket cases offer a superb opportunity for huge savings in direct and indirect litigation costs. Of course, even large litigation costs may seem paltry by comparison with a really outrageous claim, or (depending on your point of view) a truly princely award. Nevertheless, various forms of ADR have led to negotiated—and presumably mutually acceptable—settlements of a $200 million fight involving a hospital construction project, a $60 million claim for breach of a contract for the use of municipal garbage as boiler fuel, and a $28 million cost-overrun claim in an oil tanker construction deal. Executive involvement. People commonly view dispute resolution as a lawyer’s problem, for lawyers to work out behind closed doors with little supervision. To be sure, traditional litigation offers few opportunities for close involvement by individual managers. But in any form of ADR, early and personal involvement by the disputants themselves or by the executives of quarreling corporations is often critical to an efficient, expeditious resolution. By their very nature, ADR mechanisms require greater participation by the disputing parties and respond to it more positively. A manager’s investment of time and effort will generate excellent returns in the long run. For those who nevertheless want to keep their distance, arbitration probably works best and mediation worst. SJT and the minitrial may work reasonably well too because both function best when managers with no previous involvement in the dispute represent the two parties. One of the best things about ADR is that it presents opportunities for managers and lawyers to be creative. Litigation and most adversarial settlement negotiations are based solely on legalistic evaluation in dollar terms. With the active involvement of management, ADR makes it easier to view dispute resolution as a business problem and to investigate business solutions. Texaco and Borden, for example, were locked in a lawsuit involving a $200 million antitrust and breach-of-contract claim. After several years of legal maneuvering, with about a third of the pretrial discovery process completed and half a million documents already assembled, both counsels decided to attempt a minitrial. Stunningly, the case was settled in three weeks. The process got off to a good start. Both companies appointed executive vice presidents with wide authority as their minitrial representatives, so each side knew the other was serious about finding a solution. Next, the companies and their lawyers developed the actual format in about an hour, with simple rules: lawyers for each party made extremely abbreviated presentations to the two VPs, who had the help of senior executives and financial experts as technical advisers. The hearing went smoothly, and over the next two weeks, despite an early impasse, the VPs reached an agreement that both parties described as “win-win.” No money changed hands. Instead, the companies renegotiated another gas supply contract that had not been at issue in the case, creating a new arrangement for conveying Texaco gas to Borden. By giving the disputants their first balanced view of the dispute, the minitrial catalyzed a creative solution that focused almost completely on business objectives. It is hard to believe that a judicial resolution could possibly have worked as well. The minitrial dramatically reduced the length of the dispute, slashed legal fees, and plugged the drain on corporate productivity. In the Texaco-Borden and IBM-Fujitsu disputes, as well as in many other cases of notable ADR success, participating executives and attorneys agreed that trust building and commitment to the idea of avoiding further acrimony were crucial. There is a similar consensus about the necessity of building an ADR knowledge base within the corporation. In most of the early uses of ADR, managers and lawyers acquired this knowledge in the course of experimental use of ADR techniques. A more systematic and comprehensive anticipatory study of ADR outside a case-specific context should become part of every manager’s agenda. A version of this article appeared in the January–February 1990 issue of Harvard Business Review. What are the 5 types of alternative dispute resolution?The most common forms of ADR for civil cases are mediation, arbitration, neutral evaluation, settlement conferences and community dispute resolution programs.
What are the 4 types of disputes?Family Disputes.. Commercial Disputes.. Industrial Disputes.. Property Disputes.. |
