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|Monday, February 03, 2014|
BY ROBERT SHLACHTER AND MARK FRIEL | OB GUEST BLOGGERS
A recent survey of corporate counsel in Fortune 1,000 companies confirms what, anecdotally, seems to be a truism when it comes to commercial disputes: no one wants to invest in a lawsuit. Given a choice, companies generally would rather find constructive, business-oriented solutions that genuinely meet their interests than poison ongoing or future relationships, or devote time and resources fighting court battles the outcomes of which are often unpredictable and hardly guaranteed to satisfy long-term goals.
Options for Resolving Business Disputes
Disputes cannot be avoided entirely, and when it comes to resolving them, companies increasingly have resorted to a variety of alternatives to traditional litigation. Commonly referred to as ADR — which, depending on whom you ask, stands for “alternative dispute resolution” or “appropriate dispute resolution” — these methods of dispute resolution have the potential to lower costs, increase efficiency and provide greater control over process. The key is to know which ones to use, and how to use them in a way that accomplishes those objectives.
Mediation, along with arbitration, is one of the more prevalent forms of ADR. Whether as part of a court-connected program or in a private, out-of-court setting, mediation is a confidential process involving the use of a neutral third party who, rather than weighing evidence and making binding legal rulings, helps the parties understand and clarify their concerns, facilitates a discussion between them and, ideally, empowers the parties to find a path to resolution that results in a win for everyone. Mediation is completely voluntary and can happen at any point during a dispute. The cost is often minimal and, if used early enough, can save companies the time, expense and delay of an adjudicative process.
Mediation doesn’t always lead to an agreement, and the parties may have no choice but to present their case to a decision-maker. If that presentation is made in the context of an arbitration, it typically means the use of a privately-retained person or persons (complex matters, more often than not, are decided by a panel of three arbitrators) whose job is to shepherd the case through to a hearing, listen to evidence and argument, and make a final, binding determination that cannot be appealed except in limited circumstances. Arbitration, with the exception of some court programs that require its use for smaller value cases, is a creature of contract and so the details of the process (such as arbitrator selection, discovery protocols and legal motions practice) can potentially be the subject of negotiation at the outset of a business relationship or when a dispute arises.
Early neutral evaluation, or ENE, is found in a number of court ADR programs and has also been tried in the private sector. It’s a confidential and informal process utilizing a third party with subject matter expertise in the dispute. After considering each party’s key evidence and legal arguments, the evaluator typically prepares a written, nonbinding evaluation. On an institutional level, some companies have employed a programmatic strategy commonly referred to as early case assessment, or ECA, which generally describes a broad-based approach to the internal assessment of disputes at their inception. Other options, beyond these, exist as well.
To the extent that companies are able to exercise choice in the selection of ADR for commercial disputes, research shows that their preferences are changing. In 2011, in a study co-sponsored by Cornell University’s Scheinman Institute on Conflict Resolution, the Straus Institute for Dispute Resolution at Pepperdine University School of Law, and the International Institute for Conflict Prevention & Resolution, counsel from 368 Fortune 1,000 companies responded to a series of questions relating to their company’s use of ADR. Not only did the answers provide data on current perceptions, but, because the study was a follow-up to a similar one conducted 14 years earlier, it allowed the researchers to observe important trends.
One of the interesting trends shown by the Fortune 1,000 study is that companies are resorting more frequently to mediation, and looking less often to arbitration, as a means of resolving conflict. As of 2011, the disparity between the use of the two processes was striking: while almost 86 percent of corporate counsel indicated that they were “likely” or “very likely” to use mediation in the future for commercial disputes, only about 50 percent were similarly inclined to use arbitration.
Corporate counsel themselves appear to have explained at least part of the reason for the drop-off in their company’s use of arbitration, as a higher percentage of them in 2011 expressed a concern about the costs associated with that process. These findings are consistent with anecdotal accounts of arbitration morphing in recent decades into something that is, for all intents and purposes, hardly distinguishable from (and no less expensive or time-consuming than) a traditional court case.
Since the saving of time and money is among the top reasons given for choosing ADR, it’s no surprise that the growing perception of the increased costs of arbitration would have a repellant effect and drive companies to lower-cost and more efficient processes such as mediation. Other factors may also be at work, such as a greater familiarity with and confidence in mediation as a means of resolving conflicts, and a recognition that mediation—as voluntary and nonadjudicatory—offers a kind of control over the process and outcome that some believe arbitration doesn’t afford. In any event, arbitration will continue to play a significant role in resolving commercial disputes, but the field is now populated by a number of other, viable options.
Avoiding Ad Hoc Approaches
Without a doubt, some companies are becoming more sophisticated in their approach to commercial dispute resolution, and more proactive in choosing a means of dealing with conflict that best suits their needs. The trend is a positive one. Companies that enter into business relationships without carefully considering how they might handle a break-down later on, or don’t take the time when those inevitable conflicts do arise to sit down and weigh their options, are setting themselves up for suboptimal outcomes. Ad hoc, reactionary approaches to dispute resolution are no less problematic than ad hoc approaches to business planning itself. Only through a deliberate assessment of its own goals and values—for example, saving time and money, preserving relationships, having control, or something else entirely—can a company choose the most fitting dispute resolution option and have a chance at achieving a significant level of satisfaction with both the process and its eventual outcome, whatever that may be.
Robert Shlachter and Mark Friel are shareholders at Stoll Berne, a Portland-based law firm best known for its expertise in complex business litigation, class actions and real estate transactions.
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