RESOLVING DISPUTESRESOLVING DISPUTES

Chapter 4Chapter 4

CHAPTER ISSUES CHAPTER ISSUES •• The settlement process The settlement process

as it pertains to the trial as it pertains to the trial processprocess

•• Alternative Dispute Alternative Dispute Resolution (ADR)Resolution (ADR)–– Strategic ConsiderationsStrategic Considerations–– ArbitrationArbitration–– NegotiationNegotiation--SettlementSettlement–– MediationMediation–– Other forms of ADROther forms of ADR

Strategic Considerations: The Court Strategic Considerations: The Court System vs. Alternatives to Resolving System vs. Alternatives to Resolving

Disputes (ADR)Disputes (ADR)•• The court system is The court system is

adversarial in natureadversarial in nature•• Parties argue positions Parties argue positions

before a courtbefore a court•• Underlying belief: Best Underlying belief: Best

way to discover the truth way to discover the truth is through competing is through competing evidenceevidence

•• Lawyers represent Lawyers represent competing claimscompeting claims

•• Judges don’t investigateJudges don’t investigate•• Court applies legal rulesCourt applies legal rules

DecisionDecision--Making Factors of Making Factors of Business Involving Itself As A Business Involving Itself As A

PlaintiffPlaintiff•• Would the provided relief be Would the provided relief be

worthwhile?worthwhile?–– Is settlement, arbitration Is settlement, arbitration

or mediation better?or mediation better?–– Will/Can defendant pay?Will/Can defendant pay?–– What is the impact on What is the impact on

company’s goodwill?company’s goodwill?–– Is there a disclosure (i.e. Is there a disclosure (i.e.

trade secret) that may trade secret) that may result?result?

•• What is the probability of What is the probability of winning?winning?–– Can it get defendant Can it get defendant

before the court?before the court?–– Is there a justifiable Is there a justifiable

defense?defense?–– Can it produce necessary Can it produce necessary

witnesses/documents?witnesses/documents?–– What are the monetary What are the monetary

costs of the case?costs of the case?

Business As A DefendantBusiness As A Defendant•• How will lawsuit affect its How will lawsuit affect its

goodwill?goodwill?–– Concern of publicity or Concern of publicity or

reputation reputation –– If the viability of the If the viability of the

company is at stake, it company is at stake, it overrides concerns of overrides concerns of goodwill, i.e. in the goodwill, i.e. in the tobacco industrytobacco industry

•• How important is the How important is the disputed business disputed business relationship?relationship?–– Is the plaintiff’s Is the plaintiff’s

relationship worth relationship worth keeping?keeping?

•• Is there a viable alternative?Is there a viable alternative?–– Consider settlement, Consider settlement,

arbitration, etc.arbitration, etc.–– Are there indirect costs of Are there indirect costs of

the lawsuit to consider?the lawsuit to consider?•• Nuisance ActionsNuisance Actions

–– Does it cost less to “pay Does it cost less to “pay off” than to litigate?off” than to litigate?

–– Does business wish to Does business wish to discourage a lawsuit at discourage a lawsuit at any cost?any cost?

•• Rational lawsuitsRational lawsuits–– Better to incur liability Better to incur liability

than to perform on a than to perform on a costly contractcostly contract

Resolving Disputes Resolving Disputes Through Through CourtsCourts

•• Complex facts and issuesComplex facts and issues–– Example of the “5000Example of the “5000--page Response”page Response”

•• Greater use of documents and exhibitsGreater use of documents and exhibits–– Texaco/Borden case: 500,000+ pages in documentsTexaco/Borden case: 500,000+ pages in documents

•• Heavier reliance on expert testimonyHeavier reliance on expert testimony–– Scientists, doctors, economists needed to assistScientists, doctors, economists needed to assist

•• Longer trialsLonger trials–– Takes several years to even get to the trial stageTakes several years to even get to the trial stage

•• Large damage awardsLarge damage awards–– Businesses are viewed as “deep pockets”Businesses are viewed as “deep pockets”–– Sympathy to plaintiff vs. “Corporate America”Sympathy to plaintiff vs. “Corporate America”

NegotiationNegotiation

•• Least formal form of ADRLeast formal form of ADR•• Parties decide to settle matter Parties decide to settle matter

between themselvesbetween themselves•• Often use lawyers or Often use lawyers or

representatives, though not representatives, though not requiredrequired–– Lawyers, etc. are Lawyers, etc. are agentsagents of of

the parties of the disputethe parties of the dispute•• Negotiated settlement is Negotiated settlement is

usually a contract, which usually a contract, which is is enforceable, like other enforceable, like other contractscontracts, by the courts, by the courts

Stages of NegotiationStages of Negotiation•• Stage 1Stage 1: Study issues; plan the : Study issues; plan the

negotiationnegotiation•• Stage 2Stage 2: Exchange of : Exchange of

informationinformation–– Different styles: i.e.“tough Different styles: i.e.“tough

guy” vs. “problem solver”guy” vs. “problem solver”•• Stage 3Stage 3: Work your strategy: Work your strategy

–– Usually involves Usually involves compromisecompromise

•• Stage 4Stage 4: Agreement is : Agreement is reached; usually a contract is reached; usually a contract is writtenwritten

•• Policy of the courts is to Policy of the courts is to enforce negotiated settlementsenforce negotiated settlements

ARBITRATIONARBITRATION

•• Most widely recognizedMost widely recognized•• Over 200,000 cases filed Over 200,000 cases filed

in 2000 with American in 2000 with American Arbitration AssociationArbitration Association

•• 3rd neutral party or 3rd neutral party or panel (usually expert)panel (usually expert)–– Arbitrator/ArbiterArbitrator/Arbiter

•• Parties agree upon this Parties agree upon this ADR in contract or ADR in contract or during the disputeduring the dispute

•• Arbitrator’s decision is Arbitrator’s decision is bindingbinding

•• Usual rule: Usual rule: No right No right to to go to trial (parties to the go to trial (parties to the dispute give up this dispute give up this right)right)–– Appeals are very Appeals are very

specific and limitedspecific and limited•• Uniform Arbitration Act Uniform Arbitration Act

(UAA) upholds the (UAA) upholds the integrity of this processintegrity of this process

•• See “Europe Emerges as See “Europe Emerges as the Arbitration Forum the Arbitration Forum of Choice”of Choice”

““Europe Emerges as the Europe Emerges as the Arbitration Forum of Choice”Arbitration Forum of Choice”

•• In international business, arbitration is In international business, arbitration is widelywidely usedused–– Jurisdiction problems create the need for an ADRJurisdiction problems create the need for an ADR

•• Many European countries have changed their laws to Many European countries have changed their laws to accommodate this ADRaccommodate this ADR

•• United Nations Commission on International Trade United Nations Commission on International Trade Law (UNCITRAL) has rules for effective arbitrationLaw (UNCITRAL) has rules for effective arbitration

•• Private organizations also have rules for arbitration. Private organizations also have rules for arbitration. These private organizations includeThese private organizations include–– International Chamber of CommerceInternational Chamber of Commerce–– London Court of International ArbitrationLondon Court of International Arbitration–– Stockholm Chamber of CommerceStockholm Chamber of Commerce

The Arbitration ProcessThe Arbitration Process

•• Decided at time of making the Decided at time of making the contract contract oror after dispute arisesafter dispute arises

•• Begins when party files a Begins when party files a submissionsubmission (See Exhibit 4.2)(See Exhibit 4.2)

•• Parties agree on Parties agree on arbitrator(s)arbitrator(s)•• The The hearinghearing

–– Closed doorClosed door–– Less restrictive procedural Less restrictive procedural

and evidentiary rules than a and evidentiary rules than a trial courttrial court

•• The The award award (decision)(decision)–– Usually given in writing Usually given in writing

within 30 days of close of within 30 days of close of arbitration hearing arbitration hearing

–– Arbitrators have broad Arbitrators have broad powers to decide remedies

•• Appealing Appealing the awardthe award–– Attacks on arbitrators are Attacks on arbitrators are

rarely successfulrarely successful–– Errors of fact or law are not Errors of fact or law are not

reviewablereviewable–– Grounds for overturning Grounds for overturning

appeal: fraud, partiality, appeal: fraud, partiality, serious procedural serious procedural misconduct, excess use of misconduct, excess use of power by arbitratorpower by arbitrator

–– Arbitrators have wide Arbitrators have wide latitude in awardslatitude in awards

•• Generally arbitration award is Generally arbitration award is finalfinal

powers to decide remedies

Compulsory ArbitrationCompulsory Arbitration(A Required Dispute Resolution Process)(A Required Dispute Resolution Process)

•• Labor ContractsLabor Contracts–– UnionsUnions–– Insurance contractsInsurance contracts–– StockbrokersStockbrokers–– ProPro--baseball, footballbaseball, football

•• Public Sector Public Sector EmploymentEmployment–– Police officersPolice officers–– FirefightersFirefighters–– Public school teachersPublic school teachers

•• CourtCourt--Annexed Arbitration Annexed Arbitration a/k/a Judicial Arbitrationa/k/a Judicial Arbitration–– Some courts require it as Some courts require it as

a pretrial requirementa pretrial requirement–– Either party may reject Either party may reject

the decisionthe decision–– Parties may proceed to Parties may proceed to

trial after arbitrationtrial after arbitration–– Reduces court backlogsReduces court backlogs

•• See “Global Acceptance of See “Global Acceptance of Arbitration”Arbitration”

•• See also Cyberlaw: See also Cyberlaw: “International Arbitration “International Arbitration and Mediation of Domain and Mediation of Domain Name Disputes”Name Disputes”

EEOC v. Waffle House EEOC v. Waffle House (2002)(2002)

•• Eric Baker worked as a cook at Waffle House.Eric Baker worked as a cook at Waffle House.•• Signed employment contract Signed employment contract requiring arbitrationrequiring arbitration of any dispute. of any dispute. •• Fired after suffering seizures on the job;complains to EEOC abouFired after suffering seizures on the job;complains to EEOC about t

disability discrimination.disability discrimination.•• EEOC sues Waffle House on behalf of Baker; district court allowsEEOC sues Waffle House on behalf of Baker; district court allows

suit to proceed; appeals court holds that matter must go to suit to proceed; appeals court holds that matter must go to arbitration.arbitration.

•• Supreme Court holds that since suit brought by EEOC, which was Supreme Court holds that since suit brought by EEOC, which was not a party to contract with Waffle House, it did not have to not a party to contract with Waffle House, it did not have to arbitrate. Litigation could proceed.arbitrate. Litigation could proceed.

•• Note: If Baker had sued; he would have had to go to arbitration Note: If Baker had sued; he would have had to go to arbitration even though suit is based on a federal right.even though suit is based on a federal right.

““Global Acceptance of Arbitration”Global Acceptance of Arbitration”

•• Over 100 nations have signed Over 100 nations have signed the UN Convention on the the UN Convention on the Recognition & Enforcement Recognition & Enforcement of Foreign Arbitral Awardsof Foreign Arbitral Awards

•• In some countries, it is harder In some countries, it is harder to receive enforcement, but to receive enforcement, but trend toward judicial trend toward judicial enforcement globally.enforcement globally.–– China and India had China and India had

reputations for nonreputations for non--enforcement, but enforcement, but improvingimproving

–– Germany recently Germany recently adopted laws meeting adopted laws meeting international standardsinternational standards

Cyberlaw: “International Cyberlaw: “International Arbitration and Mediation ofArbitration and Mediation ofDomain Name DisputesDomain Name Disputes”

• World Intellectual Property Organization (WIPO) in Geneva establishes rules for trademarks and other intellectual property

• WIPO has domain name resolution service to protect domains (i.e..mx for Mexico and .edu for education)

• WIPO has a Uniform Domain Name Dispute Resolution Policy (UDRP) dealing with such problems as “cybersquatting”

• Parties go to Arbitration and Mediation Center (http://arbiter.wipo.int) where experts handle disputes

• Fees are assessed – If 1-5 names included in a complaint--$1500– If 3 panelists are requested -- $3000

• Over 1000 disputes/year submitted to the Center for resolution

MediationMediation•• 3rd neutral person (3rd neutral person (mediatormediator) )

assists the parties of the assists the parties of the disputedispute

•• Parties mutually decide on a Parties mutually decide on a resolution resolution

•• Mediator makes Mediator makes suggestionssuggestions; ; all discussions confidential.all discussions confidential.

•• Mediator’s suggestions are Mediator’s suggestions are NOT BINDINGNOT BINDING on the partieson the parties

•• Parties may go to trial after Parties may go to trial after this ADRthis ADR

•• Mediation often helps to Mediation often helps to maintain the relationship maintain the relationship between the partiesbetween the parties

The MediatorThe Mediator

•• Some states have no Some states have no requirements at lawrequirements at law

•• Most people prefer a Most people prefer a trained or experienced trained or experienced personperson

•• If no requirements, the If no requirements, the mediator may be the mediator may be the choice of the partieschoice of the parties

•• If mediator fails to act If mediator fails to act professionally, may be professionally, may be subject to liability to one subject to liability to one of the parties of the parties

The Mediation ProcessThe Mediation Process

•• Mediator collects information, outlines key issues, listens, askMediator collects information, outlines key issues, listens, asks s questions, observes the parties, discusses options, and encouragquestions, observes the parties, discusses options, and encourages es compromisecompromise

•• Mediator often helps to draft the settlement agreementMediator often helps to draft the settlement agreement•• The settlement agreement is enforceable in courtThe settlement agreement is enforceable in court•• Mediator may assist in deciding the confidentiality of the caseMediator may assist in deciding the confidentiality of the case•• If confidentiality is agreed upon, which is normal, nothing can If confidentiality is agreed upon, which is normal, nothing can be be

said in publicsaid in public•• Information revealed during negotiation or mediation should not Information revealed during negotiation or mediation should not

be used as evidence if the dispute goes to a later trialbe used as evidence if the dispute goes to a later trial•• See See Paranzino v. Barnett Bank of South FloridaParanzino v. Barnett Bank of South Florida

Paranzino v. Barnett Bank Paranzino v. Barnett Bank of South Floridaof South Florida

•• Paranzino claims she gave Paranzino claims she gave $200,000 to bank & received $200,000 to bank & received only 1 certificate for $100,000 only 1 certificate for $100,000

•• Bank gave her receipt for Bank gave her receipt for $100,000; denies her claim$100,000; denies her claim

•• Her bank statements reflect Her bank statements reflect the bank’s claim the bank’s claim

•• Parties attend courtParties attend court--ordered ordered mediation mediation with an agreement with an agreement that includes a confidentiality that includes a confidentiality statementstatement

•• Paranzino offered $25,000 by Paranzino offered $25,000 by the bank to settle, which she the bank to settle, which she rejectsrejects

•• She calls the newspaper She calls the newspaper which prints story about the which prints story about the casecase

•• Bank moves trial court to Bank moves trial court to strike her pleadings and asks strike her pleadings and asks for sanctions for breach of for sanctions for breach of confidentialityconfidentiality

•• Trial Ct. strikes pleadings; Trial Ct. strikes pleadings; dismisses case w/ prejudicedismisses case w/ prejudice

•• Paranzino appealsParanzino appeals•• Held: Affirmed order of the Held: Affirmed order of the

trial court. Case dismissed trial court. Case dismissed with prejudice.with prejudice.

•• She “willfully & deliberately She “willfully & deliberately disregarded the disregarded the confidentiality agreement. . “confidentiality agreement. . “

Creative Business Use of MediationCreative Business Use of MediationExample of Ford Motor CompanyExample of Ford Motor Company

•• Ford is an example of Ford is an example of efforts that try to avoid efforts that try to avoid “bad press” through “bad press” through mediationmediation

•• First consumers discuss First consumers discuss complaint with dealer & complaint with dealer & local district officelocal district office

•• Next complaint filed Next complaint filed with Ford Consumer with Ford Consumer Appeals Boards

•• Board’s decision: Board’s decision: binding on Ford butbinding on Ford but not not consumers, who can still consumers, who can still seek legal remediesseek legal remedies

•• Process encourages Process encourages dealer responsiveness to dealer responsiveness to consumer problemsconsumer problems

•• See alsoSee also “Creative “Creative Dispute Resolution”Dispute Resolution”

Appeals Boards

Innovative Forms of ADRInnovative Forms of ADR

•• Alternative Dispute Resolution Act of 1998 directs federal courtAlternative Dispute Resolution Act of 1998 directs federal courts s to implement a dispute resolution program, though Congress has to implement a dispute resolution program, though Congress has not funded the mandatenot funded the mandate

•• MinitrialMinitrial/Private trial/Private trial: Parties decide a structural settlement : Parties decide a structural settlement process that blends negotiation, mediation and arbitrationprocess that blends negotiation, mediation and arbitration–– Parties may quit the process at any timeParties may quit the process at any time–– Several federal district courts use “court supervised” Several federal district courts use “court supervised”

minitrialsminitrials•• Summary Jury TrialSummary Jury Trial: The jury equivalent of a minitrial: The jury equivalent of a minitrial

–– Usually six advisory jurors; witnesses rarely usedUsually six advisory jurors; witnesses rarely used–– Judgment is Judgment is notnot binding binding (though jurors don’t know this)(though jurors don’t know this)–– Dissatisfied parties may still take the case to courtDissatisfied parties may still take the case to court–– Courts have held that ADR proceedings are closed to the Courts have held that ADR proceedings are closed to the

public and the presspublic and the press

Expanding the Use of ADRExpanding the Use of ADR(Congressional Encouragement)(Congressional Encouragement)

•• The Judicial Improvements Act of 1990The Judicial Improvements Act of 1990–– Encourages (sometimes requires) use of ADR by Encourages (sometimes requires) use of ADR by

federal district courtsfederal district courts–– Courts must develop a caseload management planCourts must develop a caseload management plan–– 1998 RAND Report indicates there has been little 1998 RAND Report indicates there has been little

impact on caseload speed or cost to partiesimpact on caseload speed or cost to parties•• The Administrative Dispute Resolution Act of 1990The Administrative Dispute Resolution Act of 1990

–– Authorizes use of ADR by federal administrative Authorizes use of ADR by federal administrative agenciesagencies----they must adopt some kind of policythey must adopt some kind of policy

–– Requirement that all parties (public & private) Requirement that all parties (public & private) must consent to use of an ADR techniquemust consent to use of an ADR technique

Pros & Cons of ADR To BusinessPros & Cons of ADR To Business

•• ProPro •• ConCon–– Avoids high cost litigationAvoids high cost litigation–– Greater degree of control Greater degree of control

of the problemof the problem–– More control over process More control over process

itselfitself–– Quicker resolution of caseQuicker resolution of case–– May maintain business May maintain business

relationshiprelationship–– Outcome and/or Outcome and/or

agreement is confidentialagreement is confidential–– See See Should Lawyers Agree Should Lawyers Agree

Not to Sue?

–– Legal outcomes are Legal outcomes are betterbetter----give direction to give direction to future business decisionfuture business decision--makingmaking

–– Learn from mistakes of Learn from mistakes of others from public casesothers from public cases

–– In arbitration, legal right In arbitration, legal right to the court system is to the court system is given awaygiven away

–– Emotional appeal to juries Emotional appeal to juries are not available (in fact, are not available (in fact, this may be a “pro” for this may be a “pro” for businesses)Not to Sue? businesses)

Should Lawyers Agree Not to Sue?Should Lawyers Agree Not to Sue?“Some Lawyers Promise Not to Sue in “Some Lawyers Promise Not to Sue in

Exchange for Cash from Firms”Exchange for Cash from Firms”• Little-known negotiated settlement term: “Law firm agrees not to sue a

defendant again on behalf of future potential clients.” (Ex: Company privately pays lawyer large sums to settle cases, IF the lawyer agrees not to sue the company again for future clients

• Unethical? Usually under states’ legal ethics codes • HOWEVER: If a company signs the plaintiff’s lawyer up as a

“consultant”, then a “conflict of interest” is created in the lawyer who then can’t sue company again.

• It’s a contrivance, but is within the rules -- Recent cases:– DuPont: pays lawyers $6.4 million arranging to not bring future cases

against DuPont—lawyers had great expertise in matter– BellSouth in discrimination lawsuit allowed lawyers to determine

their “consulting fees” from the $1.5 million settlement fund of the lawyers’ clients

– Warner Lambert (now unit of Pfizer) agreed to pay lawyer $225,000, issue refunds to 90 potential members, etc. if lawyer dropped the clients, kept payment secret, and agreed not to sue Warner Lambert in the future.