SELF-DETERMINATION IN DISPUTE SYSTEM DESIGN AND MANDATORY COMMERCIAL ARBITRATION

1. SELF-DETERMINATION IN DISPUTE SYSTEM DESIGN AND MANDATORY COMMERCIAL ARBITRATION Lisa B. Bingham Keller-Runden Professor of Public Service Director, Indiana Conflict Resolution Institute Indiana University School of Public and Environmental Affairs Bloomington, Indiana

2. Self-Determination:Case and DSD Levels • Case level: one dispute, one set of parties, one process • Dispute System Design (DSD) level: generally multiple disputes, multiple parties, multiple cases, may be series of steps and processes

3. Dispute System Design • Ury, Brett and Goldberg • Grievance mediation as new step before labor arbitration • Includes ombuds programs, mediation programs, integrated conflict management systems • Array of steps from low to high cost, ideally from interest-based to rights-based processes

4. Self-Determination in ADR • At case level, parties may have self-determination as to outcome in mediation or cede control to an arbitrator • At DSD level • They may mutually design the process • One party may design it unilaterally • A third party may design it for them

5. Control over DSD in Mediation • Both parties design system: ad hoc mediation, grievance mediation in labor relations • One party designs system: REDRESS at USPS • Third party designs: Mandatory mediation in public sector labor relations, court-annexed programs

6. Control over DSD in Arbitration Both Parties Labor arbitration, CPR, Cotton Industry, Diamond Industry One Party Unilaterally Mandatory, adhesive arbitration of commercial disputes Third Parties Court-annexed programs Court of Arbitration for Sport (also mandatory)

7. Diamond Dealers’ Club: (Bernstein 1992) • Private arbitration system with mandatory conciliation step (this settles 85% of 150 cases annually) • System mandatory as a condition of membership in DDC • Non-members ask to use it • Fact-finding by elected Floor Committee • If material issue of fact, goes to elected Board of Arbitrators

8. Diamond Dealers’ Club Process • Arbitration confidential • Arbitrators are club members elected to two-year terms • Arbitration fee is small and arbitrators may decide to refund it • Appeal to 5-member board from same elected pool but different panelists • DDC will refuse to arbitrate based on “complicated statutory rights” or on forum nonconveniens • If DDC refuses, parties have usual remedies

9. Both Parties: Cotton Industry (Bernstein 2001) • Merchants and Mills create Board of Appeals, agree to use as condition of membership in professional associations • Board has two elected members, one from each association • Paper review, party identities redacted, intended to control for bias • Public circulation of written opinions

10. Cotton Industry continued • Alternative forum: Memphis Cotton Exchange panel of seven arbitrators appointed annually by Board of Directors • Oral hearings, some discovery, counsel, no publication of opinions • Norm of CONSENSUS, only 4 of 92 cases not unanimous over 50 year period

11. One Party Designs: Mandatory Commercial Arbitration • Partial list of dispute system design elements • time limits • selection of arbitrator(s) • selection of third party administrator • location of hearing • filing fees • arbitrator fees • attorneys’ fees • class action availability, limitations on damages

12. Bargaining in Shadow of Private or Public Civil Justice System?(Galanter 1988) • Settlement range = difference in parties’ reservation prices, taking into consideration transaction costs • One Party DSDs shift transaction costs. • This alters the settlement value of the case.

13. Filing and Arbitrator Fees • Public Citizen (2002) for $20,000 claim, maximum administrative (not arbitrator) fees: Court: $221 AAA: $375 NAF: $2,325 JAMS: $750 NET SHIFT IN SETTLEMENT VALUE: IF NAF IMPOSED: $2,104

14. CLASS ACTION PRECLUSION • Transaction costs for attorneys’ fees for individual small claim can exceed economic value of claim. • Result shifts settlement value of claim to zero.

15. LOCATION OF FORUM • Happens with forum shopping, too, but other elements of DSD controlled by 3d party (court) • Gateway - Chicago • Franchise agreements - near franchisor home base • Predatory mortgage lenders - force borrowers to travel to distant location

16. LOCATION OF FORUM • Added transaction costs for travel compared to local small claims court or county court • Costs shift settlement value of claim. • May exceed value of small claim.

17. THIRD PARTY DESIGNS • “Mandatory” is not the problem. Control over DSD is. • Amateur Sports: athlete, NGB/NSO, NOC, IF, and IOC • Court of Arbitration for Sport: mandatory submission to its jurisdiction as a condition of Olympic participation

18. Court of Arbitration for Sport (CAS) (McLaren 2001) • Initially designed by IOC, 3d party compared to athlete, NGB, IF, NOC • Independent 20-member International Council of Arbitration for Sport • Supervise CAS, representative body, cannot themselves arbitrate or serve as counsel • CAS arbitrator panels viewed as more independent, neutral, experienced than those of IF or NGB panels. • Expertise and Transparency

19. CONTRAST: One Party NGB DSD (Haslip 2001) • Canada • NGB/NSO is party to dispute • Designs procedure including arbitration • Critics charge: power differential with athletes, lack of arbitrator independence, secret awards, no repeat player specialized counsel for athletes • Recommendation: Canada take over DSD and create a national dispute resolution system

20. CONCLUSION: CONTROL OVER DSD IS THE ISSUE • We need systematic policy analysis of different dispute system designs • What is their effect on the pattern of outcomes? • Until we know that, we need judicial skepticism toward one-party adhesive arbitration designs.

21. Judicial Skepticism • Shifting burden of proof, e.g., in motion to compel arbitration, drafter of DSD has burden of proving all elements of arbitration agreement enforceable • Construe ambiguity or silence against the drafter • Evidence that DSD shifts settlement value to zero, taking all transaction costs into account, should render arbitration clause unenforceable as one that concerns substance, not forum