CHAPTER 4 Alternative Dispute Resolution

1. CHAPTER 4Alternative Dispute Resolution

2. INTRODUCTION • This chapter examines alternative dispute resolution in its purest and hybrid forms. • Emphasized are the benefits of each form over litigation, and the appropriate selection processes for each method.

3. THINKING ABOUT ADR Managers must be aware of their own needs and constraints to choose the best alternative to litigation.

4. NATURE OF ALTERNATIVES • How are disputants represented? • Who makes the final decision? • How are the facts found and standards of judgment set? • What is the source of the standard of resolution? • How are decisions enforced? • Who pays for resolution procedure?

5. VARIETIES OF ADR • Negotiation - the give and take people engage in when coming to terms with each other. • Mediation - the parties themselves agree to reach a mutually beneficial resolution with the assistance of a third person (the mediator). • Arbitration - the resolution of a dispute by a neutral third party. Usually binding on the parties.

6. NEGOTIATION Approaches • Transactional negotiation – forward- looking with concern for desired results. • Dispute negotiation - backward-looking to address past events that caused disagreement. • Distributive or zero-sum negotiations. • Integrative or variable-sum negotiations.

7. NEGOTIATION Planning and Preparation • Establish Best Alternative to a Negotiated Agreement (BATNA). • Establish your interests versus your position. • Evaluate each negotiating issue.

8. NEGOTIATION Liability for Failed Negotiations • Negotiation Preparation (Ex 4.1). • Common Negotiation Mistakes (Ex. 4.2). • International Consideration and Cross-Border difficulties in dispute resolution.

9. NEGOTIATION Case 4.1 Synopsis. D. James Wan Kim Min v. Mitsui Bussan, KK, Tokyo High Court (1987). Parties entered into a joint venture for logging in Brunei. After negotiations, Defendant agreed to loan Plaintiff $4 million for the right to log, but later refused. ISSUE: May negotiations give rise to an expectation that a contract will be formed so that if the contract is not formed, a party may recover damages from the other party? HELD: Yes, for Plaintiff. Defendant violated principles of good faith and trust. Court awarded damages to Plaintiff.

10. MEDIATION • In many ways, mediation is an extension of the parties’ negotiations. • History • Selecting a Mediator • Society of Professionals in Dispute Resolution (SPDR). • American Mediation Council (AMC). • Confidentiality • When to Use Mediation • Mediation Process • Dangers

11. ARBITRATION Arbitration Process 1. Pre-Hearing - parties submit briefs, and volunteer supporting documentation. 2. Hearing - generally American Arbitration Association rules are followed. 3. Post-Hearing - arbitrator makes award, often without a written opinion.  4. Unconscionable Arbitration Agreements. Arbitration clauses will not be enforced if they are harsh or unreasonably one-sided.

12. ARBITRATION OF EMPLOYMENT DISPUTES Case 4.2 Synopsis--Wright v. Universal Maritime Service Corp. (1998). Wright was subject to collective-bargain agreement (CBA) that contained an arbitration clause. Wright was awarded permanent disability for work-related injuries. Years later, Wright returned to work for several companies, with no complaints of performance. However, when one of the companies discovered that Wright was on permanent disability, the company refused to accept him from the Union pool of workers. Wright files a claim in a district court for a violation of ADA discrimination. ISSUE: Does a general arbitration clause in a collective-bargaining agreement require an employee to arbitrate claims under the ADA? HELD: For Wright because the CBA did not waive the right to claims of employment discrimination.

13. ARBITRATION OF EMPLOYMENT DISPUTES Case 4.3 Synopsis. Armendariz v. Foundation Health Psychare Services, Inc. (Cal. 1999). ISSUE: Is an arbitration clause unconscionable if it is required as a condition of employment, requires arbitration of employee claims, and limits an employee’s damages? HELD: the clause was found to be unenforceable.

14. ARBITRATION Judicial Review of Awards Federal Arbitration Act lists circumstances in which an arbitration award may be set aside: the award was based on fraud or corruption; the arbitrator was partial or engaged in misconduct or exceeded her powers.

15. JUDICIAL REVIEW OF AWARDS Case 4.4 Synopsis.Montes v. Shearson Lehman Brothers, Inc. (11th Cir. 1997). Montes went to work for Shearson and signed an agreement to arbitrate any disputes arising from her employment. After the termination of her employment, Montes filed suit for allegedly unpaid overtime under the Fair Labor Standards Act (FLSA), which mandates overtime pay for certain workers. Honoring the arbitration agreement, the trial court referred the dispute to arbitration. The arbitration panel ruled that Shearson did not owe Montes any overtime pay. Montes petitioned the trial court to vacate the arbitration panel’s ruling as arbitrary and capricious because the panel heeded Shearson’s urging that it disregard the FLSA. ISSUE: Can a plea to deliberately disregard the relevant law provide a basis for overturning the result of an arbitration? HELD: Yes. The arbitration award set aside and remanded for new arbitration.

16. ARBITRATION Hybrid ADR • Med-Arb - Parties enter mediation with the commitment to submit to binding arbitration if mediation fails to resolve the conflict. • Min-Trial - Lawyers conduct discovery for a limited period and present their case to executives from each party presided over by a third party. • Summary Jury Trial - Parties present their cases to a real jury which renders a non-binding verdict, allowing parties to facilitate settlement. • Others.

17. LEGAL TREATMENT OF ADR • Federal ADR legislation. • Alternative Dispute Resolution Act of 1998. • Tortious Dispute Resolution. • Responsible Manager: Staying Out of Court. • Inside Story: Uniform Domain Name Dispute Resolution Policy. 

18. ALTERNATIVE DISPUTE RESOLUTION ACT OF 1998 Case 4.5 Synopsis. Prima Paint Corp. v. Flood & Conklin Manufacturing Co. (U.S. 1967). Prima purchased Flood’s paint-selling business and also entered into a consulting agreement with Flood. The agreement contained an arbitration clause. Before the first payment was due, Prima concluded Flood was insolvent. Prima paid the first payment into escrow and filed a complaint against Flood in federal district court for rescission of the consulting contract due to fraudulent inducement. Flood responded with a notice to arbitrate according to the contract. The trial court agreed with Flood and stayed the litigation pending the arbitration instead of Prima’s request to stay the arbitration until completion of the litigation. ISSUE: Is it for the court or an arbitrator to resolve a claim that a party was fraudulently induced to enter into a contract containing an arbitration clause? HOLDING: Court upheld dismissal of Prima’s appeal and the lawsuit was stayed pending arbitration.

19. REVIEW • If everyone truly has “their day in court,” how does ADR affect that?  • Does the choice of ADR, or a particular type of ADR, depend primarily on money? • Are unions obsolete, now that there are sufficient legal protections for employees today? 4. What do you think about online ADR? See, for example, www.icourthouse.com and www.clicknsettle.com.