Chapter 4: Alternative Dispute Resolution

Alternative dispute resolution

Federal Arbitration Act (FAA)

The Southland Corp. Court said that "in enacting...[the FAA], Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration."

Judicially developed doctrine that recognizes the federal government's power, derived from the Supremacy Clause of the U.S. Constitution

Clause in Article VI of the U.S. Constitution that declares federal law supreme, which means that in the event that federal and state law conflict, federal law trumps state law

A method of alternative dispute resolution (ADR) that retains power to resolve the dispute to the parties involved.
Requires the parties to define the conflicts and agree to an outcome to resolve those conflicts (compromise).

Benefits of negotiation

Drawbacks to negotiation

When parties possess different power relative to each other, and this difference creates opportunities or obstacles with respect to:
Setting agendas
Influencing outcomes
Negotiating terms during bargaining

Getting to Yes

1) separate the people from the problem;
2) focus on interests, not positions;
3) invent options for mutual gain; and
4) insist on objective criteria

Lastly, Fisher, Ury, and Patton counsel negotiators to know what their alternatives are. If you don't know what your alternatives to a negotiated agreement are, you might accept an agreement that is far worse than the one you might have gotten, or reject one that is far better than you might otherwise achieve. For this reason, Fisher, Ury, and Patton stress the importance of knowing and improving your BATNA before you conclude negotiations.

Parties work for a mutually acceptable agreement;
Authority remains with the parties who are free to terminate the mediation;
appropriate only for parties who are willing to participate in the process

Chosen by the parties
Act as a go-between for the parties
Requirements vary by state

parties' commitments to proceed in good faith, understanding of the voluntary nature of the process, commitments to confidentiality, and recognition of the mediator's role of neutrality

Quick resolution of dispute
Less expensive than litigation
Nonadversarial process that allows the parties to talk with on another
Rules set by the mediator
Confidentiality
Voluntary

If parties unwilling to participate, mediation will not work
Does not follow a uniform set of rules; Mediator will establish the rules
Even if the parties try to resolve their dispute, mediation may fail
Even if agreement is reached, nonbinding (these resolution agreements may be incorporated into a legally binding contract, which is binding on the parties who execute the contract)

ADR in which parties vest authority to decide a dispute with a third-party arbitrator, who hears the evidence and issues an arbitration award.

contract involving commerce in which the parties agreed to submit to mandatory arbitration.
when state law requires parties to enter into mandatory arbitration

Federal Arbitration Act (FAA) requires parties to engage in arbitration when those parties have entered into legally binding contracts, providing the subject of those contracts involves commerce.

when parties believe that the benefits of arbitration outweigh the costs of litigation,
parties are not certain how strong their case is.

Court coverts arbitration award into an enforceable judgment

Usually less expensive than litigation
Faster than litigation
Adversarial process that will produce "winner" and "loser"
Arbitrators follow rules not same as litigation
Lack of appeal
Unlike litigation, the losing party can appeal binding arbitration in only in limited circumstance
Under Section 10 of the FAA, losing parties can appeal an arbitrator's award when the award was procured by corruption or fraud, or when the arbitrator exhibited corruption or bias, or the arbitrator prejudiced the rights of one of the parties, or the arbitrator exceeded their powers (for example, granting damages not authorized by the arbitration clause)

can be more expensive than negotiation and mediation (Arbitrator charges, attorney's fees, travel)
not as private as negotiation and mediation
rules regarding arbitration differ by state

arbitration is unfair to consumers who would do better in litigation

Incentives in the arbitration process favor business
lack of appeal rights, lack of requirement to follow precedents or established law, limits on consumers' remedies, prohibitions against class-action suits, limitations on access to jury trials, limitations on abilities to collect evidence, and greater expense

for employees to anonymously report perceived ethics violation that they have observed.

which allows company employees to go directly to any level of management to file a complaint or grievance, without threat of retaliation for their reporting.

which investigates and tries to resolve complaints from employees and customers

a mediation followed by an arbitration

where state law permits the parties to hire active or retired judges for private trials

allows the parties to present their case to decision makers on both sides of the dispute, following discovery

is a mock trial presented to a jury whose verdict is nonbinding.