Reversing The Presumption Regarding The Use Of ADR

Sunday, August 1, 2004 - 01:00

By Barry E. Ungar

Litigation, at least in the minds of most litigators, is the generally presumed method of dispute resolution; ADR a potential alternative.That presumption may be appropriate when the only realistic alternative is binding arbitration.It is not appropriate when, as is true in most cases, non-binding resolution options are available.

As most corporate counsel know by now, alternative dispute resolution is not one process.It includes many different techniques to resolve disputes other than through litigation.Those mechanisms range from direct negotiation to binding arbitration, and about twenty recognized variations in between.Where a particular method fits in the spectrum is determined largely by: (1) the degree of formality or informality of the process, (2) the amount of control the parties have over the process, (3) whether the process is binding and (4) the burden and expense of the process.This array of alternatives should be important to counsel, particularly in-house counsel, in developing an attitude toward the use of ADR.Where mediation or other non-binding resolution process is feasible, counsel should reverse the presumption in favor of litigation and ask themselves whether there is any reason not to use one of the non-adjudicative techniques available.

This "shifting of the presumption" is not simply a mental game.It is important when corporate counsel is looking for outside counsel for representation and, if broadly adopted by in-house counsel, will have an important impact on how outside counsel think about addressing their clients' disputes in the future.They will become more of a counselor, looking to find the most desirable solution to the client's business problem, than simply a warrior ready to do battle.Sometimes doing battle, however, is the most appropriate solution to the client's problem.

When Even Non-adjudicative ADR Is Not Appropriate

Sometimes even non-adjudicative ADR is not a good idea.For example, if you have a strong feeling that the other side does not really intend to use the process in a good faith effort to try to resolve the matter, but is agreeing to it for some other purpose, any method of non-adjudicative ADR will be a waste of time and money.If your client needs to "send a message" to third parties, for example other employees or competitors, it may need a binding decision, or at least a "painful" process.Where your client needs to establish binding legal precedent, no type of ADR, including binding arbitration, will be adequate.Moreover, although in most circumstances mediation or some other negotiation process will help preserve an existing business relationship, there are times when a negotiation, even if facilitated by a mediator, might put more stress on the relationship than an agreement to have a neutral third party decide the dispute.Where resolution of the dispute turns solely on an issue of law and, therefore, there is only a "yes" or "no" answer, and depending on your client's appetite for risk, there may be no basis for negotiation.There also are circumstances where a party is so incapable of acting rationally, no type of non-adjudicative process can be productive.Counsel may hope that a neutral third party can accomplish what he or she has been unable to accomplish, i.e, to get the client to accept reality, but it likely will not happen and only a binding adjudication is productive (although even a binding adjudication often does not permanently end such disputes).Finally, if what your client needs is time, litigation is the process of choice.

The Presumption Should Be In Favor Of Non-adjudicative Resolution

Absent one of the above circumstances, mediation or other non-adjudicative process should be tried.There are so many advantages to it, and so few disadvantages, clients are almost always well served to try it.First, the investment is relatively small.Considering that significant commercial disputes cost hundreds of thousands, or even millions of dollars, to litigate, the expense of a non-adjudicative resolution process literally is de minimus.

These processes are much faster than going to trial.You have an opportunity to achieve resolution before enormous amounts of corporate energy are monopolized by the litigation (or arbitration) process.You also get to select the neutral third party; you do not have the anxiety of waiting to see what judge gets assigned to your case.Moreover, in business disputes the resolution can often require a creative solution not available in the courts.It may involve a new or modified business arrangement, or various trade-offs.Parties, themselves, often have not adequately focused on their interests, and the priorities of those interests, until they do so as part of a non-adjudicative ADR process.

You also have complete control.The parties design the process they want.It can be a facilitated direct negotiation process.It can provide for succinct presentations by opposing attorneys made to the decision-makers for the parties, followed by negotiation.It can include informal testimony by a few critical witnesses, including expert witnesses if desirable.It can provide for an exchange of information limited to the discovery necessary, rather than the broad, often unnecessary and expensive, discovery which accompanies litigation, followed by negotiation, mediation or arbitration.You also can walk away from it at any time.

There also is damage control.Litigation can destroy a business relationship. Non-adjudicative resolution methods can help resolve the dispute and preserve, or even strengthen, that relationship.The other damage control advantage is where the stakes are so high that an adverse binding decision could be catastrophic. Unless one of the parties desires to "roll the dice," some type of non-adjudicative resolution process is critical.

There are many other advantages to ADR, such as confidentiality. The point being made here is that both in-house counsel and outside counsel should think of non-adjudicative ADR as the resolution tool of choice. Even if it fails, a dialogue has begun, the issues have been refined and the adjudicative options remain available.

Why Is Shifting The Presumption Important?

Why is it important to have a "presumption" in favor of non-adjudicative ADR? The answer is historical.Every large law firm has a "litigation" department.Litigators often do not think of themselves as "counselors" to the client, looking for the best solution to the client's business problem.They think of themselves as warriors retained because battle has become necessary.They think of the adversary process as the natural process, because it is what most of them have learned in law school and what they have experienced in their firms.Litigation has the further benefit of being very lucrative for the firm.

Clients will be best served by changing that mindset, but that change is not likely to happen unless clients, and in business disputes that usually means corporate counsel, demand that it happen.If clients begin to convey the message that they expect their outside counsel to consider non-adjudicative ADR as the preferable way to approach the resolution of a dispute, change inevitably will follow.Effective use of ADR in the future depends in large part on the policies of corporate counsel.
A Few Words About Arbitration Versus Litigation

Binding arbitration is in many ways like litigation.Once the arbitrator or arbitrators have been chosen and the rules determined, most of the control over the process is relinquished and the parties cannot walk away.Unless the attorneys and arbitrators carefully structure the arbitration at the outset, and sometimes even if they do, arbitration like litigation can be lengthy and costly, and it can demand a lot of management's time.Arbitration also is a zero sum game, with the attendant risks.It is because of these similarities that arbitration as an ADR method does not justify, to my mind, the same presumption of use as non-adjudicative ADR processes.That said, if non-adjudicative processes are not appropriate or have failed, and binding adjudication is necessary, there are important differences between arbitration and litigation which need to be weighed.

Arbitration has the following virtues: (1) the parties have control over the selection of the decision-maker, (2) it is out of the public eye, (3) the parties have control over the rules which will govern the proceedings, including the scope of discovery, (4) the parties have control over the issues to be decided, (5) there is a quicker resolution than litigation, (6) the expense incurred usually is less than litigation, (7) the demands on management time are less than in litigation, and (8) it can be final, without the delay and expense of an appeal, although JAMS' rules provide for an appeal option if the parties desire it.

Despite these advantages, litigation in some circumstances may be preferable to binding arbitration.As noted above, if a party needs to establish binding precedent, or wants an appeal right to a court (in a jurisdiction which does not permit court appeals from arbitration awards), litigation is required.Sending a painful "message," or where time is on your client's side, also favor litigation.In addition, if your client has the far weaker side of the case, its best option (where settlement is not an available good option) probably will be to put its fate in the hands of a jury or the fortuity of the court administrator's wheel because, contrary to the belief of some, good arbitrators do not "split the baby in half."Similarly, if you know that the other side's case depends on witnesses who likely will be particularly bad witnesses in a formal setting, that is the setting you want.


The costs of dispute resolution can be very high, in time, treasure, burden and relationships.To properly serve the clients' interests, counsel should feel obligated to consider how best to minimize those costs.Non-adjudicative resolution has few downsides and enormous upsides.If it fails, the adjudicative option remains.Deciding if litigation or arbitration is then preferable is what lawyers are well trained to do.

Barry E. Ungar is one of the founders ofJAMS Philadelphia Resolution Center.He has skillfully managed large complex commercial arbitrations, both domestic and international, for over 25 years and mediation matters for over 10 years.He may be reached at