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Briefs Study strongly backs mediation.

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Vol. 14, No. 10 November 1996
Alternatives 125
CPR Institute for Dispute Resolution
Briefs: Study Strongly Backs Mediation
Case Provider Analysis:
Choose Mediation
A new study strongly backs the effectiveness of mediation over arbitration.
A report in the latest issue of NegotiationJournalsays that mediation costs
“far less than arbitration, took less
time, and was judged a more satisfactory process than arbitration.”
To conduct the study, the authors
examined 449 cases administered by
four major providers of alternative dispute resolution services. They found
that 78 percent of the cases sent to
mediation were settled by mediation,
regardless of whether the parties had
been sent to mediation by a court or
had selected it voluntarily.
The bottom line, the study says, is that
“mediation,when compared with arbitration, is substantially less expensive,
faster, and preferred by the public.”
The three authors studied cases of
four service providers, the CPR Institute for Dispute Resolution, which
publishes Alternatives; the American Arbitration Association;JAMSEndispute,
and U.S. Mediation and Arbitration
Service. The study was conducted via
a mail survey; the cases represented a
50% response rate.
The biggest group of respondents
were involved in contract cases and
tort/personal injury cases.Together the
categories made up 72% of the cases.
Of cases that didn’t settle, the report
says that two characteristics stood out:
the cases had the potential of a “very
large recovery” and it was not in the
parties’ financial interest to settle.
Other findings included:
matter’s resolution whether there was
a settlement or not, was one day ; the
median duration from the commencement of an arbitration hearing to the
award was 60 days.
The study concluded that “With its
low cost, timely, and satisfactory resolution of disputes, mediation should
be the first option to consider when
selecting an ADR procedure.”
The report’s authors are Jeanne M.
Brett, a professor at the Kellogg Graduate School of Management at Northwestern University in Evanston, Ill.;
Zoe I. Barsness, an assistant professor
of management at Texas A& M University, College Station, Texas; and
Stephen B. Goldberg, professor of law
at Northwestern University School of
Law in Chicago.
NegotiationJournal is published quarterly by Plenum Publishing Corp. In
New York City.
No Duty for
Arbitrators’ Conflicts
Investigation
The fact that an arbitrator’sformer law
firm had done work for one of the
parties in an arbitration does not constitute “evident partiality,” according
to a federal appeals court that denied
an application to have a $1.1 million
arbitration verdict overturned.
The decision in the case, Al-Harbi v.
Citibunk, N.A., 85 E3d 680 (D.C. Cir.
1996), also backs the parties’ decision
to turn a nonbinding mediation into
a binding process.
The Al-Harbiplaintiffasked the U.S.
Court of Appeals for the D.C. Circuit
to overturn the award he received in a
modified baseball arbitration. The
(continued on following page)
The median cost of mediation in the
cases studied was $2,750, and the median cost of arbitration was $11,800.
The median time spent by attorneys
preparing for and participating in
mediation was six hours, compared to
20 hours for arbitration.
The median duration for mediation,
from the mediation conference to a
“The mediation went poorly. The only thing
they agreed on was their dislikefor me!”
126 Alternatives
Briefs
(continuedfrom jnmious page)
panel denied the request, affirming a
federal district court decision.
Abdullah E. Al-Harbi, a citizen of
Saudi Arabia, based his “evident partiality” argument on the fact that the
former law firm of arbitrator Kenneth
R. Feinberg, of Washington, D.C.’s
Kenneth R. Feinberg &Associates,had
represented defendant Citibank in
unrelated matters. Evident partiality is
one of four statutory conflict-of-interestgrounds for vacating an arbitration
award under the Federal Arbitration
Act at 9 U.S.C. 10 (1994).
The plaintiff contended that
Feinberg had duties to ask whether his
former firm had a connection with the
arbitration parties and to disclose the
connection if it existed. Before forming his own firm in 1993, Feinberg had
been a partner in New York-based Kaye,
Scholer, Fierman, Hays & Handler.
“We can find no source for any such
generalized duty,” wrote Judge David
Sentelle, who was joined by Judges
Patricia Wald and Laurence Silberman.
The decision distinguished a Ninth
Circuit opinion, Schmitz v. Zilveti, 20
F.3d 1043 (1994), which reversed an
arbitration award where the
arbitrator’s law firm had represented
a subsidiary of one of the parties over
a long period of time. Instead, Sentelle
adopted the reasoning of a Fourth
Circuit case that held that a party asking that an arbitration award be vacated has a “heavy”burden and “must
establish specific facts that indicate
improper motives on the part of an
arbitrator.” Peoples Sec. Lqe Ins. Co. V
MonumentalLineIns. Co., 991 F.2d 141
(4th Cir. 1993).
Sentelle wrote that neither the D.C.
Circuit nor the U.S. Supreme Court
have considered whether a duty to investigate “underlies the arbitrator’s
duty to disclose facts that ‘might create an impression of possible bias,”’ as
articulated in Commonwealth Coatings
Corp. u. Continental Casualty Co., 393
U.S. 145 (1968).
Noting the high standard for vacating an award based on evident partiality, Sentelle wrote that “the fact that
Vol. 14, No. 10 November 1996
CPR Institute for Dispute Resolution
an arbitrator has not conducted an
investigation sufficient to uncover the
existence of facts marginally disclosable under the Commonwealth Coatings
duty is not sufficient to warrant vacating an arbitration award for evident
partiality.... [W]e explicitly hold that
there is no duty on an arbitrator to
make any such investigation.”
In a brief concurrence, Judge Silberman wrote that he didn’t think an
arbitrator has a duty “to search his
former law firm’s client list to determine whether one of the parties before him had been a client of his
former law firm.” He added: “We
should bear in mind that arbitrators,
unlike judges, are chosen by the parties, and any extensive duty to investigate the client list of former law firms,
or even perhaps a very large present
law firm, will just increase the costs.”
Al-Harbi claimed he lost $7.5 million in a real estate deal with Citibank’s
Czechoslovakia subsidiary.The parties
agreed to nonbinding mediation before Feinberg in 1994. At the mediation, they decided to switch the process
to a binding, baseball-stylearbitration,
which also allowed Feinberg to add or
subtract up to $500,000 to the dollar
figure of the party he chose. Feinberg
picked Citibank’s$600,000 figure, and
added $500,000 to it for the $1.1 million award the plaintiff challenged.
The case, says Feinberg, highlights
the fact that parties’ consensual decision to change the nature of the resolution process won’t be disturbed by a
court absent duress and or unconscionability. He adds: “It is the first time I
am aware of a court of appeals giving
an endorsement of the flexibility of the
parties to turn a process into whatever
they want.”
~
After Test Groups’
Arbitration Award,
Toxic Tort Plaintiffs
Settle PG&E Suit
The release of two arbitration panel
awards totaling nearly $132 million set
off negotiations that have resulted in
a $333 million global settlement of a
toxic tort suit against Pacific Gas &
Electric Co., one of the nation’s biggest utility companies.
Attorneys in the case say that hearings on the exact amount each of the
630 plaintiffswill receive were concluding as Alternativeswent to press. But they
also say that similar litigation-over the
effects of the use of chromium to cool
natural gas during compression at trans
fer stations-is proceeding so far without alternative dispute resolution.
In a 1993 suit, the plaintiffs-almost
the entire town of Hinkley, Calif.,
about two hours northeast of Los Angeles and site of a transfer station built
by defendant PG&E-charged that the
chemical the utility used for more than
30 years had contaminated the
groundwater and made them sick.
The case was filed in San Bernardino
County, Calif., Superior Court in May
1993. Sixteen months later, both sides
stipulated to arbitration.
The plaintiff group and the utility
agreed to arbitrate two groups of test
plaintiffs. The first 10 cases were heard
earlier this year by retired California
Court of Appeals justices Daniel
Weinstein and John K. TrotterJr. That
decision was sealed untilJune 28, when
a second group of 39 cases was decided
by retired appeals court justices Jack
E. Goertzen, Jack Tenner and Harry
V. Peetris, and the awards were announced.
The combined arbitration award was
$131.5 million, which touched off
settlement discussionswiththe remaining plaintiffs. The result, onJuly 2, was
a $333 million settlement.
All of thejudges except Peetris were
provided by Los Angeles-basedJAMS/
Endispute.
The utility’s lead defense attorney,
Gary Ottoson, a partner in Santa
Monica, Calif.’s Haight, Brown &
Bonesteel, says that he doesn’t expect
a similar ADR-proceeding in litigation
surrounding two other California
PG&E transfer plants, at Topack and
Kettelman Hills. “I was extremely disappointed with the end result,”
Ottoson says, “But it was certainly efficient. ... On the front end, I thought it
was a good process.”
Ottoson, however, won’t rule out
ADR for the Topack/Kettelman Hills
case. Ultimately, he says, the case probablywon’tbe tried because of the number of witnesses. ‘We’re not going to
do that,“ he says, adding, “But what it
will be, I don’t know.” Los Angeles’
Latham & Watkins is lead defense
counsel for the second case.
Lead plaintiffs’attorneyWalter Lack,
of Los Angeles’ Engstrom, Lipscomb &
Lack, says that ADR should have a
prominent place in the Topack/
Kettelman Hills case. The arbitration
for the Hinkley plaintiffs, he says, p r e
vided “moneyfar quicker to them than
the legal sytem could hope to do.”
Lack, who says that the Hinkley
plaintiffs received the largest per
capita recovery ever in a toxic tort case,
warns that the Topack/Kettelman Hills
case “is worth far more than the
Hinkley casejust settled, and ajury sitting anywhere in this state will impose
substantial punitive damages.”
NASD Says Securities
Mediation Growing
The mediation program of the National Association of Securities Dealers Inc. has completed its first year of
operation, and its director says that the
numbers already indicate that the
program’s use is growing.
Initially, mediation cases at NASD
Regulation Inc., a subsidiary of the
association, were referred from arbitration. Now more cases are going directly to mediation, says Kenneth
Andrichik, NASD Regulation’s director of mediation.
Overall, the mediation numbers still
are comparatively low. NASD Regulation arbitrates more than 6,000 cases
annually. In its first 13 months, which
ended August 31, the mediation program settled 214 matters and had another 124 cases in which the parties
agreed to mediate.
But the number of cases that entered mediation tripled in the second
half of its first year from the first six
months. The figures, according to the
NASD, “point to a growing trend toward the use of mediation to resolve
securities disputes.”
(continued on following page)
1996 Awards Competition
Nears Close
The 14th annual CPRAwards Program for Excellence in ADR is accepting submissions and nominations until Nov. 15. The awards,
underwritten by CIGNA Corp.,
honor outstanding ADR scholarship and outstanding ADR use by
companies, firms, courts and other
groups, as well as by individuals.
For information on categories,
prizes andjudges, call CPRat (212)
949-6490.
New Panelists
Nine attorneys have been selected
as new members of the CPR Panels of Distinguished Neutrals, and
are now available to help resolve
business and public disputes. They
include national panelist Alfred C.
DeCrane Jr. , former chief executive officer of Texaco Inc., who also
is listed as a Connecticut regional
panelist. Also added as regional
panelists are former Washington
state Supreme Court Justice Robert F. Utter; CharlesJ. Steele,John
M. Townsend and Richard K. Willard in the District of Columbia;
Michael Nachwalter in Florida;
Henry L. King in New York City;
Bruce D. Evans in Pennsylvania,
and Robert T. Berendt in Missouri.
For information about using the
CPR Panels, contact the CPR Institute for Dispute Resolution, 366
Madison Ave., New York, New York
10017. Call (212) 949-6490 for information, or send E-mail to
j kelly@cpradr.org.
Chemical Industry
Commits to ADR
Some of the nation’sbiggest chemical companies have signed onto
CPR’s Chemical Industry Dispute
Resolution Commitment, by which
the companies agree to first negotiate and then mediate to resolve
disputes with other commitment
signatories. The commitment is
accompanied by CPRs Procedure
for Chemical Industry Dispute
Resolution. So far, the list of signatories includes Air Products &
Chemicals Inc.; Ashland Chemical
Co.; Crompton & Knowles Corp.;
E.I. du Pont de Nemours & Co.;
Hoechst Celanese Corp.; Lyondell
Petrochemical Co.; Morton International Inc.; Nalco Chemical Co.;
Quantum Chemical Corp.; Reilly
Industries Inc.; Rohm and Haas
Co.; Sovay America Inc., and W.R.
Grace & Co.
London Meeting Is Set
CPR and its European Advisory
Committee will hold a Nov. 5 seminar in London, “Emerging ADR
Developments in Europe.” The
program will include a workshop
on designing a dispute system,
roundtable discussions including
European corporate counsel and
private lawyers on institutionalizing ADR use and the growth of mediation in European commercial
disputes, and a discussion of European court-related ADR developments. For information on attending, contact CPR at (212)
949-6490.
Ethics Queries
For a future Alternatives ADR ethics
column, please send accounts of
fact situations, disguised if you prefer, that you have experienced or
heard about that raise troublesome
ethical issues to Elizabeth Plapinger,
Staff Director, Commission on Ethics and Standards of Dispute Resolution Practice, CPR, 366 Madison
Ave., NewYork, NewYork 10017,or
E-mail eplapinger@cpradr.org.
128 Alternatives
Briefs
(continued on following page)
In the first year, cases averaged two
months from an agreement to mediate to their conclusion. More than 85%
of the claims submitted to mediation,
which ranged from $10,000 to $3 million, were settled.
Most of the cases are claims by consumers against securities sellers, according to Andrichik, who says that
misrepresentation claims lead the
pack, followed closely by claims about
investment suitability and breach of
fiduciaryduty About 15%of the claims
are between NASD members, including employment problems, commissions and “intra-industry”disputes, says
Andrichik.
The first-year results, Andrichik says,
“reallyexceeded expectations.”He notes
that the mediation program’s current
goal is education in order to spread the
use of the program and sign up mediators. ‘There’s still a lot of untapped p c ~
tential,” he says, adding, ‘There are a
lot of citieswith virtually no activity yet.”
NASD Regulation polices the securities industry and the Nasdaq stock
market. It oversees more than 5,400
securities industry firms with more
than 505,000 professionals.
CPR Institute for Dispute Resolution
Arbitrator-Witness
Limited Partnership
Doesn’t Mean
“Evident Partiality’’
By Jar14F. Kaplan
The Ninth U.S. Circuit Court of Appeals has backed a tougher stance on
vacating arbitration awards because of
an appearance of conflicts.
Apusento Garden Inc. entered into
a contract for the construction of an
apartment complex in Guam with Inland Builders Corp. The contract provided for arbitration of all disputes in
accordance with American Arbitration
Association rules. When the builder
asserted claims against Apusento, the
owner demanded arbitration. After an
extensive arbitration hearing, the arbitrator awarded Apusento $5.7 million. It moved to confirm the award,
and the builder moved to vacate because the arbitrator had failed to disclose that both he and an expert
witness for Apusento were limited partners in a partnership that owned anJarrill? Kaplan, of counsel to Phoenix 5 Snell
CYWilmaL.LJ?, is a n experienced mediator
and arbitratorand a member ofthejirm 5ADR
Committee.
New Jersey‘s state Office of Dispute Settlement served as a court-appointed
mediator in 93 cases for the fiscal year ending June 30, the latest in a threeyear run of 20% caseload increases, says the office’s director, Eric Max.
About 50% of the cases the office hears come to it through a court order;
a New Jersey court rule change about four years ago allowingjudges to order
mediation “made a big difference,” Max says.
Still, he says that about 10% of the cases the office tackles come from New
Jersey’s federal courts, which also have rules that can send cases to mediation.
Max’s office values the fiscal year claims at more than $300 million. It also
reports that the settlement rate was more than 80% in the cases it mediated.
Max says the office has a budget for five staffers of only $100,000 and covered its serviceswith a $100 per hour charge for mediators where the matter in
controversy was valued at less than $1 million, and $150 per hour where the
matter was valued at more than $1 million. Max says the average cost per case
to the parties for his office’s services was less than $1,000 per case.
Every year, says Max, environmental cleanup and insurance coverage cases
lead the pack. Last year construction mediation caught up, with the office
handling 17 mediations in each of the three areas.
The table at right shows the breakdown of cases by type.
Vol. 14, No. 10 November 1996
other apartment complex in Hawaii.
The Guam superior court granted
the motion to vacate, saying the business venture created an “impressionof
possible bias.”Acting on a writ of mandamus to the U.S. District Court for
Guam, the order vacating the award
was affirmed. But on appeal, the Ninth
Circuit reversed and ordered the arbitration award reinstated.
Both the arbitrator and the expert
witness testified that they did not know
of the other’s involvement in the partnership. There was no evidence to the
contrary. By coincidence, three attorneys in the law firm representing the
builder also were limited partners in
the partnership. The partners were
obligated to invest money in the partnership, but there was nothing one
could do to curry favor with the other.
The situation is analogous, held the
Ninth Circuit on Sept. 6, to two individuals buying the same issue of corporate stock or investing in the same
mutual fund. Accordingly, the investment in the partnership could not
form the basis for finding an objectively reasonable “impression of possible bias,”which is the predicate for a
finding of evident partiality. Apusento
Garden (Guam) Inc. u. Supenor Court of
Guam, 94 F.3d 1346 (1996).
i
CASE BREAKDOWN BY
TYPE
A.
B.
C.
D.
E.
F.
G.
H.
I.
Environmental Clean-Up
Insurance Coverage
Construction
Medical Malpractice
Contract
Employment
Personal tnjury
Partnership
Publk Sector
J. Fraud
K. Civil Rights
L. Malpractice
M. Malicious
tron.
N. Estate Administration
0. Product Liability
Total
.
NUMBER
.............17
............ 17
............13
.............................. 5
.........................
...........
..........................
...........
..................................
...........................
..........................
5
4
4
..3
3
1
1
1
1
...........
.......... 1
............
..................................
93
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