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Challenging the Сeternal natureТ of global ADR.

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vi/
to the High Costs of Litigation
Vol. 15, No. 1 January 1997
CPR Institute for Dispute Resolution
ADR Institutionalization. In the eyes of many practitioners,
the high
litigation costs that sparked an increased emphasis on alternative dispute
resolution has resulted only in discrete options: arbitration, mediation or
even carrying on litigation despite the costs. Not so, writes American Bar
Foundation director and author Bryant G . Garth. The processes have been
changing and the lines are blurring. The changes are related not only to law,
but also to general business practices. Garth notes that these changes aren’t
merely academic considerations, and understanding them is essential to
dispute resolution practice. Through a framework of international commercial arbitration, the author explains how we got to where we are today
in ADR-and where it all may be headed. ........................................ Page 1
ADR Ethics. In the conclusion of his three-part series analyzing the
Minnesota debate over the development of an ADR neutrals’ ethics code,
Duane W. Krohnke, a partner in Minneapolis’s Faegre 8c Benson, reviews a
proposal for the only two ADR processes where a neutral renders a decision,
arbitration and consensual proceedings. The big issues Minnesota is tackling-and ones sure to be revisited around the country soon-are whether
the decisions must be issued “in accordance with the law,” and whether the
........................... Page 3
decisions should be in long or short form
Government ADR. An ADR Brief examines a new federal government
effort to cut litigation costs. The Federal Labor Relations Authority, which
oversees labor-management relations for more than 1.9 million government employees, has started a new program that looks at every appealed
case and assesses its eligibility for ADR. The voluntary program is in its
infancy, but, according to its director, the agency has committed to training
staffers nationwide to help parties with ADR application. ................ Page 6
ADR Tools. How do you know when you should use alternative dispute
resolution? Is it merely a gut feeling? Instead of relying on instincts, try the
CPR Institute for Dispute Resolution’s new ADR suitability screen. Adapted
from a screen developed by Debevoise 8c Plimpton partner Robert L. King,
it allows users to objectively evaluate relevant factors that tend to promote
or obstruct successful ADR use. The self-test investigates the parties’ relationship and interests, and the issues at stake, in order to arrive at an
informed decision about consensual ADR use. .................................
Page 7
Departments
ADR Brief ............................ Page 6
Cartoon by Chase ................ Page 6
CPR News .............................
Page 9
Challenging the
‘EternalNature’
of Global ADR
By Bryant G. Garth
Students and practitioners of alternative dispute resolution quite naturally
emphasize the distinctions among litigation, characterized as adversarial
and expensive, mediation, often defined as relatively informal and inexpensive, and arbitration, most often
said to resemble litigation.
Of course there also are many hybrid processes characterized in numerous other ways, but research that Yves
Dezalay and I conducted on international commercial arbitration challenges the eternal nature of any of
these categories. This observation is
not a matter of merely academic interest. Practitioners and reformers tend
to focus on the differentiation of the
categories. Through interviews with
more than 300 academics and practitioners involved with resolving business disputes around the globe, we
found that what we tend to think of
today as litigation, arbitration, and
mediation, are the very recent product of particular histories.
(continued on p a p 2)
Bryant Garth is dirrctor of thr C h i c ~ i g o - h r d
A rnm’ccin Bar Fou nctnt ion, n n intlrprndrnI
inslitute ,for rrsmrch in k m 1 nnd social scirncr estciblishrd C
y the Arnrrican Anr Association. He is co-nuthor; with Yurs I l t d ( i y , of
‘7l)ralingin Virtue: Intmnntiorial Cornmw
c i n l Ariiitmlion find thr Coristruclion o$ n
’l?(insnationnlI ~ g a O
l r d q ’’ fluhlished kist
,surnrnmiy thr 1Jnium.sityof Chicago Pre,$s.
2 Alternatives
Challenging the ‘EternalNature’ of
International ADR and Litigation
(continued from front page)
Two obvious points follow, as we
elaborate in our book, “Dealingin Virtue: International Commercial Arbitration and the Construction of a
Transnational Legal Order.” First, students of business disputing should not
treat the various categories of dispute
resolution as if they cannot change.
Second, it is essential to see that
changes in arbitration, mediation, litigation or any other processes relate in
crucial respects to what happens outside the field of law. A focus on perfecting particular processes or
lamenting the perversion of those processes may miss the key contextual factors that help to shape those processes.
The processes are constantlychanging
in relation to many factors within and
outside of the law.
This point can be seen in the development of international commercial
arbitration. In the 1960s, the world of
international commercial arbitration
was dominated by a small group of professors and other “distinguished notables”organized around the International Chamber of Commerce in Paris.
More or less as a hobby, they produced
many works about international commercial arbitration and what they
called the lex mercatom’a- an ideal commercial law.
They handled a small number of
business disputes through arbitration,
which they, as idealistic missionaries,
promoted as a solution to international trade disputes and the problems connected with litigation in
domestic courts. The “arbitration”
that they practiced, however, was quite
informal, nearly always resulting in
some kind of negotiated resolution
that would be satisfactory to the businesses involved. As stated by an observer of Pierre Lalive, a well-known
arbitrator from Geneva, “He hardly
ever decided a case. They would all
be settled at some point.”
It is not surprising that many of this
generation of arbitrators initially reacted to the U.S. mediation movement by saying that they had been
Vol. 15, No. 1 January 1997
CPR Institute for Dispute Resolution
doing “mediation” all along. The le
gitimacy and success of this amateui
arbitration was such that it succeedec
in promoting ICC arbitration clause:
in many different transnational con
tracts. International arbitration wa:
ready for a boom that helped trans
form it into an almost entirely differ
ent process with the same name.
High Stakes Lead to Arbitrations
With the oil crisis in the early 1970:
and the huge north-south construc
tion projects that took place in its af
termath, there were numeroui
disputes involving third-world coun
tries and European or North Ameri
can construction companies. Thc
contracts typically had ICC arbitratior
clauses, reflecting the success of thc
idealistic promoters around the ICC
But the high stakes investments in nev
sites with new players led to a sudder
proliferation of substantial interna
tional arbitrations. And, as it turnec
out, U.S. law firms typically repre
sented both sides in these arbitrations
The U S . firms were led in these arbi
trations by a new generation o
litigators, who were developing a nea
and more adversarial kind of litigatioi
continued on page 9)
m
Alternatives
to the High costs of Litigation
Publisher
James F. Henry
Editor
Russ Bleemer
StaffEditors
Catherine Cronin-Harris
Elizabeth S. Plapinger
Altermalives to the High Costs of Litigation
(ISSN 07353613) is published monthly by
the CPR Institute for Dispute Resolution.
Editorial and Business Offices: 366 Madison Avenue, New York, NY 10017-3122.
Tel: (212) 949-6490. E-mail address:
<Alternatives@cpradr.org>.
01997. For permission to reprint bylined
articles, please contact both CPR and the
author.
Editorial Board
Chairman
James F. Henry
CPR Institute for Dispute Resolution
W. Reece Bader
Orrick, Henington & Sutcl@
Robert T. Berendt
Thompson Coburn
John]. Bouma
h e l l c7‘ Wilmer
Jamie Broder
Paul, Hastings, Janofsky 3 Walker
Paul D. Carrington
Duke Uniuersity School of Law
A. Stephens Clay
Kilpatrick & Cody
Cathy A. Costantino
Federal Ilepost Insurance Corporation
Richard W. Duesenberg
Momanto Company (Ret.)
Laura EEel
Rakm & McKenrie
LawrenceJ. Fox
lhinker, Riddle & Realh
Marc Galanter
University of Wisconsin Law School
Whitmore Gray
1Jnivmity of Michigan Law School
EdwardJ. Lynch
Exxxon Corporation
Harry N. Mazadoorian
U G N A Cmporation
Carrie Menkel-Meadow ’
U C I A Law School
Robert H. Mnookin
Hnroard Law Srhool
Paid J. Mode,.Jr.
Wilmer, C n t h & Pickrring
James M. Ringer
f i g e n cj.Wells
A.James Robertson I1
.Suppriur Court of C a l i j m i a
Nancy Rogers
Ohio Slate University College of Law
David L. Sandborg
City University of Hong Kong
Frank E. A. Sander
Hwvnrd Law School
Irene C. W’arshauer
Anderson Kill ~3
Olirk
Mrlvyn I. Weiss
Milberg Wriss Rerrhad Hynes & Inach
Gerald R. Williams
Rrigham Young University
Ed E. Williams 111
Raker, Donelson, Beurman & Galdwell
Thomas J. Wyllie
A d a m & Reme
Vol. 15, No. 1 January 1997
CPR Institute for Dispute Resolution
Alternatives 9
(continuedfrom peuious page)
If your analysis leads to a conclusion .
against consensualADR, a series of ques
tions that permit choicesbetween arbitration or adjudication follow. Arbitration iscommonly used as a final step in a multistep ADR system of negotiation, mediation and arbitration.
4. Does eitksr party seek public vindicetion
of its reputation, position or claim?
0 (4yes
0 (b) no
0 (4yes
0 (b) no
9. Does one party prefer to retain
appeal rights?
The (a) answers below indicate litigation;
(b) answers indicatearbitration,unless one
of these responseshas such priority that it
5. Is a vital corporate interest or "bet the
company" case involved that requires
the full panoply of procedural
protection afforded by coult and full
appeal rights?
is determinative.
0 (a) yes
1. Does a party seek to secure a decision
in a public setting?
0 (a) yes
0 (b) no
2. Does a party want to present the specter
of a massive or unpredictable juty
award?
0 (a) yes
0 (b) no
3. It establishmentof precedent or
articulation d public policy an irnpMbnt
aw
goal for either p
0 (a) yes
0 (b) no
0 (b) no
6. Is there a need for continuing court
supervision of the case or parties?
0 (4 yes
0 (b) no
7. Does delay associated with litigation
significantly help one party?
0 (4 yes
0 (b) no
If either party will benefit from litigation delay due to holding the purse
strings or other reasons, litigation
may be preferred by that party.
8. k the law on a detenninative legal issue
well settled in favor d one pa*
allowing taffech we of summay
judgment or other dispositive motion?
0 (4yes
0 (b) no
Arbitration is the preferred route
when final closure of the dispute is
sought by both parties despite the
outcome.
10. Is this case linkedto other future pending
claims of significenceto either party?
.--
0 (a) yes
0 (b) no
11. Does the case rrquire an understanding
of complex or technical factuel issues?
0 (a) no
0 (b) yes
12. Given what is at stake, are the transaction costs of pursuing litigation small
when compared to what either side can
realisticallyexpect to recow or save?
0 (4yes
0 (b) no
TheCPRALlRsuiW~screenisawaiIu&j-ovn
i
CPRfor the cost of shipping on&
Challenging the 'Eternal Nature' of International ADR
(continuedhm page 2)
and successfullymarketing it for business disputes and indeed business
competition in the United States.
These litigators,through a complex
process detailed in our book, imposed
their choice of weapons in the ICC
arbitral process. Thatis to say, they
insisted that foyinternational commercial arbitration to be legitimate,
it must have more oral testimony,
cross-examination,and discovery,and
they favored a much more documentintensive and very adversarial proceeding.
The ICC pioneers resisted in the
name of the informal process that they
Eavored, but they and especially their
disciples ultimately had to convert. In
this setting of large North-South disputes, the multinational legal enterprises from the U.S. overwhelmedthe
craftvirtues of the Continentalartisans
in the marketplace for multinational
enterprises.
There is still considerable debate
about what international commercial arbitration is supposed to be, but
the basic story is that the U.S.
litigators "won." It makes sense today to describe international commercial arbitration as "private
litigation" or perhaps "off-shore"litigation, but this result should not be
seen as inevitable. International
commercial arbitration might not
have come to resemble U.S. Ltigation if (1) litigators had not become
so adversarial in U.S. firms; (2) the
oil crisis had not promoted a series
of new investments in large projects
that were fraught with potential conflict; and (3)the U.S. multinational
,law firms were not so important in
representing parties, including
states, in the ensuing disputes.
Once we see this complicated evolution, it is natural to ask where this
adversarial litigation came from. Perhaps it, too, was not inevitable, but
rather was the product of complicated
transformations within and outside
the law. While our research did not
focus on litigation, U.S. litigatorswere
so important to the story of international commercial arbitration that we
were compelled to explore this history as well.
The phenomenon of hyper-adversarial or "scorched earth" business litigation, we believe, did not develop
initlayruntil around the mid-l970s, and
internationalizationplayed a role here
as well as in the nearly contemporane
ous transformation of international
commercialarbitration.We cannot tell
the full story, but we can suggest some
of the elements for a more complete
(continued.onfollouringpage)
10 Alternatives
Wco~BOdc
Ajoint book project by the CPR Jnstitute for Dispute Resolution and
the Federal Judicial Center has
been completed and is available
from CPR The SlO-page "ADRand
Settlement in the Federal District
Courts: A Sourcebook for Judges
and Lawyers," by Elizabeth Plapinger, director of the CPR Judicial
Pro$%, and FederalJudicial Center
senior researcher Donna Stienstra,
already has been distributed to
CPR members, every U.S. federal
district court chief judge and library, as well as key congressional
members, other policy makers, and
researchers. The book is the definitive guide for lawyers and judges
to more than 150 alternative dispute resolution and settlement
programs in the nation's 94 federal
district courts. For information on
ordering the book, priced at $95
($55 for CPR members), call CPR
at (212) 949-6490 or send a fax to
(2 12) 949-8859.
Joint h a r a m with National
AssmUion of Manufacturers
Ann-ed
CPR and the National Association
of haanufacturers this month will
launch a joint ADR program, The
Mediation Center for Business Die
putes. Through the Mediation Center,CPRand NAM provide a dispute
Global ADR
(continuedj b m #wecedingpage)
account than is normally provided.
Are MBAs To Blame?
As other commentatorshave suggested,
the startingpoint is that businesses rep
resented by Wall Street law firms did
not sue other businesses represented
by other Wall Street law firms until quite
recently. To simplify a complex story,
we note that a key factor in change was
external to law, mainly the availability
CPR Institute for Dispute Resolution
resolution process for NAM member companies that are willing to
mediate a dispute with another
party, including conflicts with nonNAM members. The mediationsare
conducted in accordance with the
CPR Model Mediation Procedure
for Business Disputes,subjectto the
parties' modification.
The disputes must involve at least
$50,000. The NAM/CPR Mediation
Center also will provide guidance
on persuadinganother party to mediate, and will be prepared to assist
if requested.
NAM is a century-old industry
trade group based in Washington,
D.C. NAM has more than 14,000
member companies and subsidiaries, located in every state and producing about 85 percent of U S .
manufactured goods.
Panelists Selected
Four 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 former U.S. Attorney General
Richard Thornburgh, now a partner at Washington's Kirkpatrick &
LockhartLAP, and former W .S.Senate Majority Leader George J.
Mitchell,who now is a special counsel to Washington, D.C.'s Verner,
LiiNert, Bernhard, McPherson and
Hand. Both Thornburgh and
of Euro- and then petrodollars in the
late 1960sand then 1970s-with the oil
crisis. These funds made money available for corporate restructuring.At the
same time, MBAs were coming into
their own, taking advantage of new financial tools, and playing games
through mergers and acquisitions. The
MBAs were not only a new breed of
technicians,but also a new social group
that did not come from the same world
as the old "business class."
They were new entrants into the corporate elite, and theyjoined other new
Vol. 15, No. 1
January 1997
Mitchell are national paneliits as
well as members of the Washington,
D.C., Regional Panel. Louise A.
LaMothe, of Los Angeles' Bird,
Marella, Boxer,Wolpert & Matz, has
been added to the Los Angeles Regional Panel. Robert F. Cushman, a
parmer at Philadelphia-based P e p
per, Hamilton & Scheetz, is a new
member of the specializedconstruction panel.
Membership Additions
At press time, five companies and
law firms hadjoined CPRas new sustaining members in 1996's fourth
quarter. The new corporate members are Cincinnati's Procter &
Gamble and GTE Corp. of Stamford, Conn. The new lawfirm members are Philadelphia's Saul, Ewing,
Remick & Sad, London-based Masons; and Oppenhoff & Radler of
Cologne, Germany.
New Commitment
Wicks 'n' Sticks Inc. of Houston is a
new signatory to the Commitment
to CPR Procedure for Resolution of
Franchise Disputes. Under the industry Commitments, companies
agree to first negotiate and then
mediate to resolve disputes with
other commitment signatories.
There now are 48 companiestaking
part in CPR's National Franchise
Mediation Program.
entrants in the form of transnational
enterprises from outside the United
Srates. As has been observed often, the
old business classcould resolve disputes
in socialclubsor through informal p m
tices that did not involve much, if any
shadow of the law. Their alternativedis
pute resolution had no name and no
defined process, but clearly litigation
was not "something that business leaders did" to other major businesses.
Wall Street lawyers probably were
not apart from these informal meth(continued OnfoUowingpuge)
Vol. 15, No. 1 Janualy 1997
International
ADR & Litigation
(continuedji-mprecedingpap)
ods of resolving disputes, but the
partners who dealt with the business
elite were part of the same social
circles as that business elite. Businesses and law firms had such long
and stable relationships that the hierarchies in law were the same as
those in business. Litigators in this
world were relatively low status, from
different ethnic and religious backgrounds than the WASPish corporate and legal elite, and they occupied relatively marginal places in the
leading law firms. They had work to
do, of course, such as defending antitrust suits brought by franchisees,
but they did not routinely interact
with the business leaders even of the
firms they represented. Litigation
was not a strategic weapon in business competition. The rules of combat-and even professional ethicswould have precluded dragging
other leading businesses into court.
LitigationWarfare
By the mid-l980s, however, litigators
were key players in Wall Street law
firms. Strategic litigation-undertaken for economic advantage rather
than as a last resort-was part of
nearly every company’s arsenal of
business tactics. An “arms race” had
led to the development of civil RICO,
motions to disqualify opposing counsel, depositions of opposing counsel,
huge discovery wars, and a general
incivility. The litigation departments
of the law firms grew enormously,and
with the increasing numbers exacerbated the breakdown of the norms of
civility. The power of litigators in the
law firm hierarchies also grew, with
key litigators becoming managing
partners and key generators of business. Litigators made their weapons
available to businesses and competed
to develop ever more powerful weap
ons. Business litigation came to be
defined in these terms, and it is no
surprise that these same litigators
were unwilling to abandon their
rather successful technology when
they went to the ICC in Paris.
CPR Institute for Dispute Resolution
What happened to lawyers that
made them and their etiquette
change? The basic answer, as suggested above, is that the market for
the resolution of business disputes
changed, and lawyers created new
products-litigation as warfarethat both stimulated and met the new
demand. Mergers and acquisitions
undermined the stable relations between law firms and business clients,
providing an opportunity for new entrants to offer new products.
Business leaders were no longer
able to patch up their differences so
easily, in part because business had
itself become more cutthroat and less
personal. The great legal innovator,
of course, was Skadden, Arps, Slate,
Meagher & Flom, building their early
success on strategic litigation and
scorched earth tactics. As suggested
above, these tactics created and met
a demand in a world where the loyalties at the top were no longer secure.
Business leaders saw what Skadden offered, and the rest of Wall Street had
to compete to keep their old clients.
Litigation became successful all the
way around for the law firms. The “legal arms dealers” who escalated conflict and helped to resolve it prospered
enormouslyin the ensuing arms race.
New Cultures
Once international commercial arbitration became more mature and
established in legal practices and institutions around the world, its characteristics became more settled.
Similarly, litigation became embedded in the new ”law firm cultures”
that resulted. A major period of economic transformation thus left a very
strong imprint on the processes that
we call litigation and international
commercial arbitration. It is not surprising that, once the period of very
rapid change slowed, and once the
new generation of corporate leaders,
corporate counsel, and even leading
litigators became more familiar with
each other, the initiatives to curb the
arms race that began as early as the
1970s-including the CPR Institute
for Dispute Resolution, then known
as the Center for Public Resourcesbegan to bear fruit.
Alternatives I I
Using the ADR Seminar
for Corporate Cliemts, a new
ADR tool, you can introduce
ADR to clients or department
colleagues in a halfday
session or less.
The seminar package contains
a Gui& for Presenters and a
Participant L)esk6ook, which can
be customized with your firm
and your client’s names.
To order or for more information, call CPR at (800) 322-6490;
or send an E-mail query to
<info@cpradr.org>
Indeed, they could build on the
success of the litigators in making
law and lawyers more central to corporate strategy and corporate disputing. New legal entrepreneurs,
therefore, could and did rally behind the banner of mediation (and
other processes), defining these
new competing processes as something very different from litigation
and arbitration.
Without going into detail about
mediation, it should be clear that it,
too, is a process that is undergoing
change, and it cannot be understood
as a social development without seeing its relationship to the processes
that transformed litigation and international commercial arbitration.
How much mediation will resemble
litigation, how much lawyers will be
involved, the precise role of retired
judges, and a host of other questions
thus remain open.
How mediation will develop, however, depends on the results of complex and competitive processes,
producing both new demands and
new supplies. International develop
ments, we suggest, will again be important; and the best way to
understand what has happened and
what will happen is not to define and
redefine the essence of mediation, but
rather to explore the social processes
that contribute to its definition.
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