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 <firstname.lastname@example.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.