Vol. 14, No. 3 March 1996 Alternatives 33 CPR Institute for Dispute Resolution What Does Court-Ordered ADR Require? I By Edward F. Sherman Court-ordered ADR is mandatory in the sense that the parties are required to participate, but voluntary in the sense that they need not settle. The tough question is: what exactly does court-mandated ADR order the parties to do? Must they do more than just attend (a settlement conference or a mediation session, for example)? Is there a broader obligation to “participate?”If so, what kind of participation is required? A number of court cases across the country have addressed these questions, usually in ruling on motions for sanctions against parties for not complying with ADR orders. Occasionally, drafters of ADR statutes and court orders have also wrestled to spell outjust what court-ordered ADR requires. This is still relatively uncharted legal territory, but a few principleshave emerged. Judicial settlement conferences were the first form of mandatory ADR. For decades, judges have ordered attorneys (and increasingly parties) to attend them. Judges derive authority for these orders from Federal Rule of Civil Procedure 16 (authorizing pretrial conferences) and similar state rules, from the power to manage their dockets, or from inherentjudicial authority. Courts have uniformly rejected constitutional challenges to mandatory settlement conferences. They also have upheld mandatory mediation, sometimes under the additional authority of specific ADR statutes. Complex questions arise when mandatory ADR is more formal and structured than a settlement conference or a mediation. In a summary jury trial, for example, the parties present a condensed version of their case to a jury which renders a non-binding opinion. A number of federal district courts have upheld mandatory summaryjury trials as valid means of promoting settlement. Two federal circuit courts, however, have held that federal courts don’t have the power to order unwilling parties to participate in a summary Edward E;: Sherman is Edward Clark CentennialProfesssorofLaw at the University of Texas School of Law. jurytrial, InreNLOInc.,5F.3d 154 (6th Cir. 1993); Strandell v. Jackson County, Ill., 838 F.2d 884 (7th Cir. 1987).There is no judicial authority, they said, “to require that an unwilling litigant be sidetracked from the normal course of litigation.” Distinguishing these cases from those upholding summary jury trials is not easy. Court-annexed arbitration-where parties summarize their cases before arbitrators who render non-binding opinions-has been treated more like mediation. Courts have upheld mandatory arbitration programs that exist in a number of federal and state courts. Arbitration is less formal than summary jury trials and arguably is not as serious a “sidetracking”from normal litigation. Obligation to “Participate” Court orders referring cases to ADRuse a variety of terms to describe what the parties must do at the proceeding. Some simply order the parties and their attorneys to “attend and participate.”Others impose more demanding requirements to participate “ina meaningful manner,” “fullycooperate and participate,”or participate “in good faith.” The outcome of cases challenging participation requirements may turn on the wording of the order and the statute, or the rule on which it is based. However, the kind of ADR process involved is also an important factor. Courts are increasingly recognizing that the degree of required participation may vary depending on what is needed to make the particular ADR process work. In an informal “faci1itative”ADRprocess, like mediation, the required level of participation should be low. For an effective mediation, it’s sometimes enough just to require that the parties state their positions about liability and damages and listen and respond to what the other side has to say. An “evaluative”process, such as “early neutral evaluation,” requires a more comprehensive presentation of fact and law to keep the proceeding from becoming a futile exercise. Sketchy or incomplete information about the case and the parties’ positions can lead to an inaccurate and unreliable evaluation. If they have no faith in the evaluation because of lack of participation by one side, it is a waste of everyone’stime and money. “Trial run” ADR processes, such as court-annexed arbitration or summaryjury trials, may require that the parties do much more than just talk and listen. These processes contemplate that each side will present its case to a third party, who will make a non-binding decision. To provide a reasonably accurate picture of how the case might play out if it went to trial, each side needs to summarize its evidence and arguments. When the defendant’s lawyer presented only brief summaries of her position and read a few passages from depositions, one court found that participation in a court-annexed arbitration was inadequate, Gillingv.EasternAirlines, Inc., 680 FSupp. 169 (D.N.J. 1988).Another court reached a similarresultwhen the plaintiffs lawyer came to the hearing without his clients, spent less than 15 minutes discussing his case, and didn’tpresent evidenceof breach of duty or injuries, McHale v. Alcon Surgical, Inc., 1995WL 99658 (E.D.Pa.). Advance Submissions A court should be able to order the parties to submit relevant materials before the proceeding. For example, it might order that the parties give position papers or memoranda to the neutral, or make certain evidence available to the other side. Such information lays a basis for meaningful discussion without interfering with how the parties present their cases. A typical order might require each party to submit a position paper, including a plain and concise statement of: the legal and factual issues in dispute; the party’s position on those issues; the relief sought (including an itemized list of damages); and any offers and counter-offers previously made. Federal courts routinely require such items for pretrial conferences. The federal pretrial conference rule authorizes courts to direct attorneys and “any unrepresented parties” to attend a conference. Increasingly,courts have found that attendance by parties, (continued on following page) 34 Alternatives Court Ordered ADR (continued from previous page) whether or not represented by counsel, increases the possibility of success in both settlement conferences and ADR proceedings. Mandatory Client Attendance A 1993 amendment to the rule allows courts to require that “a party or its r e p resentative be present or reasonably available by telephone in order to consider possible settlement of the dispute.” (Rule 16(c)(16)) ADR orders now routinely require that the parties as well as their attorneys attend the settlement conference. Difficult questions arise when the party is not an individual,but a corporation or an insurance company. A typical order requires organizationsor agencies to “be represented by an officer or r e p resentativewith authority and discretion to negotiate a settlement.” Such orders raise a broad range of difficult issues, which the 7th U.S. Circuit Court of Appeals explored in G. Heileman Brewing Co., Inc. u. Joseph Oat Gorp,, 871 F.2d 648 (7th Cir. 1989) (en banc) . A majority upheld a magistrate’s order that the defendant send a “corporate representative with authority to settle”to a settlement conference. The defendant had argued that it was unreasonable to impose the expense and burden of requiring its president “to leave his business [in Camden, N.J.] to travel to Madison,Wisc., to participate.” The majority conceded that there might be circumstances when requiring the attendance of the president CPR Institute for Dispute Resolution “would be so onerous, so clearly unproductive, or so expensive in relation to the size, value, and complexity of the case that it might be an abuse of discretion.”However, it found no such situation here, where the claim was $4 million, the factual and legal issues were complex, and the trial was expected to take one to three months. Courts routinely include in ADR orders a requirement that the parties and counsel come to the proceeding with settlement authority. Coming without settlement authority can be a ploy that allows negotiators to claim inability to bargain outside a prescribed range. It also unfairly enables absent persons with settlement authority, who haven’t benefited from participation, to disavow agreements made by their negotiating representative. Hard cases arise when a representative’s settlement authority is ambiguous. What if an insurance company sends a representative with authority to settle only up to $lO,OOO? The company may have reviewed the case, concluded that there is no liability, and estimated that, in any event, the reasonable damages are much smaller than that amount. Settlement Authority The key question is, what are the representative’s instructions? If the representative has no authority to even consider any settlement above $10,000, this is essentially a “no authority” case that violates the court order. A representative should be open to the other side’s arguments, and to the possibility of settling at any amount that’s persuasive-no matter what the company Mediation: Is It For You?, a video from the American Bar Association, presents three scenarios in which mediation might be useful for consumer disputes: a divorce, bickering neighbors, and a homeowner/contractor dispute. The 18-minute video, which could help educate disputing parties and set the scene for a mediation, outlines the steps toward resolution. Interviews with mediators explain mediation strategies and leave the viewer with a sense of the potential results. The $79 package includes one guide for facilitators and another for consumers ($2.50 forjust the consumer guide). To order, contact ABA Publications: P.O. Box 10892, Chicago, IL 60610-0892. Tel.: 312-988-5522; fax 312-988-5568. Vol. 14, No. 3 March 1996 has evaluated the case to be worth. If authority is so limited that a representative cannot respond to any persuasion, the company has not sent the representative whom the court ordered to attend. A further question is whether the representative must have full authority to settle. Should a corporation (or a governmental body which can only act by the vote of a governing group) be required to rearrange its decisionmaking structure in order give its negotiator full settlement authority? The answer depends on whether the necessarystructure is reasonable (or required by law) and whether it can be accommodatedby prompt and efficient procedures that enable the representative to communicate with decision makers and get their approval. Is it sufficient to have the official with ultimate settlement authority available by phone? The problem is that the executive doesn’t participate in the ADR proceeding, which undermines the effectivenessof the process. However, one court has relaxed the attendance rule for a federal government agency if the official with ultimate authority is fully prepared and availableby phone, I n re Stone, 986 F.2d 898 (5th Cir. 1993). A 1993 amendment to the federal pretrial rule also authorizes courts to “require that a party or its representative be present or reasonably available by telephone in order to consider possible settlement of the dispute,” F.R.C.P. 16(b). Special rules may be necessary when, by law, the decision-makingauthorityfor a governmental body must reside in a governing body (for example, county commissionersor a city council).There, a representative may need to be given tentative authority to negotiate on behalf of the governmental entity. The representative’s instructions should leave open the possibility of persuasion, and group members should be available to give their immediate approval by phone. It also might be possible for the group to consult with the negotiating representative at critical stages of the ADR proceeding. If an open meetings act requires decisions to be made in public, the group could then meet in open session to ratify the settlement.