Judge Platt’s main premise is that business disputes need more than a resolution of the presenting conflict.  They need some analysis of the reasons the conflict arose, and a correction of those underlying causes in order to prevent a recurrence of the same issue.  That is, courts are being asked not just to rule on cases, but to help solve problems that give rise to cases.

He suggests that, for a varity of reasons, there has arisen among the general public “enhanced expectations that disputes should not just be resolved, but that they should be resolved in a manner that economically and efficiently addresses their cause so that they will not be repeated.”

These expectations are made more pressing in the context of business disputes, argues Judge Platt, because businesses have “special needs” that have prompted the courts in many states to create business or commercial courts. 

The “special needs” of the parties and counsel in business cases in all of these states are identified as more timely, rational, legally correct and predictable resolution of these [business] disputes. It is also important that these disputes be resolved or decided in a manner that recognizes that unlike many other types of cases, an untimely, i.e. arbitrarily and unduly delayed resolution of a case or dispute may literally devastate economically one or both of the parties ability to continue to operate particularly in an economy such as the one we’re in now. 

The Judge cites three techniques that judges might use to satisfy these expectations:

1.  Settlement Conferences, run intelligently and with finesse, including at times the opportunity for Early Neutral Evaluation;

2.  Mediation, by which the Judge means “a process, not an event,” and featuring most prominently an early informal exchange of “information [that] may be essential to developing an accurate assessment of risk in order to determine the leverage that a party may have in the litigation;” and

3.  Arbitration that is carefully designed to ”take into account the special characteristics of business disputes and the necessary balance between economy and efficiency and fairness.”  

Clearly we have here a thoughtful and perceptive public servant who has taken seriously the admonition that was stated ten years ago by the Lord Chief Justice of England and Wales Lord Harry Woolf:

“The purpose of a civil court is to assist the parties to resolve their dispute.” 

Here are three easy steps towards assisting parties to value their claims.

Step One: Discount Transaction Costs.  Every good lawyer will advise the client of the litigation budget in the event that the mediation is unsuccessful.  A business-oriented claimant understands that transaction costs diminish the “real” return.  A claim for $100,000 that costs $30,000 to get to verdict and another $10,000 to defend on appeal will net the claimant $60,000.  (Statutory claims that provide for fee-shifting are exempt from this step, but most business-related claimants must bear their own costs.)  So accepting $60,000 today is the same as a complete win at the conclusion of the litigation.

Step Two:  Discount for Likelihood of Success on the Merits.  No lawyer ever counsels a client that the claim is certain to prevail at trial.  An experienced trial lawyer once told me that, in any trial, there’s a 10% chance that an elephant will walk into the room and take the oath as a witness.  

An aggressive counsel might advise 80% likelihood of success; most advise more like 70% or 60%.  If there is a 75% chance of success at trial (which is to say, a very good chance indeed), then reduce the $60,000 (see Step One) by the 25% chance of losing, and you come up with $45,000.  That’s the number that accurately reflects the value of the claim if you were to wrap it up today and end any uncertainty about the outcome.

Step Three: Determine the Present Value of the Recovery.  Remember that the $45,000 net recovery (reflecting uncertainty) won’t be in the cash till for another three years or more.  At 4% interest, compounding daily, $45,000 in three years is equal to $39,911.68 today.  (A handy-dandy present value calculator is available at http://www.uic.edu/classes/actg/actg500/pfvatutor.htm.) 

All we’re trying to do in a mediation is to help the claimant and the defendant to get out of the lawsuit: to eliminate uncertainty, shut off the costs of the legal action, monetize the claim, release the reserves against the liability, and redirect their resources back to support for their core business.  The three steps outlined above help in this effort.  In this hypothetical, a claimant receiving $40,000 on the day of the mediation is getting one hundred cents on the dollar of her $100,000 claim.  That’s a helpful fact for a claimant to have in her pocket before negotiation begins. 

Who knows?  The defendant’s opening offer might be close to that number, thinking it would represent a 60% “haircut.”  And if that’s the bid, I hope the claimant recognizes its value.

Quakers are  a “peculiar people” and proud of being so.  But spending time with a whole nest of them coming from around the country and around the world is surely a blessing. 

Many readers are familiar with the drawing of three mice looking at a wedge of cheese and drawing different conclusions as to the shape of the object, based on their positions and perspectives:

Well, when Quakers meet to conduct business they don’t vote or persuade; they share perceptions and senses of what the right thing to do might be, and let it float out there until the entire group is in unity with the right decision.  Folks who have never watched this procedure or taken part in it themselves find it very difficult to understand, but the mouse drawing is as good an entry into it as any.

I just plain like the way Quakers think, how they approach problems.  Here in Silver Bay, or in my small Quaker Meeting in Cornwall, New York, a matter will be raised in a meeting for business and a period of silence will ensue.  Then someone will pipe up and say, in effect, “I see a rectangle here.”  There will be a pause for several minutes, and someone will say “I see a square.”

At that point most folks would see a disagreement.  But Quakers? 

Quakers sense there might be a piece of cheese nearby.

But a specially interesting panel is one that Lawrence D.W. Graves has assembled as Chair of the Dispute Resolution Committee of the Business Law Section: “ADR in Business Courts.”

The panel will be moderated by Chief Judge Ben Tennille of the North Carolina Business Court.  Speakers include Judge Steven I. Platt of Maryland; Judge Ira B. Warshawsky of the Commercial Division, New York Supreme Court; Robert E. Margulies, who designed the 15-year old Complementary Dispute Resolution program for the Superior Courts of the State of New Jersey; Judge Elizabeth Stong of the United Stated Bankruptcy Court for the Eastern District of New York; and Vice Chancellor Don Parsons of the Delaware Court of Chancery.

Listening to these ladies and gentlemen discuss the court’s interest in clearing its docket, and their own commitment to helping commercial parties to resolve their disputes, should be a rare and valuable opportunity.  Be there!

The story contains an interesting reminder of the Christian tradition of self-interested forgiveness, and also of the principle (espoused by all mediator trainers) that everybody has an underlying interest that informs their behavior — even (or especially) wolves.  

And it describes an unorthodox method of mediation in which the neutral starts off by telling each party that they’re schmucks.

It seems that Francis was visiting the town of Gubbio and took pity on the townspeople who had been so abused by the fierce wolf living outside. 

Francis went unarmed to find the wolf, and when they met Francis chastized him:  “Brother Wolf, you have done great harm in this region, and you have committed horrible crimes by destroying God’s creatures without any mercy.” 

But Francis also saw that the wolf was driven to kill because he was mad with hunger.  So he proposed as follows:  “Brother Wolf, I want to make peace between you and the people of the town, so that they will not be harmed by you any more, and after they have forgiven you all your past crimes, neither men nor dogs will pursue you any more.”

Francis then proposed that, if the wolf agreed not to kill any more animals and people, the townspeople of Gubbio will feed it each day.  The wolf extended its paw in agreement, and followed Francis into town.

The wolf listened calmly at Francis’ side as the saint preached to the people, explaining to them that the wolf’s attacks were in response to their own sins of neglect of its needs.  They consented to Francis’ proposal that they attend better to their neighbors by looking to their needs.

From that day on, both parties lived up to their promises.  The townspeople fed the wolf, and the wolf became so peaceful that dogs would not even bark at it.  When the wolf died, the townspeople mourned its passing.

It’s interesting that Francis took the “hard approach” with each party.  That is, he did not tell the people that the wolf had been bad and he did not tell the wolf that the people had been bad — he told each one that they themselves had been bad!  He even suggested to the wolf that the final compromise would be subject to the willingness of the townspeople to forgive his vicious acts (though he seems not to have required it in the event).

The technique seems to be along the lines of (a) convince each party to see the situation from the other guy’s point of view and acknowledge their own responsibility for having created the problem; (b) urge each party to remove whatever obstacles to resolution are in their power to remove, in exchange for the other guy’s doing the same; and (c) convince both parties to undertake a permanent change in their behavior towards the other guy that in turn provokes a permanent change in the other guy’s behavior towards them.

Now, this ain’t me.  For one thing, I don’t talk to animals, even kittens.  For another, when I mediate I almost always sympathize with each party as they tell their story, hoping to gain their trust by allying myself with their problem.  I try to meet them where they are and explore possible avenues of resolution as their partner, not their rebbe. 

By contrast, Francis tried to convince them that their problem was, at least partly, of their own making, and they had to do a better job of living if they wanted to live a better life.

Applications to secular dispute management?  Yes?  Anyone?  Anyone?

The case is In re A.T. Reynolds and Sons, Inc., 424 B.R. 76 (Bnkr. S.D. NY  2010).  The parties were ordered to mediation by order dated August 27, 2009.  On November 17, 2009, the mediator reported to the cout that one of the parties failed to participate in good faith, and that a report would be submitted.  That report alleged that (a) Wells Fargo was unclear about the issues to be mediated, and sought a mediation statement identifying them; (b) Wells Fargo demanded to know the names of the individuals who would attend the mediation; (c) Wells Fargo sent a “junior” counsel to the mediation; (d) Wells Fargo’s counsel “repeat[ed] a pre-conceived mantra that indicated that Wells Fargo was not open to any compromise”; and (e) when the mediator threatened to report his conduct to the court, Wells Fargo’s counsel replied that his “client would never agree to my acting as mediator in the future in which Wells Fargo might be a party.”

For its part, Wells Fargo replied that its counsel was a senior attorney with 10 years’ experience; that the client representative at the mediation had full settlement authority; that Wells Fargo could not prepare for the mediation when the mediator said that the issues would be determined at the proceeding itself, and they “will go where the river takes us”; and that parties to mediations are fully entitled to take “no-pay” positions.

At the hearing the court called the mediator to testify.  He reported that Wells Fargo’s counsel interrupted his adversary and  ”did not go through risk analysis.”  Counsel for the opposing party testified that the mediation ended “because we weren’t even getting past square one.” 

The court, in its opinion, engaged in a legal analysis of what constitutes “good faith” in mediation and noted that the case law “cannot be construed to mean that a party can decide ahead of the mediation that it will accept a single, preconceived settlement, then refuse to engage in the risk analysis that is fundamental to mediation.”  While a party can’t be forced to settle, concluded the court, it must participate in the process “beyond insisting that it won’t settle.” 

Moreover, the court found that “counsel to Wells Fargo sought to control the procedural aspects of the mediation by resisting filing a mediation statement and demanding to know the identities of the other party representatives.”

Wells Fargo and its counsel were therefore required to pay the mediator and the other parties their costs in preparing for and attending the mediation.  “The Court concludes that attendance at a mediation without participation in the discussion and risk analysis that are fundamental practices in mediation constitutes failure to participate in good faith.”

Now, I’m still learning.  But so are we all (I hope) and there’s enough in this opinion that’s contrary to my practices as a mediator that I need a reality check.  Or maybe a reality slap.

A.  My mediation agreement requires the parties to inform each other of the identities of their representatives a week ahead of time, and vests in me the power to exclude people.

B.  I tell the parties at the start of a court-annexed mediation that I will tell the court only whether it settled or whether it didn’t, and will maintain every other aspect of every communication in confidence.

C.  I also ask them to sign a confidentiality agreement that they will not testify or present evidence as to what happened in the mediation, and that they acknowledge such information and statements are both privileged and inadmissible.

D.  I tell parties that if I’m subpoenaed I will oppose it, and that I have insurance to cover the cost.

E.  I try to conduct the mediation so that the parties control the process as much as possible (this is called party autonomy), and certainly if a party wants to know who is coming and what issues are going to be discussed I will make every effort to get that information to that party (this is called not ambushing a negotiator).

F.  When a party tells me they’ve moved for summary judgment and want to wait for the motion before mediating, I tell them to come on along anyway and explain to the other side why they have a slam-dunk; better we should try to assess the merits than have a judge do so, who knows the law but doesn’t know either of your businesses.

G.  Maybe I’m dealing with a lot of dumb folks, but when I suggest risk analysis, or walk a party through a simple decision tree, most of them are unfamiliar with the technique.  Indeed, the very idea that a 100% win three years from now means a present-value discount for payment today is news to a lot of litigants and often changes their thinking.  Failure to engage in risk analysis is contempt?  Who knew?

H.  If I heard that any mediator threatened a party or its counsel with reporting its mediation conduct to a court, not only would I agree that the counsel should never again engage that mediator — I would never do so either.

Am I nuts here?  Are mediators who practice as I practice making a big big mistake?  Most important, is a party’s clear statement of an unwillingness to pay, accompanied by the facts and law supporting that view, now sanctionable?

The interesting thing about the arbitration agreement in Rent-a-Car, West v. Jackson is that there wasn’t anything for the arbitration agreement to nestle into.  The document evidenced only an agreement to arbitrate.  Other terms of any commercial agreement between Jackson and his employer were set forth elsewhere.  This was just a “Mutual Agreement to Arbitrate Claims.” 

So when Jackson was prompted to sue his employer for racial discrimination, the federal district court didn’t have an arbitration agreement to sever from the rest of the contract.  It had only the agreement to arbitrate itself, in all its lonely glory.

Which Jackson said was unconscionable because it was thrust upon him and unfairly limited his ability to vindicate his statutory rights.

And which provided that questions of unconscionability were to be decided by (guess who?) the arbitrator, not the court.  Take that, Prima Paint.

As the Court put it, “this case differs from Prima Paint [and other cases] in that the arbitration provisions sought to be enforced in those cases were contained in contracts unrelated to arbitration . . . [while in] this case, the underlying contract is itself an arbitration agreement.”  Slip op. at 8.

No problem, says the Court.  Jackson challenges the arbitration agreement as a whole but not the provision delegating unconscionability to the arbitrator.  Therefore, in the absence of an allegation that that particular provision is unenforceable, the provision is presumptively valid under FAA Section 2.  So the arbitrator, not the court, shall decide the enforceability of the agreement.

The agreement to arbitrate.

The one that Jackson says is unenforceable.

No problem here, right?  Jackson never alleged that the delegation provision in particular was unconscionable — just that the entire agreement was.  And the delegation provision is (guess what?) severable from the rest of the agreement to arbitrate!  Surely, explains the Court, “there is no logical reason why an agreement to arbitrate one controversy (an employment-discrimination claim) is not severable from an agreement to arbitrate a different controversy (enforceability).”  Id. at n. 3. 

Well if you want to press it, there is no reason why the parenthetical phrase that begins this sentence is not severable from the declarative clause that ends it.

I just finished teaching a law school course on ADR and I’m sitting here  trying to figure out this distinction so I can do a bang-up job the next time I teach the course.  I see how the arbitration agreement is severable from the rest of a contract.  Now, is the law that each aspect of the arbitration agreement severable from each of the other aspects of the arbitration agreement?  Professor, can I ask a few questions please?

1.  Is this gonna be on the test?

2.  If I want to allege before a federal district court that an arbitration agreement is unenforceable under FAA Section 2, do I have to allege each aspect that renders it unenforceable?  Each provision?  Each phrase?  Each word?

3.  How about if the Court found for Jackson?  If I enter into a contract to provide McDonald’s with buns, and sign a bun contract with an arbitration clause, could I allege that it’s unconscionable because it was forced on me by a company with greater bargaining power?  At least I can buy myself a few months getting my counterparty wrangled up in federal district court?  And then the Court of Appeals?  And then … ?

4.  Should everybody now draft their arbitration clauses on separate pieces of paper, with separate signature blocks, from the main agreement, so they can evade court scrutiny?

5.  Helpful as Rent-a-Car is, what will the Court decide when confronted with this question with a contract that is (gulp!) written as a single document!!??

6.  Do I still have time to readjust my bets on whether the Arbitration Fairness Act will pass, short-cutting all of this nonsense by rendering all arbitration agreements in all employment relationships unenforceable as a matter of federal law?  And won’t we be happy then?

…At least I’ll know how to teach it….

Ya gotta smile.

The authors note that, in Italy,

civil proceedings have increased by 90 percent from 1979 to 2009.  The average duration is 887 days for a decision of a court of the first instance, 808 days for the court of appeal and 912 for the Supreme Court: 2,607 days in total, or about seven years.

In light of this state of affairs, the Italian Government itself was found to have violated the Convention’s court access provisions and fined €41 million between 2002 and 2006.  So what could possibly be wrong with an alternative procedure to obtain redress during one’s own lifetime?  A lot, in Italy, if you’re a judge, I guess.  (Do these guys get paid by the case?)

In the case at issue, a customer sought €1,000 because the phone company had failed to deliver telecommunications services, including internet.  Her claim, filed before a Justice of the Peace in Naples, was deemed inadmissible because she had not first submitted to mediation as required by the prevailing statute governing consumer complaints in telecommunication.  The mediation is free of charge (unless conducted by a private provider at the parties’ election) and must be completed within 30 days. The Justice of the Peace ruled that the regulation denied the consumer access to the courts and referred the matter to (who else?) the court.

The authors further note:

The World Bank ranks Italy in 156th position (out of 181 ranked countries) for enforcement of contracts, coming after Angola, Gabon and Botswana.  By contrast, in 2009 alone, a total of approximately 30,000 disputes in the area of telecommunications services were settled through mandatory mediation, with an average duration to settlement of 60 days.

Noting that “in most consumer disputes the inordinate length and excessive cost of the legal procedure are out of proportion to the limited value of the case,” the authors review EU Directives concerning both telecommunications and ADR, and mandatory mediation provisions (for and against) in Germany, Poland, Austria, Greece, Slovenia, Spain and England. 

They conclude that “mandatory mediation does not involve the problems connected with mandatory arbitration because access to the courts is only temporarily suspended and the parties cannot be forced into an agreement.  It is only the attempt to resolve the dispute that is mandatory, not the agreement.”  Thus, they conclude, as long as the mediation is quick, transparent, simple and inexpensive, and as long as the claim reverts to the court in the event of impasse, the requirement to mediate ”pursues legitimate objectives in the general interest” and should be permitted.

Two thoughts:  Is anyone bothered by the fact that the analysis starts with a clearly dysfunctional court system and considers alternatives to it, rather starting with the needs of consumers for redress and considering the best way to provide that service?

Second:  Might the United States consider, instead of class action arbitration, consumer protection statutes and other meat-cleaver approaches to reform, a similar system requiring individual consumer claims to be mediated prior to being litigated?  That is to say, having their problem actually resolved promptly and on terms they agree to?  Or is that too radical?

ADR Center is now a member of JAMS International, and Giuseppe advises that ”our ”mega’ project, ‘Lawyers and ADR,’ is about to come to an end.”  If Giuseppe says it’s “mega,” you know we’re talking big.

And big it is.  “Lawyers in ADR” comprises three connected, EU-funded projects to promote the purposes of the EU Directive on ADR.  As Project Director, Giuseppe has created a web site to encourage greater sophistication in ADR by European lawyers; conducted a survey to gather data on the cost of not using mediation; published eight e-books in eight languages on mediation advocacy (the English language one authored by our hero Dwight Golann); and prepared a video on cross-border mediation that is currently being translated into 23 EU languages. 

(If you want to count ‘em up, that’s Bulgarian, Czech, Danish, Dutch, Estonian, Finnish, English, French, Greek, Hungarian, Italian, Irish, Latvian, Lithuanian, Maltese, Polish, Portugal, Romanian, Slovak, Slovene, Spanish, Swedish and German.)

In his spare time, Giuseppe has arranged an international conference to present the project’s products, offered training courses for EU lawyers on civil and commercial mediation; continued his teaching at Hamline; and grown wings.

(Just kidding about the wings….)

The project web site is an impressive piece of work,.  Those of us who have labored on the Directive can only be thankful that Prof. De Palo continues his esteemable work to make it happen in Europe. 

“Baseball is like church,” said Dodger manager Leo “the Lip” Durocher, “many attend,  few understand.”  “It ain’t over ’til it’s over,” Yogi Berra is alleged to have said, along with smackers that capture the core truth of the entertainment industry: ”If people don’t want to come to a ball game, you can’t stop ‘em” and “That restaurant is so crowded nobody goes there any more.”

(These Yogi-isms have entered American myth, but are impossible to prove.  As he himself protested,  “I didn’t really say everything I said.”  Yogi lives in my town of Montclair, New Jersey, and his directions to get to his house are absolutely accurate:  “Go along Edgewood Road, and when you come to a fork in the road, you take it.”)

More to the point of this essay is Bart Giamatti’s famous warning:  “Baseball breaks your heart.  It’s designed to break your heart.”  And it has done it again.

Young Armando Galarraga of the Detroit Tigers pitched a perfect game the other day — 27 batters, three per inning for all nine innings, and got out every one.  This feat had been accomplished only 18 times in baseball history until this year.  The 27th batter boinked a grounder to the infield; the first-baseman grabbed it and Galarraga himself ran over to first base, caught the ball a full stride before the runner with his own foot on the base and jumped in ecstasy….

Until he saw that the umpire called the runner safe.  The man was now on base, the perfect game would not be had, and history had blown a kiss and fled.

A moment of incredulity paralyzed the kid, and then… he smiled.

As you see in the clip above, the kid smiled as only someone about to get hit by a truck could smile.  His fate was known, his joy was gone, and it was time to live with the memory of what had happened — he was reconciled to the fact that he would never have the thing he deserved.

So blatant was the umpire’s mistake that even he knew it.  Within minutes of the game’s ending he went to the Tiger’s locker room and personally apologized to Galarraga.

Now, baseball is surely the most over-regulated game imaginable.  Every play is called safe or out.  Every pitch to every batter is adjudicated either within or outside the hittable zone.  Every hit ball is declared fair or foul.  And while all players are demerited with “errors” for their mistakes, the umpires never are.

It would be entirely understandable to appeal this game to the Baseball Commissioner.  To condemn the umpire at fault.  To insist on instant replays of close (or in this case not-so-close) plays.  To “get it right.”  It would certainly be understandable if fists and spit flew; it has happened before.

But that’s not what happened this time.  When he was interviewed after the game, Galarraga said he knew the umpire was a veteran, was doing his best, and had made a mistake.  “Nobody’s perfect,” said the perfect-game pitcher. 

And at the start of the next day’s game, Detroit’s manager didn’t go out to hand the line-up card to the umpire, as is customary.  He sent Galarraga.  The pitcher gave the ump the card and shook his hand, and the ump wept.  “Play ball” went the shout, and Major League Baseball moved on.

There are at least two hard truths nestled in all this sentiment, from the perspective of a problem-solver and a conflict manager.  One is that it’s better when you recognize, early on, when things are out of your hands and beyond your control.  Whether they are fair is an independent consideration: if they are beyond correction, then rational  options are narrow and should be accepted as being narrow.

The second is a saying even older than Bart, Yogi and Leo the Lip.  American notions of justice and the assurances of vindication notwithstanding,

“the race is not to the swift, nor the battle to the strong, neither yet bread to the wise… but time and chance happeneth to them all.”  Ecclesiastes 9:11