Alternative resolutions on rise, but rules come under attack.

ATTORNEY Nancy Abell has spent years defending Los Angeles businesses against employment claims such as sexual harassment and unjust termination.

But sometimes, she doesn't take her cases to court--and that suits her just fine. Instead, these cases can be resolved within days in a low-key office with a judge-arbitrator presiding.

"You get judges who have one case (at a time) to do. They are completely immersed in it," said Abell, a partner with Paul Hastings Janofsky & Walker LLP and head of the firm's employment law department. "It's more businesslike. It's more rational. It's more thorough."

That's not the way consumer attorney Cliff Palefsky looks at it.

He's been watching a rise in the number of business disputes being resolved by arbitration, mediation and other forms of alternative dispute resolution. For many jobs, agreeing in advance to mandatory arbitration is often a condition of employment.

"Alternative dispute resolution, when voluntary, can work for both sides," Palefsky said. "When it is mandatory, you eliminate the checks and balances that make it fair, and it's an invitation to abuse."

Consumer attorneys, employment rights activists and others have drummed up a backlash against the process, saying it's often tilted in favor of businesses. Most consumers agree to it when they get a credit card (even if they don't realize it), and it's often required when consumers have complaints about their stockbroker.

The complaints have prompted the American Arbitration Association and the California Supreme Court (through its Judicial Council and a court ruling) to institute reforms. New ethics standards for arbitrators, for instance, have been promulgated by the Judicial Council, though Palefsky and others say they do not go far enough.

Startling growth

While both sides agree that the use of alternative dispute resolution is accelerating, it's unclear how many disputes might otherwise have ended up in courts. Part of the problem is that not all mediation and arbitration is court ordered. Moreover, many occur in private, without oversight by any governing body.

Still, the American Arbitration Association's caseload of arbitrations has grown from 76,144 in 1997 to 150,009 in 2002. "It's almost part of (the) corporate culture," said Roy Arbeit, senior vice president of marketing for the New York-based association.

The rules of arbitration make it nearly impossible to appeal any decision, a key attraction since that guarantees swift resolution to cases. In fact, the California Supreme Court has ruled that an arbitrator's decision cannot be appealed even if it violated clear legal rules and causes substantial harm to one of the parties. But the prospect appears to worry few businesses when the drawbacks of arbitration are weighted against wild-card jury awards.

"The problems with juries is there tends to be awards and decisions not necessarily aligned with the facts," said Philip Maynard, chief legal officer of FileNET Corp., a Costa Mesa-based software company,

Attorneys who represent employees, consumers and other individual parties have taken their concerns over mandatory arbitration to the California state Legislature, which passed four separate bills two years ago aimed at reforming the process.

One required arbitrators to more fully disclose potential conflicts of interest, while another required private arbitration companies to publish quarterly data on their consumer arbitrations, including the amount of the claim, the cost of the proceeding to each party and the outcome.

A third law required the Judicial Council, an arm of the state Supreme Court, to publish new ethics rules for arbitrators, including disclosure of professional relationships with one of the parties.

Those rules, which were subsequently published, are now under attack by the National Association of Securities Dealers, which promotes arbitration to resolve disputes between investors and brokers. The NASD has sued to overturn the rules, saying they violate federal securities laws.

Ira Spiro, a Los Angeles plaintiffs' lawyer and chair of the State Bar of California's ADR Committee, said mediation works but mandatory arbitration agreements can sometimes be unfair.

"By and large if you are a lawyer for a large business your obligation is to write an arbitration agreement that gives your clients the greatest advantage the law will tolerate," he said.

What About Mediation?

They're both methods of alternative dispute resolution, but don't confuse mediation and arbitration. They're also two very different animals.

Mediation involves the use of a skilled facilitator, often an attorney, who assists two opposing parties in reaching a negotiated settlement. Businesses often enter mediation voluntarily to avoid litigation, though many California courts now require legal adversaries to at least attempt mediation before pursuing a lawsuit already on file.

Arbitration is generally pursued outside the court system, and involves the use of arbitrators, often retired judges, who act as judge and jury. It can follow a failed mediation process, and is often mandated by employment and other contracts, including between businesses. An arbitrator's award is generally final and nearly impossible to appeal.

Besides mediation and arbitration, there also are other alternative dispute resolution services such as judicial-reference, in which a private judge is hired to hear a lawsuit following traditional court rules but avoiding busy trial courts. Those decisions can be appealed.--Laurence Darmiento