The impact of the ADR Act of 1998.

Does the new act amount to a revolution or evolution? Whatever it may represent, it is coming to a courthouse near you.

The modern lawyer can be viewed as a problem solver and negotiator--an advocate who is not afraid to take a case to trial but who also knows the value of court-based and private alternative dispute resolution (ADR).

Although the term ADR traditionally connotes alternatives to litigation, a better phrase might be appropriate dispute resolution, since a variety of procedures may be used during various stages of the litigation, especially in the precomplaint phase.

ADR options include but are not limited to court-annexed or nonbinding arbitration; early neutral evaluation; summary jury trial; mini-trial; voluntary mediation; and judicial mediation, which includes the use of settlement conferences and magistrates. (See the accompanying sidebar describing these procedures.)(1) Each of these procedures also has several hybrids.

The ADR concept was formally introduced into the federal court system as an arbitration pilot project and one of the goals of the Civil Justice Reform Act of 1990.(2) Many state ethics codes and local courts, however, had already begun to require that lawyers discuss options with their clients and opponents as did many federal judges at Federal Rule of Civil Procedure 16(b) scheduling conferences.(3)

Lawyers who deal with administrative cases involving government agencies had also been asked to consider ADR at various stages in litigation as part of the federal effort to reduce expenses and provide quicker solutions.(4)

With the October 30, 1998, enactment of the federal Alternative Dispute Resolution Act, all federal district courts are required to authorize the use of ADR in civil actions and bankruptcy adversary proceedings.(5) Litigants must consider the use of ADR, either through private providers or through a court-based program, at appropriate stages in their lawsuits.

It is possible under the act that courts may require litigants at some point during the case to certify they have considered alternatives to litigation. However, the act is silent on the means that courts may use to show that litigants have considered them.

As part of the law, Congress stated that

   when supported by the bench and bar and utilizing properly trained neutrals
   [the people who conduct ADR] in a program adequately administered by the
   court, [ADR] has the potential to provide a variety of benefits, including
   greater satisfaction of the parties, innovative methods of resolving
   disputes, and greater efficiency in achieving settlements.(6)

Like state courts, most federal courts were already conducting some form of ADR before Congress passed the act, but the extent and frequency of use varied widely. A federal courts study conducted by the Federal Judicial Center and the Center for Public Resources (CPR) showed that in 1996 the most prevalent form was mediation, followed by arbitration, summary jury trials, and early neutral evaluation.(7)

The study also reflected the expanding role of magistrate judges in settlement negotiations--one-third of all federal district courts have designated a magistrate judge as the primary settlement officer--and the continued viability of judicial settlement efforts.(8)

The 1998 legislation, however, specifically removed judicially convened conferences from the ADR definition. The 10 federal district courts that established mandatory arbitration programs under the Civil Justice Reform Act may continue them, but arbitration can no longer be used in other districts without the parties' consent.

Key features of the act

The law requires federal trial courts to establish at least one ADR program, and it encourages the courts to offer several choices as part of a "multidoor" approach.(9)

Peter Steenland Jr., senior counsel for ADR for the U.S. Department of Justice, said he hopes courts will focus not only on docket control but also on using ADR to help litigants reach creative and satisfying solutions.(10)

The Judicial Conference of the United States, in its 1995 long-range federal courts plan, recommended that "district courts ... be encouraged to make available a variety of alternative dispute resolution techniques, procedures, and resources to assist in achieving a just, speedy, and inexpensive determination of civil litigation."(11)

Magistrate Judge Wayne Brazil said the ADR Act will promote evolutionary change. "There won't be major programs overnight," he said, "but there is now official recognition of ADR at the trial court level."(12)

The law allows individual federal courts to retain a high degree of discretion and flexibility, including the ability to determine the extent of the court's ADR program, what types are used, what disputes are covered, and how neutrals are trained and reimbursed. The law set no implementation deadline, but it is phrased to ensure the immediate operation of the programs, many of which were already in place when the statute took effect.

The law also

* allows courts to order parties to enter mediation or early neutral evaluation processes but requires the parties' consent for arbitration or summary jury trials.

* directs each court to examine any existing ADR programs for compliance with the law.

* orders courts to raise the maximum threshold for case values from $100,000 to $150,000 for arbitration procedures.

* authorizes the Federal Judicial Center and the Administrative Office of the U.S. Courts to help courts establish or improve dispute resolution programs. The administrative office is considering reimbursing neutrals' transportation costs, and the judicial center is identifying practices employed in successful programs and keeping copies of local rules on file.(13) The statute does not provide oversight responsibility, however.

* requires each district court to consult with members of the bar and the U.S. attorney to determine what types of civil cases will be covered and which categories of cases will be exempted.

* directs each court to establish rules for neutrals concerning conflicts of interest and confidentiality. (A uniform set of rules could be adopted for all courts regarding neutrals, but none is currently under consideration.)(14)

* requires that a court's program be administered by a court employee or designated judicial officer to ensure proper oversight and implementation and to conduct the screening, recruiting, and training of neutrals and arbitrators.

* authorizes funding but does not appropriate new money for these programs.

Many courts will likely develop their local rules--if they haven't already--by looking to existing state and federal programs for guidance. The Federal Judicial Center and the Administrative Office of the U.S. Courts are briefing judges and other court personnel to help the courts develop a program.

Other jurisdictions, such as the U.S. Circuit Court of Appeals for the District of Columbia, have extensive ADR systems in place. Their job may require codifying what already exists.

Jurisdictions that have little or no case backlog may fail to see the virtues of ADR. But even the "rocket docket" of the Eastern District of Virginia has costs associated with taking a case to trial, and ADR may mean one less case for that court to decide. Other courts may continue to rely mostly on judicial settlement conferences or on magistrate judges who may or may not have received adequate training in the alternative dispute resolution program envisioned by the act.

When to use ADR

David Sellinger, a Washington, D.C., lawyer and mediation proponent, said that even without the federal law, trial lawyers have long been considering alternative dispute resolution for many disputes.

"Litigators in today's economic environment have to think about ADR in most every case they handle," Sellinger said. "Sometimes it's a matter of economics. Sometimes it's a matter of how best to reach the right result. In some cases there is no alternative way. One side has to win and one side has to lose, and you have to duke it out. But in many cases there can be a win/win outcome for both sides--or at least an outcome that both sides can endure and view as better than going through the cost and uncertainty of litigation."(15)

Every lawyer assesses whether a particular trial strategy or settlement offer will help his or her client. Will the client benefit most from a settlement, or is this the rare precedent-setting case where it is important for the client to get his or her day in court?

When considering whether a case is suitable for ADR, lawyers may need to reassess how best to balance the client's interests. Client satisfaction, manifested in the chance to be heard and to participate in the proceeding, and creative solutions, illustrated by remedies that few courts would grant, are the most common characteristics of successful alternative dispute resolution.(16)

Despite the beneficial aspects of ADR, the new law raises some important concerns in the areas of funding, ethics, and selecting neutrals.

Funding. Can these plans operate without adequate funding? Since the act provides no additional funding for these programs, the change may come slowly, as administrators are reluctant to reallocate scarce resources. There may even be pressures to blur the ADR categories into one undefined process, which should be resisted. Alternatively, there may be ways to use existing court personnel to operate these plans, or the courts may have to rely on volunteers.

Ethics. Confidentiality and the prevention of conflicts of interest are necessary to protect the integrity of ADR. Will all ADR neutrals have immunity from litigation, since confidentiality is the cornerstone of most procedures? The act specifically mentions immunity for arbitrators and the sealing of arbitration awards, but it is not specific about the other forms of ADR, although case law is emerging in these areas.(17)

In terms of conflicts of interest, the courts must resolve questions over the neutral's role as mediator and his or her role as counsel in other cases. Courts have already considered when and under what circumstances an attorney-neutral is barred from serving as counsel in future disputes.(18)

As these concerns continue to develop, a few individual federal courts and some state court systems are drafting ethical guidelines or standards of practice for neutrals on their rosters. Some professional organizations of lawyers and neutrals are also developing ethical standards.(19)

Selecting neutrals. Although some courts provide mediation or early neutral evaluation through judges or magistrates, most of the courts' programs have come to rely on nonjudicial neutrals, who are usually attorneys.

Courts in nearly every district have created their own rosters of neutrals rather than relying on established lists or turning to private sector providers. However, as the CPR-Federal Judicial Center study noted, the bright line between court rosters and private providers is less clear. An increasing number of lawyers who participate in court-based programs also offer services in the private sector.(20)

Courts may look to a variety of sources for neutrals, including panels developed by state courts and nonprofit organizations that use volunteers or paid neutrals. Each court must consult with the local bar to develop rules to deal with these matters. The issue of national minimum training standards may also need to be addressed.

Although training standards may be necessary, the lack of appropriated funding may affect the court's ability to carry out its responsibility of providing adequate ADR training and staffing for neutrals and court employees.

In earlier days, court-appointed neutrals were rarely paid. In fact, this remains the case for volunteers in the D.C. Circuit. The 10 pilot programs in the federal courts were funded by Congress under the Civil Justice Reform Act of 1990, and each court determined whether the neutrals were paid.

Today, many courts require the parties to pay neutrals or to rely on pro bono volunteers. In 1996, two-thirds of the courts with mediation programs required the parties to pay neutrals a fee. Of the 41 courts offering attorney-based mediation, only 9 provided that service without charge.(21)

ADR tips

Today's judges expect trial lawyers to be knowledgeable about ADR in general and about the court's programs in particular. You should learn as much as possible about the local rules and informal practices, how neutrals are selected and reimbursed, and how other cases have been resolved.

In the past, many ADR proponents considered alternative resolutions to be appropriate only for trial-ready cases. Now ADR is more often integrated into a judge's overall case-management practices and is considered much earlier in the case. This is especially true regarding mediation and early neutral evaluation because the parties realize far greater savings and can implement solutions more readily at an earlier stage when they have invested less in the conflict.

If the mediator or early neutral evaluator requires a brief, be ready to present a concise statement of the facts and relevant arguments as well as the remedies you are seeking. In advising your client, indicate as appropriate the confidential nature of most of these proceedings. You must also understand the differences between a joint meeting and the special caucus or private ex parte session with the neutral.(22)

When using ADR, be flexible. In most cases, clients, not lawyers, control the process. Clients negotiate for the same reason they litigate: to win. They want to do so while incurring low expenses. Tell your client what to expect and that the neutral may speak to him or her directly. However, as one lawyer advises, you may caution your client that this is not a therapy session. Venting may be useful, but the purpose of meeting with a neutral is to demonstrate the strengths of the case rather than its weaknesses.(23)

Decide on the proper timing. Are you hitting a snag in negotiations that might be resolved with the help of a neutral third party? If so, and you decide to turn to mediation, see if you can participate in selecting the mediator. You may be looking for someone with special expertise or unusual credentials--someone who is creative but prudent.

Also be aware and advise your client that, depending on the nature of the dispute, mediation may require a number of sessions and extensive preparation.

Know that any statement made during mediation will educate the other party and that this information could be used at trial if no settlement is reached. While neither side can use any information specifically produced for the mediation, each can use documents and evidence that could be obtained in other ways.

When entering an ADR process, have a settlement agreement ready, either as a "framework" under which both sides can work or to present as a final document.

If you are involved in voluntary arbitration, be aware that more evidence may be admitted than that allowed at trial since the traditional rules of evidence usually do not apply. The remedies in voluntary arbitration, however, may be more constrained. Be ready with opening, cross, recross, and summation. Don't be surprised, however, if some arbitrators offer litigants the chance to settle after presenting their case but before the arbitrator issues an award.

Recognize that as ADR becomes more of a fixture in the courthouse, you will be seeing both litigators and neutrals in different roles working toward new agreements. Don't be surprised when you find yourself in either role.

Types of ADR defined

Many forms of alternative dispute resolution are currently used in the federal and state court systems. A sampling of them follows.

* Court-annexed or nonbinding arbitration. Litigants present their case to an arbitrator who issues a nonbinding decision--a decision or award that can be appealed. Local court rules usually set criteria identifying cases that must go through this process.

Cases based on contract or tort theory, rather than equitable relief, are most often submitted for this type of arbitration. Any party that decides not to accept the award, which has the force of a court judgment, can demand a trial de novo.

* Early neutral evaluation. Lawyers accompanied by their clients and insurance company representatives who have settlement authority present summaries of their case to a neutral party, usually after the first status conference. This neutral person has substantial expertise in the pertinent area of law and is usually a respected private lawyer, retired judge, or law professor who identifies the issues and assesses the likely outcome of the case.

The early neutral evaluation program was created in 1982 by a task force of lawyers and judges appointed by Chief Judge Robert Peckham of the U.S. District Court for the Northern District of California. Through the efforts of Magistrate Judge Wayne D. Brazil, extensive use has been made of this procedure in Northern California.

* Summary jury trial. A court conducts an abbreviated jury trial and the jury issues a nonbinding verdict. These trials usually occur after discovery is completed when the case is ready for a traditional trial.

Judge Thomas Lambros of the U.S. District Court for the Northern District of Ohio created this concept, which he and Judge Richard Enslen of the Western District of Michigan have used quite frequently.

* Mini-trial. Litigants present an abbreviated version of the case to the opposition's decisionmakers--the business representatives who have full authority to settle. While this is neither a trial nor very short, a mini-trial does provide the actual decisionmakers a way of understanding the issues that are involved in the dispute and may help the parties come to resolution. Minitrials have been used by the U.S. Army Corps of Engineers to resolve contract disputes.

* Voluntary mediation. Litigants meet with an outside mediator or panel of neutral people who help them try to reach agreement. Neutrals play a nonjudgmental role, although some mediators are "evaluative" and will deal with the subject matter while others are more "facilitative" and work on procedural issues.

Still others call themselves "transformative" and see the mediation process as a way to empower the parties to recognize each other's interests.

* Settlement conferences. A magistrate meets with litigants and attempts to help them reach a settlement prior to trial.

* Special masters. Litigants present their cases to a third party, who then prepares a recommendation to the court. This function is growing as these officials help in enforcement as well. Special masters are generally used only in particularly complex litigation.

* Formal settlement negotiations. Litigants are required to attempt to resolve the issues in the case before judicial involvement.

* Settlement week. The litigants are encouraged to employ a variety of alternative dispute resolution techniques to have their cases resolved during a particular week on the court's calendar.

Federal courts

Most federal courts were already conducting some form of ADR before Congress passed the ADR Act of 1998.

Notes

(1.) See Stephen B. Goldberg & Frank E.A. Sander, Fitting the Forum to the Fuss: A User-Friendly Guide to Selecting an ADR Process, 10 NEGOTIATION J. 49, 60-61 (1994). See also Stephen B. Goldberg & Frank E.A. Sander, Fitting the Forum to the Fuss: Factors to Consider When Selecting an ADR Procedure, 12 ALTERNATIVES TO HIGH COST LITIG. 48 (1994).

(2.) 28 U.S.C. [subsections] 471-82 (1994). Amendments to Federal Rule of Civil Procedure 16(c)(7) authorized the use of "extra-judicial procedures" to resolve disputes in 1983, but most federal court ADR systems did not emerge until the 1990s.

(3.) For a comprehensive report on ADR procedures in the 94 federal district courts under the Civil Justice Reform Act of 1990, see ELIZABETH PLAPINGER & DONNA STIENSTRA, ADR AND SETTLEMENT IN THE FEDERAL COURTS: A SOURCEBOOK FOR JUDGES & LAWYERS (1996). A number of courts have printed brochures that describe their programs, which they make available to litigants.

(4.) The Administrative Dispute Resolution Act of 1996 (5 U.S.C.S. [subsections] 571-585 (1998)) requires federal agencies to look at their mission to see where ADR might be effective. Many offer a range of procedures for disputes involving contracts, bid protests, administrative law, employment, civil enforcement, and negotiated rulemaking for creating draft administrative rules through negotiations and consensus.

The U.S. Department of Justice has promulgated its own rules concerning consideration of ADR for many cases, and the Equal Employment Opportunity Commission has launched a nationwide mediation effort to resolve its backlog. The U.S. Postal Service developed a program called REDRESS, using outside mediators to assist in resolving certain workplace disputes during the informal complaint stage.

(5.) H.R. 3528 became Pub. L. No. 105-315, 112 Stat. 2993 (1998) (to be codified at 28 U.S.C. [subsections] 651-658).

(6.) Pub. L. No. 105-315,112 Stat. 2993 [sections] 2, "Findings and Declaration of Policy" (1998).

(7.) PLAPINGER & STIENSTRA, supra note 3, at 4-5.

(8.) Id. at 4-28.

(9.) The multidoor concept is the brainchild of Harvard Law Professor Frank E. A. Sander, who in 1976 suggested that courts offer a variety of ways to resolve disputes, including court-annexed arbitration, mediation, early neutral evaluation, case valuation, and fact-finding. Courts in the District of Columbia; Houston; and Tulsa, Oklahoma, were chosen as sites for multidoor pilot programs sponsored by the American Bar Association's Standing Committee on Dispute Resolution.

(10.) Telephone interview with Peter Steenland Jr. (Feb. 11, 1999).

(11.) JUDICIAL CONFERENCE OF THE UNITED STATES, LONG RANGE PLAN FOR THE FEDERAL COURTS, Recommendation 39, at 70-71 (1995).

(12.) Telephone interview with Wayne D. Brazil (Mar. 1, 1999). For an in-depth description of these processes, see WAYNE D. BRAZIL, EFFECTIVE APPROACHES TO SETTLEMENT: A HANDBOOK FOR LAWYERS AND JUDGES (1988).

(13.) The Federal Judicial Center has created a briefing video and is conducting workshops for federal judges, court administrators, and clerks to implement the act.

(14.) Based on interviews with officials from the Federal Judicial Center and the Administrative Office of U.S. Courts, there is no immediate plan to develop national rules for confidentiality or conflicts of interest. Local rules by each court will apply under [sections] 4(d) of the act.

(15.) Telephone interview with David Sellinger (Mar. 19, 1999).

(16.) See COURT-ANNEXED MEDIATION: CRITICAL PERSPECTIVES ON SELECTED STATE AND FEDERAL PROGRAMS (Edward J. Bergman & John G. Bickerman eds., 1998).

(17.) Folb v. Motion Pictures Indus. Pension & Health Plans, 16 F. Supp. 2d 1164 (C.D. Cal. 1998) (sustained magistrate judge's decision barring the mediation record's production on the ground that there is a federal mediation privilege under Fed. R. Evid. 501. The court noted every state except Delaware has adopted some form of mediation privilege); see also Bernard v. Galen Group, Inc., 901 F. Supp. 778 (S.D.N.Y. 1995) (sanctioning an attorney for disclosing a mediation settlement offer to the court).

(18.) See, e.g., Poly Software Int'l, Inc. v. Yu Su, 880 F. Supp. 1487 (D. Utah 1995) (entire law firm disqualified when an attorney who had conducted mediation sessions involving two parties represented one of the parties in a subsequent suit).

(19.) See, e.g., CARRIE MENKEL-MEADOW & ELIZABETH PLAPINGER, CPR-GEORGETOWN COMM'N ON ETHICS AND STANDARDS IN ADR, PROPOSED MODEL RULE OF PROFESSIONAL CONDUCT FOR THE LAWYER AS THIRD PARTY NEUTRAL (1999) (draft report available at http:// www.cpradr.org).

(20.) PLAPINGER & STIENSTRA, supra note 3, at 9-10.

(21.) Id. at 10-11.

(22.) BRAZIL, supra note 12, at 63-70.

(23.) See David M. Stern, Mediation: Old Dog with Some New Tricks, 24 LITIG. 34-35 (1998).

Eileen Barkas Hoffman is director of special projects at the Federal Mediation and Conciliation Service in Washington, D.C. The views expressed in this article are the author's and do not represent an official agency position. Special thanks to Donna Stienstra, Wayne Brazil, John Bickerman, and John Martin for their assistance in preparing this article.3