Alternative dispute resolution has a great many advantages over civil litigation. Even the courts have realized this, and institutionalized some forms of ADR as part of the litigation process. Beginning in the last half of the twentieth century, businesses of all types and sizes, as well as individuals, became aware of the advantages of ADR. The case studies that follow are intended to show the variety of disputes that can be resolved by ADR, highlight various processes and give some indication of the cost of each process. The case studies here are not exhaustive as to processes or applicable situations.
Larry Landowner lives below Hilltop Farms. His property, including his basement, is frequently flooded by agricultural runoff. He claims that Hilltop’s irrigation system is defective and threatens to sue for negligence and nuisance. Hilltop claims its irrigation system was designed by the Natural Resources Conservation Service (part of the Department of Agriculture) and that it is protected by state right to farm statutes.
Recommended ADR process: Mediation.
Likely cost: Some states have subsidized agricultural mediation programs, but not all disputes are eligible. Private mediation will likely cost between $300 and $825 an hour depending on location and the expertise of the mediator. Some may go charge even more. Most parties bring lawyers to mediation. Rural lawyers charge as little as $200 an hour, while big city partners may exceed $1,000. In general, hourly rates will range from $350 to $525.
Fred owns a small restaurant, which he hires Gordon to manage. The business account is with First Merchants Bank. Gordon, who is not authorized to sign checks, forges one to a restaurant supply company for $60,000 worth of equipment. He sells the equipment and pockets the money. He loses the money gambling. Two months later, Fred notices the forgery, calls the police and the bank, and demands reimbursement. The bank refuses, citing the delay in reporting the forgery.
Recommended ADR process: Mediation.
Likely cost: As above for mediation.
Charlie and Dale have known each other since childhood. After college, they established a small engineering firm together. It has now grown to over a dozen employees. Charlie married early and has three kids. Dale is still single and spends much more time at the office, including doing most of the managing, which he hates. He is bitter about his unequal contribution to the business and wants out. Charlie does not want to lose his partner. They are unable to agree on a buyout amount.
Recommended ADR procedure: Mediation. If mediation fails, a binding business appraisal (which courts have treated as arbitration).
Likely cost: Business appraisals cost between $3,000 and $30,000, depending on size, complexity, and industry.
Universal, a Minnesota manufacturer of farm equipment, enters into a requirements contract with Transpacific Mechanical, based in British Columbia, Canada, to supply gears of various sizes and specifications. After a number of complaints that its new tractors are breaking down, Universal threatens to sue Transpacific for $5 million, claiming that it is providing substandard goods.
Recommended ADR process: Arbitration by a single arbitrator. Almost all international commercial contracts contain arbitration clauses because under existing treaties arbitration awards are easier to enforce than judgments of local courts.
A. Filing fees
B. Hearing fees
C. Administration fees
D. Arbitrator fees
E. Your Attorney fees
F. Administration expenses
G. Discovery costs
The fees you pay will depend not only on the arbitrator and your attorney but also on the arbitration provider’s fee schedule and the amount of discovery and law and motion allowed by the arbitration rules selected. Although arbitration traditionally had neither, that has changed, and parties often stipulate to both, dramatically increasing cost. Legal fees will be as above. Filing, administrative and other fees can vary from a few hundred dollars to many thousands depending on case type and amount at stake. Arbitrator fees usually range from $500 to as high as $1250 per hour.
Harry owns a sports memorabilia store. He hires Edward as a sales clerk. One day, Ira (an experienced collector of baseball cards) spots a 1960 Topps Carl Yastrzemski rookie card marked “2200.” Eddie sells it to him for $22.00 Instead of the intended price of $2200. The pre-printed sales receipt and change and arbitration clause. Harry demands that Ira return the card or pay the $2,178 difference between the intended price and the actual sale price.
Recommended ADR process: first-party negotiation or small claims court, with possible volunteer mediation. The rules of most arbitration providers exclude cases within the jurisdiction of the small claims court or at least allow the parties to opt-out of even binding arbitration. Even if your chosen provider does not do this, arbitration is not economically feasible and should be waived.
Likely cost: Free, except for filing and service fees
Lyrna Starr owns StarrBright, a clothing boutique catering to young people. She hired Lisa Gonzales as a cashier eighteen months ago. Lisa is the only Hispanic StarrBright employee. She is often a few minutes late to work and back from her breaks, and at times her cash drawer doesn’t reconcile at the end of the day. She has been counseled about these failings, but Lydia has taken no action because Lisa has a nice smile, is helpful with Spanish-speaking customers and people like her.
Lisa complained that on her birthday, someone left a gift-wrapped can of refried beans on her desk. Lyrna called a staff meeting to say such things were unacceptable, but the person responsible was not found. Another co-worker asked if she were late because she had taken a siesta. That employee was reprimanded and a negative note was put in her personnel file
One day, Lisa’s cash drawer is off by over $50. Unable to tolerate such a large discrepancy, Lyrna fires her. Lisa claims disparate treatment and racial discrimination. An angry Lyrna denies this.
Recommended ADR process: mediation, which can address the hurt feelings and sensitive allegations confidentially, and attempt to restore the damaged relationship.
Likely cost: As above for mediation.
The pop music trio Platinum Blonde has only been moderately successful, but its new single, “Dancing on the Rooftops” is a smash hit. For the first time, the band members have a chance at really big money. An energy drink company wants to pay a huge sum to use the song in advertising its sugar-and-caffeine heavy concoction, which will, it says, have consumers dancing on the rooftops at the first sip. Two band members want to grab the money and run. But the songwriter doesn’t want the greatest thing he has ever written used to promote “junk food,” and is perfectly happy to forgo the big check and hope for continued record sales. The stress of the disagreement threatens to break up the band just when it is most successful.
Recommended ADR process: Mediation seems best suited to preserving relationships so the band members can continue to work together and keeping private disputes out of the press.
Likely cost: As above for mediation.
David bought his young daughter Zoe a horse that the former owner, George, described as gentle. Within two weeks of delivery, the horse bucks Zoe off, injuring her. David discovers an undisclosed history of bucking, calling George a fraud. George claims a trainer resolved that problem and claims he had no duty to disclose it. He blames Zoe for spooking the horse.
Likely cost: As above for mediation
Jake and Cassandra have been married for 13 years. They have three children, a home, a vacation cottage, and substantial personal property. Both work. In fact, Cassandra is a workaholic lawyer. Jake, feeling neglected, often starts arguments over the unfair proportion of childcare and housework he must do, arguments for which an overtired Cassandra has no patience. While both are reluctant to divorce because of their strong religious beliefs, the current situation is not working.
Recommended ADR process: Marital Mediation (mediation to stay married) or, failing that, divorce mediation.
Likely cost: Marital mediation, not to be confused with family therapy, focuses on identifying existing issues and teaching couples to communicate and negotiate their disagreements. Cost is the same as mediation, though more than one session may be needed. In contrast, divorce mediation focuses on custody, support, co-parenting, property division, and visitation. The average cost is $5,000 to $10,000, more if co-mediation (one lawyer and one therapist) is chosen.
The city of Greenville is considering revamping its historic downtown area. Before doing so, it decides to hold a town hall to get input from residents, merchants, and other stakeholders. They hope to build consensus and reduce conflicts and their costs. Several hundred people are expected and lengthy documents will be discussed.
Recommended ADR process: Facilitation
Likely cost: $10,000-$15,000 per day. Perhaps half that for a small group.
Sunshine Software releases a powerful new operating system called Apollo. Sales are extraordinary. Nine months later, Wisdom Labs releases its Diogenes system, which is much more powerful than Apollo. Apollo sales plummet. Apollo sues Wisdom for patent infringement. It claims that Diogenes contains 30,000 identical lines of code (out of millions). Wisdom countersues to invalidate the Apollo patent.
Recommended ADR process: Arbitration before three experts, if attempts at negotiation and conciliation fail.
Likely cost: Variable, but in the millions… Both sides will be paying three arbitrators, higher filing and administrative fees and expenses, expert witnesses, and teams of lawyers. All professional participants will charge at the top of the fee range. Extended discovery and motion work will be allowed. This is the rare case where a party may choose to litigate to preserve the possibility of appeal. But even if this choice is made, intense conciliation efforts should continue. The law on software patents is currently in disarray, having recently changed. Software patents are particularly difficult to defend, but Sunshine could prevail.
The collective bargaining agreement between the city of Ridgebrook and The Ridgebrook Police Department will expire in 120 days. The Ridgebrook Public Employee’s Union demands a 5% salary increase. The City claims it has fallen on hard times and can afford no more than a 2% increase. The City reminds the Union that RPD members are prohibited by law from striking.
Recommended ADR process: Final offer arbitration, under which the arbitrator may only choose the best of the parties’ proposals, not craft an award independently. Both the process and the relevant factors arbitrators may consider could already be prescribed by statute. Final offer arbitration is frequently used in the public employment context. It often leads to pre-arbitration settlement to avoid the risk of total loss. After all, there can be no compromise. One side or the other will prevail completely.
Likely cost: As above, for arbitration. However, final offer arbitration is usually a quick process, sometimes requiring only one day. Of course, the more issues there are to resolve, the longer it will take. Sometimes lawyers are not used; however, research shows that those with professional representation win much more often than those without.
Bob and Carl are neighbors. They get into a shouting match while Bob is visiting Carl. Carl.’s St. Bernard, Greta, witnesses this, and is visibly upset. Later, Bob jumps Carl’s fence (which he has done before without objection from Carl) to apologize. Greta barks and growls, but Bob ignores her. When he is almost to Carl’s back door, Greta bites Bob, causing serious injuries.
Recommended ADR process: negotiation, mediation, and arbitration. Parties often use more than one ADR process during a case.
Likely cost: As above. Costs are additive. Some time and cost could be saved by using a hybrid process like med-arb.
Tom owns a twelve-acre beachfront estate. After a health scare, he and his wife decide to downsize and move to a house nearer to the hospital and in a warm, dry climate. Earl, a real estate broker, enters into a ninety-day exclusive listing agreement, providing for payment of a commission at the close of escrow if the broker produces a ready, willing, and able buyer on the listing terms or “any other terms acceptable to Seller.”
The property lists for $17 million. Less than a week later, Lynn, a cooperating broker, presents an all-cash offer from Omar for the property. Tom, realizing the market is hot right now, raises the price to $19 million. Earl, foreseeing a larger commission and possibly future business from Tom, does not object. Omar refuses the counteroffer and moves on. But Lynn says she brought a ready, willing, and able buyer to Tom, and demands the 2% commission she would have received had to $17 million deal with Omar gone through. Tom refuses to pay the requested $340,000 to Lynn. He points out that he had no contractual relationship with Lynn, that nothing prevented him from changing the price, and that close of escrow (a precondition to payment of commissions) has not occurred.
Recommended ADR process: Mediation, followed by single-neutral arbitration.
Likely cost: As above for Mediation and Arbitration. The cost is additive. Some savings may be realized by using a hybrid process such as same-neutral med-arb.
Just before dark one evening, Suzanne Adams is headed home in her SUV. She attempts a lane change, and sideswipes Will McNeil, in his 2007 sedan. Both cars are damaged; the SUV is dented lightly, the sedan severely. Neither Adams nor McNeil claims personal injuries. While both have insurance, neither is anxious to make a claim. Adams does not see well. She is afraid her license will be taken away. McNeil was speeding and had several drinks, though he doesn’t think he was legally drunk. The estimated damage to the SUV is about $2500, that to the sedan about $9250. The small claims limit in their county is $10,000.
Recommended ADR process: Negotiation by the parties. Failing that, small claims court.
Likely cost: First-party negotiating is free, as is third party negotiating through insurance companies, though rates can rise. Small claims have minimal filing fees and service costs. Not every dispute is suitable for private resolution, though the small claims court may have volunteer mediators available.
The situations illustrated here are each appropriate for one or more ADR processes. Which is appropriate for your own circumstances, and should be carefully decided in conjunction with your counsel and/or your potential ADR strategist.
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