Recent reports show some businesses are reporting major cost savings from using ADR (Alternative Dispute Resolution):
- Design Professionals Insurance Co. (one of the largest insurers of engineers and architects) reports $10 million savings in legal fees in 3 years (malpractice); and 75% of mediations result in agreeable solutions, with $54,000 saved per claim.
- Federal Deposit Insurance Corp. - $24,000,000 saved in 3 years.
- Resolution Trust Corp. - $115,497,232 saved in 4 years.
- U.S. Air Force - $4,000,000 in savings on 100 EEO complaints (50% savings).
- U.S. Mint - $3,000,000 in savings on 220 EEO complaints.
- Price Waterhouse survey of corporate law departments - 45% of companies reported savings of over $100,000;10% of those saved over $1,000,000.
- General Mills - refuses to do business with companies that won't use ADR, and reports millions saved in legal fees and saved management time.
A recent SMS Research study on the mediation program in Hawaii's Small Claims Court (which requires parties to attempt to mediate a dispute with a trained mediator before being able to have a trial before a judge) was the first effort at a comprehensive statistical survey of consumer satisfaction with an ADR program in Hawaii. The study found that in many instances, the parties who successfully mediated their disputes were happier than even the nominal "winners" who had prevailed at trial! Parties who resolved their cases via mediation instead of litigation were more likely to feel:
- the outcome of the mediation/verdict matched their original expectations (67% vs. 50%);
- the person to whom they explained the care listened "all the time" (68% vs. 41%);
- the verdict or settlement was fair (79% vs. 58%);
- they were "very satisfied" with the process (61% vs. 37%);
- they had control of the process (54% vs. 31%); and
- they were able to express themselves in the process (66% vs. 31%).
The parties also felt that mediation better preserved and enhanced their relationship with the opposing party, whereas litigation made their relationship worse.
When is ADR a good option?
ADR may provide a good option where the following factors are important:
- Cost savings - legal fees and costs can be substantial.
- Speed - mediation often takes 2-8 weeks, arbitration may take 3-9 months, but court cases may take 2-3 years.
- Confidentiality - can be closed to the public & media, with no files on record.
- Informality - fewer technical rules, lawyers are not required.
- Control over selection of an arbitrator or mediator - the parties decide.
- Control over time, location, procedures - the parties decide.
- Minimal discovery - generally limited to documents, not depositions.
- Preservation of relationships- reduces adversarialness, can create win/win creation of solutions a court can't even order.
- Finality - virtually no appeals.
What are the potential disadvantages of ADR?
ADR may not be a good option for some types of disputes because:
- Class actions, emergency relief, and cases seeking to create precedent are generally best handled in court
- ADR provides only limited discovery rights (unless the parties have provided more extensive discovery rights in their agreement)
- If the parties do not take the time and effort to select a highly skilled mediator/arbitrator, or to prepare properly, the result may be errors of law or fact, or a "split the baby" award that simply compromises the claim. Selection of the arbitrator or mediator is often crucial to the quality of the results achieved.
- A serious error of law or fact is generally not appealable.
- High-end awards of general damages and punitive damages may be less likely from an arbitrator than from a jury (although Hawaii arbitrators have made many awards of more than one million dollars).
- The lower cost threshold may permit more claims to be filed and go to hearing.
Some of these concerns can be addressed by writing specifically tailored procedures into an ADR clause (before a dispute arises) or into a submission to ADR (a party's agreement to submit to ADR after a dispute arises), and by selecting a highly qualified mediator or arbitrator. Indeed, custom-drafting ADR clauses and election of the arbitrator or mediator are two of the most important ways to assure that ADR can provide you "first class justice" in resolving your legal problems.
Many recent changes have helped advance the move from litigation to ADR.
The Hawaii Supreme Court has expressly upheld the right of employers to enter into and enforce binding arbitration agreements with their employees. This permits employers and employees with binding ADR clauses to avoid litigation altogether.
The Hawaii Supreme Court has also adopted an ethical rule stating that attorneys should discuss ADR options with their clients in any matter which entails litigation or potential litigation. This discussion should occur for plaintiffs and defendants in every legal dispute, and should include a frank assessment of the costs and benefits of ADR versus traditional litigation.
The Circuit Courts in Hawaii have this year implemented new rules requiring all parties in a civil suit to discuss ADR options early in a case. These rules authorize judges to order parties to pursue ADR in appropriate cases, before being permitted to proceed to trial.
Impetus from Hawaii's Judiciary and Bar
In addition to these recent changes, the Judiciary and the Bar have supported numerous programs to help increase the use of ADR and educate the public about alternatives to litigation:
- The Hawaii Bar has created an "ADR Pledge" program to encourage businesses to sign pledges to consider use of ADR in legal disputes
- The Hawaii Bar and Judiciary convened a Citizens Justice Conference in 1996 to help institute reforms for our civil legal system; half of the proposals adopted by the Conference include expanding the public's use and knowledge of ADR.
- Our Citizens Justice Conference Committee is putting volunteer attorneys into schools to promote a culture of personal responsibility and peaceful problem solving among Hawaii's youth.
- The Hawaii Bar Attorney Referral Service (537-9140) provides free referrals to arbitrators and mediators to assist the public in obtaining qualified ADR services.
- The Hawaii Bar has instituted numerous training programs and taskforces concerning ADR, to help educate the public and lawyers about ADR options.
- Hawaii was the first state in the nation to create within its Judiciary a Center for Alternative Dispute Resolution (CADR). CADR has ADR programs in operation in all courts on Hawaii.
- Hawaii was the first state to create ethical standards for mediators.
- The Hawaii Bar distributes free brochures on ADR to the public and provides free public speakers to organizations regarding ADR options.
Will ADR resolve every dispute? No. Arbitration of civil tort claims, in particular, is still more favored by businesses than individuals, due to their differing perceptions as to the virtues of jury trials. However, most cases are amenable to some form of ADR, especially mediation. In order for parties to agree to mediation, they each must have at least a modicum of trust in the mediator and in the other side's commitment to the process. Where the parties agree to pursue mediation, however, the great majority of cases are able to be successfully resolved without litigation.
In every case, we urge that ADR be considered as a first response to a legal dispute.