Book Title
Business Law with UCC Applications 14th Edition

978-0077733735 Chapter 4 Lecture Notes

April 10, 2019
Chapter 04 - Alternative Dispute Resolution
Chapter 4
Alternative Dispute Resolution
I. Key Terms
ADR contract clause (p. 89) Mediator (p. 84)
Alternative dispute resolution Negotiated rule making
(ADR) (p. 81) (reg-neg) (p. 92)
Arbitration (p. 85) Non-governmental organization
Arbitrator (p. 85) (NGO) (p. 93)
Collective science court (CSC) (p. 94) Partnering (p. 89)
Early neutral evaluation (ENE) (p. 87) Post-appellate procedures (p 92)
International arbitration agreement (p. 93) Private civil trial (p. 88)
Med-arb (p. 87) Settlement week (p. 91)
Mediation (p. 84) Summary jury trial (p. 87)
II. Learning Objectives
1. Examine the shortcomings of litigation.
2. List the advantages and disadvantages of ADR.
3. Identify the advantages of mediation.
4. Explain the nature of an arbitration hearing.
5. Outline the med-arb process.
6. Relate the role of an early neutral evaluator.
7. Describe the process of running a summary judgment trial.
8. Clarify the private options available under proactive ADR.
9. Specify the governmental options available under proactive ADR.
10. Discuss the pros and cons of the collective science court proposal.
III. Major Concepts
4-1 A Briefing on ADR Strategies
Litigation has always been a part of the American legal system. Lately, however, things
have begun to change. The extensive backlog in many court systems and the perceived
injustice of many verdicts have led many people to seek other methods to redress their
grievances. These other methods are often grouped under the heading of alternative
dispute resolutions (ADR). Alternative dispute resolution occurs whenever individuals
attempt to resolve a disagreement by stepping outside the usual adversarial system and
applying certain creative settlement techniques, many of which have fact finding and the
discovery of truth as their goal.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 04 - Alternative Dispute Resolution
4-2 Responsive ADR Strategies
There are many different ADR techniques that can be invoked once a dispute has arisen
between parties. These include but are not limited to mediation, arbitration, med-arb,
early neutral evaluation, summary jury trials, and private civil trials.
4-3 Proactive ADR Strategies
Since ADR has become so popular in recent years, some business people are taking a
proactive approach to the situation by agreeing in advance to submit to one of the
alternative dispute resolution tools should a disagreement between the parties arise later.
These proactive ADR techniques include, but are not limited to, partnering, ADR contract
clauses, settlement week, negotiated rule making, international arbitration agreements,
the post-appellate option, and the collective science court proposal.
IV. Outline
I. A Briefing on ADR Strategies (4-1)
A. Problems with Litigation
1. Litigation can be expensive.
2. Litigation can also be very time consuming.
B. The ADR Option
1. ADR can provide an economical and efficient alternative to litigation.
2. Proactive ADR may eliminate uncertainty and risk inherent within the litigation
C. Shortcomings of ADR
1. Critics claim that the private administration of justice hampers the development of the
2. ADR may have a limited scope in some circumstances.
3. ADR does not always save time and money.
II. Responsive ADR Strategies (4-2)
A. Mediation
1. Mediation is a non-binding process where a neutral third party, referred to as a
mediator, works with parties in an attempt to reach a mutually agreeable settlement.
2. Mediators try to persuade the parties to reach a compromise but cannot decide what
the parties will do.
B. Arbitration
1. Arbitration is the process by which parties invite a third party, called an arbitrator, to
settle their dispute.
2. The procedures involved in arbitration are generally more flexible that those followed
in a lawsuit
3. There is no requirement that arbitrators be lawyers.
4. Some states require arbitration, known as mandatory arbitration, prior to trial in
certain cases.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 04 - Alternative Dispute Resolution
5. While an arbitration hearing can be planned and executed by the parties themselves,
many parties use professional arbitration organizations to handle details of arbitration
6. The arbitration hearing is run much like a trial, but without the safeguards and
assurances that come with the rules of civil procedure, discovery, and motion
7. The wide discretion usually granted to arbitrators has, in some cases, led to
unreasonable decisions.
8. Sometimes a decision made by an arbitrator is reversed by a court.
C. Med-Arb
1. Med-arb is an ADR process that combines mediation with arbitration.
2. In med-arb the parties first submit their dispute to a mediation session; and if the
dispute is settled via mediation, then all of the parties can leave satisfied.
3. If some matters are left undecided by mediation, the parties can move on to an
arbitration hearing.
D. Early Neutral Evaluation
1. Early neutral evaluation (ENE) is an ADR process in which the parties permit a
referee to assess their case on the basis of facts and legal arguments alone.
2. The evaluator, after examining the facts, the case, and the law, renders an impartial
assessment of the legal rights of each party and an assessment of the amount of any
award that should be rendered.
3. The parties are free to either settle the case based upon the evaluation or to proceed to
4. Even if the ENE does not result in settlement, it may help, for example, to shape
discovery and research plans.
E. Summary Jury Trials
1. A summary jury trial is a shortened version of a trial conducted in less than a day
before an advisory jury.
2. The summary jury process offers litigants an opportunity to see how an actual jury in
court would react to the facts of the case as well as to the legal arguments that would
be made by both sides.
3. Following the proceeding, each side has the opportunity to interview jurors to see
why they reacted as they did.
F. Private Civil Trials
1. The parties in a private civil trial hire a retired judge or magistrate to hear their
2. The judge follows the same rules used in an official trial.
3. Some states now permit the parties to a lawsuit to voluntarily have their cases tried in
a private civil trial.
4. Private civil trials are run according to the same rules of procedure and evidence as
trials held under the official auspices of the court.
5. Decisions rendered by a judge in a private civil trial are just as binding as those made
by judges on the official court docket.
6. Private trial decisions can be appealed in the same way that public decisions are
III. Proactive ADR Strategies (4-3)
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 04 - Alternative Dispute Resolution
A. Partnering
1. Partnering is a process that establishes supportive relationships among the parties to a
contract to head off disputes before they occur.
2. Partnering is best used when a contract involves complex interrelationships among a
wide variety of different parties such as construction contracts.
3. Partnering attempts to deter the disorder that can arise during a dispute by drawing up
certain ground rules that all the parties agree to observe.
4. The parties agree to handle problems according to some ADR technique rather than
by litigation.
5. The parties also agree to deal with one another in a fair manner within the confines of
their legal relationships.
B. ADR Contract Clauses
1. An ADR contract clause will specify that the parties to the agreement have promised
to use an alternative dispute resolution technique when a disagreement arises.
2. Unlike partnering, which is best suited to long-term construction contracts, ADR
clauses can be included in most contracts.
3. ADR contract clauses may be either optional or compulsory.
4. Clauses should specify the types of disagreements that will be submitted to ADR, the
ADR technique or techniques that can be used, the scope of discovery allowed, the
substantive law and the procedural rules that will be followed in the proceeding, the
remedies that will be authorized, the grounds for and the procedure to follow in an
appeal, and the methods on enforcing an award.
5. Courts prefer that ADR clauses be clear and precise.
6. Courts to sensitive to any clauses, conditions, or procedures that are either
procedurally or substantively unconscionable.
C. Settlement Week
1. During a settlement week, a court’s docket is cleared of all business except for
settlement hearings.
2. Prior to the opening of settlement week, all attorneys with cases pending before the
court are asked to choose which of those cases might be best handled by a mediator.
3. Judges are permitted to nominate cases for mediation during settlement week.
4. A list of volunteer mediators is complied, cases are matched with mediators, and a
schedule is established.
5. Occasionally, some cases are presented to an arbitration panel.
D. Negotiated Rule Making
1. Negotiated rule making (reg-neg) is a process by which an agency invites the people
and the organizations to be affected by a new rule to have input into the writing of
that rule.
2. The objective of negotiated rule making is to avoid disputes before they have a
chance to blossom.
3. A team effort is made resulting in a proposed rule that is submitted to the rule-making
4. Negotiated rule making cannot be used in all situations.
E. Post-Appellate Procedures
1. Post-appellate procedures involve taking a case that has been rejected or dismissed by
a domestic court to an international organization.
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Chapter 04 - Alternative Dispute Resolution
2. In such a situation, a party that has exhausted domestic remedies asks a
non-governmental organization (NGO) to hear the case.
3. The post-appellate case is brought against the government of the aggrieved party for
allegedly failing to provide an appropriate legal remedy.
4. The claim will generally involve the violation of some fundamental right guaranteed
by an international document.
5. The NGO hears the case, considers the evidence, and determines whether the party’s
claim is justified.
6. The NGO may demand compensation from the government of the aggrieved party.
7. The NGO may also suggest actions beyond compensation including governmental
and judicial reforms.
8. Whether NGO’s actually have jurisdiction is open to debate.
9. A problematic issue is whether an order of an NGO is enforceable
F. International Arbitration Agreements
1. An international arbitration agreement involves a pledge to use arbitration should the
parties find themselves in disagreement as to rights under a contract.
2. Because the parties to the agreement are incorporated in different nations, they are
free to specify whatever forum they can agree upon as the place to hold an arbitration
3. The parties are free to specify the identity of arbitrators who may reside in any
location that satisfies the parties.
4. The parties can bring in legal representation from any country.
5. Using an international arbitration agreement may avoid problems linked to
6. A problem is that the rules of a selected country may vary from that agreed upon in
the international arbitration agreement.
G. The Collective Science Court Proposal
1. A proposed collective science court (CSC) would act as a forum for disputes
involving scientific and technological controversies.
2. The CSC could be asked to act as an impartial arbitrator in the evaluation of concerns
about scientific activities.
3. Supporters of the court maintain that a panel of objective judges with scientific
backgrounds would provide a neutral body capable of making unbiased,
well-informed decisions.
4. Supporters point out that an appellate stage would be part of the system.
5. Critics of the CSC argue that a panel of qualified objective judges with combined
scientific and legal backgrounds would be almost impossible to convene absent some
sort of specialized scientific legal academy.
6. Critics claim that the CSC would represent an additional level of bureaucratic red
tape, that the court would become buried under an avalanche of claims, and that the
consideration of controversial issues would result in the court being plagued by
political considerations.
7. Critics question the basic need for a CSE.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 04 - Alternative Dispute Resolution
V. Background Information
A. Historical Notes
1. The American Arbitration Association, founded in 1926, has an International Centre
for Dispute Resolution (ICDR) providing conflict-management services in more than 80
countries with a staff fluent in 12 languages. For additional information, go to
2. One of the first summary jury trials in federal court involved a product liability case.
The case focused on an allegedly defective football helmet. The summary jury trial,
which was held in 1980, led to a settlement of the case.
B. State Variations
1. For an evaluation of differences between three ADR programs currently sponsored by
the U.S. District Court for the Eastern District of Texas (ED Texas), the U.S.
International Trade Commission (ITC), and the U.S. District Court for the Northern
District of California (ND California), see 27 No. 7 Intell. Prop. & Tech. L.J. 3
Lionel Lavenue, et al., Alternative Dispute Resolution for Patent Cases: The Eastern
District of Texas, the Northern District of California, and the International Trade
Commission, 27 No. 7 Intell. Prop. & Tech. L.J. 3 (2015).
VI. Terms
1. “Convenors” assist an agency in determining whether to enter into a negotiated
rulemaking process. “Convening” may also involve the use of a neutral to help parties
determine whether and how to pursue negotiation. A convener may help the parties identify
issues, identify needed participants, and select a neutral.
VII. Related Cases
1. For the mediation process to succeed, the mediator must be objective and unbiased. For
cases involving a possible conflict of interest on the part of the mediator see: Poly Software
International Inc. v. Su, 880 F. Supp. 1487 (D. Utah 1995); Bauerle v. Bauerle, 615
N.Y.S.2d 954 (N.Y. App. Div. 1994); and McEnany v. West Delaware County Community
School District, 844 F. Supp. 523 (N.D. lowa 1994).
2. For a case involving alleged arbitrator misconduct, see Questar Capital Corp. v. Gorter,
909 F.Supp.2d 789 (W.D. Ky. 2012).
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 04 - Alternative Dispute Resolution
VIII. Teaching Tips and Additional Resources
1. The Equal Employment Opportunity Commission discusses ADR in the federal sector at
2. ADR methods in relation to consumer issues and cross border e-commerce disputes are
referenced at http://www.econsumer.gov/english/resolve/adr.shtm.
3. Many court systems encourage alternative dispute resolution. For example, the New
Hampshire Judicial System has an Office of Mediation and Arbitration with a web site at
4. Ask students to discuss problems in mediation and whether it is advisable for mediators
to carry malpractice insurance.
5. Additional information regarding arbitration and mediation can be found at the web site
of the American Arbitration Association at http://www.adr.org/.
6. Review by a mediation panel may be required before litigation may proceed in medical
malpractice cases. For example, the procedure in Wisconsin is discussed at
7. Information on mediation conducted in the United States District Court for the Southern
District of Ohio, which encourages mediation and has various options, can be found at
8. Before discussing the pros and cons of adversarial litigation, have the students form
teams of 3-4 learners each. The teams should be assigned the task of defining the
adversarial system and of developing a list of advantages and disadvantages for that
9. Suggest that students check with various court systems regarding alternative dispute
resolution procedures and the availability of court sponsored settlement hearings.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 04 - Alternative Dispute Resolution
10. Use one of the example cases in the chapter to create a mock mediation session. Have
one of the students serve as the mediator while the others represent each party to the
dispute. If possible, also assign students to play the roles of attorneys for each side in the
mediation process.
11. For additional research, the American Arbitration Association offers resources in
regard to ALR such as the publication “Representing Yourself in Employment Arbitration:
An Employee's Guide” at https://www.adr.org/aaa/faces/educationresources/adrresources?
%3Dzjuap38qx_86. Go to the tab “Education and Resources” and click on the link to
“ADA Resources.”
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distribution without the prior written consent of McGraw-Hill Education.