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Chapter 05 - Alternative Dispute Resolution
5-1
Chapter 5
Alternative Dispute Resolution
Learning Objectives
The purpose of this chapter is to acquaint the students with alternatives to litigation with special
emphasis on conflicts, disputes, and the methods of negotiation. This chapter emphasizes the
importance of ADR’s to the business community. The chapter creates an awareness of finality of
arbitration and the difficulty of challenging the decision of the arbitrator. Special attention is paid
to the Federal Arbitration Act which covers all agreements to arbitrate when the subject matter
involves interstate commerce. An awareness of the trend toward compulsory ADR mechanisms
for certain disputes is created. The presentation of the advantages, disadvantages, and procedures
of mediation allow students to understand why this form of ADR is growing in popularity among
businesses.
References
Bennett, S.C., Arbitration: Essential Elements. ALM Publishers (2002).
Money, Anger—and the Strategies that Resolved Them. Jossey-Bass (2006).
Lax, D.A. and J.K. Sebenius, The Manager as Negotiator. Free Press (1986).
(2006).
Lipsky, D.B., R. Seeber, and R. Fincher, Emerging Systems for Managing Workplace
Penguin Books (1999).
Thompson, L.L., Negotiation Theory and Research. Psychology Press (2006).
Yarn, D.H., Dictionary of Conflict Resolution. Jossey-Bass (1999).
Chapter 05 - Alternative Dispute Resolution
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Teaching Outline
I. Conflicts and Negotiation
A. Conflicts and Disputes (LO 5-1)
Emphasize:
That conflicts are not necessarily negative and can help businesses be more productive.
That disputes grow out of conflicts and need to be effectively managed so that
resolution is possible.
Additional Matters for Discussion:
Ask the students to recall conflicts and disputes that arose in their professional or
personal lives.
Have students share these experiences and how they managed the conflicts or resolved
the disputes.
This may be done in small groups or with the entire class.
B. Styles and Methods of Negotiation
Emphasize:
Sidebar 5.1 depicting the styles of negotiations through the Thomas-Kilmann Conflict
Mode Instrument.
The two basic methods of negotiation, which are covered in detail.
Additional Matters for Discussion:
Have students describe their basic approach (style) to a real-life conflict.
Help students see how a person utilizes various negotiation styles depending on the
situation and the relationship involved.
Additional Matters for Discussion:
The limitation of this approach.
Techniques or strategies used by positional negotiators.
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D. Principled Negotiation
Emphasize:
Review the Concept Summary at the end of the section with regard to conflicts in
general.
Communication
Emphasize:
Sharing customer complaints, either in general or with specificity, might help M&N
That these parties would likely benefit by discussing how each could benefit by
continuing their relationship of customer and supplier.
Interests
Emphasize:
That M&N might want to dissolve its sales force and concentrate on production of a
variety of TVs. These interests, once communicated, may help the parties realize that
a continuing relationship is in their mutual best interests.
Options
Emphasize:
That M&N and Bill’s should brainstorm possible options or solutions to their
dispute. This exploration process is best done with the parties agreeing that an option
mentioned is not necessarily a proposal for compromise.
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Legitimacy
Emphasize:
Alternatives
Emphasize:
That alternatives are outcomes that are possible without the agreement of the other
party.
That the desirable result of any negotiation is to agree on an outcome that is better
than both parties’ alternatives.
Commitment
Emphasize:
That any successful negotiation must conclude with the parties making realistic
commitments that can be put into practice.
II. Alternative Dispute Resolution (ADR) Systems
A. Range of Options
Emphasize:
The range of dispute resolution systems represented in Figure 5.1.
That these ADR systems are arranged along a spectrum of high cost (in dollars, time,
Emphasize:
Chapter 05 - Alternative Dispute Resolution
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The reasons why settlement of disputes often is desirable among businesspeople.
Table 5.1 listing examples of recent major settlements.
Additional Matters for Discussion:
Discuss one or more recent settlements covered by the news.
Have students discuss why this settlement was more advantageous to the parties
involved.
C. Focus Groups
Emphasize:
What a focus group is.
Why lawyers go to the time and expense of conducting a focus group.
Additional Matter for Discussion:
Discuss a recent example in the news of how a focus group helped disputing parties
settle their case.
III. Arbitration (LO 5-3, LO 5-4)
A. Submissions
Emphasize:
That most submissions are the result of voluntary agreements.
That most submissions cover both questions of law and questions of fact.
That doubts about submissions are resolved in favor of arbitration.
Sidebar 5.3 for examples of contracts with arbitration clauses.
Sidebar 5.4 on trends in arbitration.
Sidebar 5.5 for a sample arbitration clause.
Emphasize:
That a provision in the agreement to arbitrate or in the statute that requires the
arbitration describes how the arbitrator is selected.
Chapter 05 - Alternative Dispute Resolution
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Expertise
Emphasize:
That experts are used as arbitrators allowing for easier resolution of disputes. Rather
than using a court’s judicial interpretation, experts can recognize and resolve issues
based on their direct knowledge of the matters in dispute.
Number Chosen
Emphasize:
That arbitration may be conducted by a singular arbitrator or with a three member
panel.
That individual arbitrators are generally chosen from an approved list of qualified
arbitrators provided by an arbitration service.
That the usual manner of selecting a panel of arbitrators is that each party selects one
arbitrator and those two select the third.
Authority over Certain Matters
Emphasize:
Case 5.1: Rent-A-Center, West, Inc., v. Antonio Jackson, 130 S. Ct. 2772 (2010)
C. Awards
Emphasize:
That arbitrators do not have to explain the reasoning behind an award unless the parties
require such reasoning to be explicit.
That The U.S. Supreme Court favors a broad scope of the arbitrators’ authority.
1. Mastrobuono v. Shearson Lehman, Hutton, Inc.
Mr. & Mrs. Mastrobuono opened an investment and trading account with Shearson
Chapter 05 - Alternative Dispute Resolution
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objected to the award of punitive damages.
Emphasize:
That state laws cannot prevent arbitration of disputes if the parties are engaged in or
impact interstate commerce.
Cases for Discussion:
1. Doctor’s Associates, Inc. v. Casarotto, 116 S.Ct. 1652 (1996)
Doctor’s Associates, Inc. (DAI) is the franchisor of Subway sandwich shops. Casarotto
Chapter 05 - Alternative Dispute Resolution
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contract with the clause being in capital letters and underlined. DAI was granted certiorari
by the U.S. Supreme Court.
Issue: When the Federal Arbitration Act conflicts with provisions of a state law, which
one should be enforced?
Held: According to the Federal Arbitration Act, federal laws are supreme when
compared to state laws. The Federal Arbitration Act allows state laws to override an
arbitration clause only if the state law voids the entire contract. Since the Montana law
concerns the validity of the arbitration clause and not the entire contract, the state law
cannot be enforced.
2. Gilmer v. Interstate/Johnson Lane Corp., 111 S.Ct. 1647 (1991)
Robert Gilmer worked as a financial services manager for Interstate/Johnson Lane. As a
condition of this employment, Gilmer signed a contract containing a clause that all
3. Rodriguez de Quijas v. Shearson/American Express, Inc., 109 S.Ct. 1917 (1989)
An investor signed a contract containing an agreement to arbitrate any claims made
against the broker. This investor lost funds and sued the brokerage firm for violation of
Chapter 05 - Alternative Dispute Resolution
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arise.
Additional Matter for Discussion:
That the arbitrators in the mandatory arbitration process are retired judges and
practicing lawyers, usually experienced trial attorneys.
Additional Matters for Discussion:
Some states have established a mechanism for binding arbitration of attorney-client fee
disputes. Lawyers are required to submit any fee dispute to arbitration at the client’s
claims at the buyer’s option.
Types of Cases
Emphasize:
That mandatory arbitration statutes cover only a few types of cases. A typical statute
might apply the procedure to claims exclusively for money of a small amount, such
Emphasize:
That the usual procedure for a claim filed in court that is covered by the mandatory
arbitration law is to place the claim in the arbitration track at time of filing.
That discovery procedures may be used prior to the hearing on arbitration.
That the arbitrators have the power to determine the admissibility of evidence and to
