About 20 million lawsuits are filed every year. A very large percentage is settled before trial. But, although only a few suits are tried, the people and businesses involved in litigation—even in a suit that eventually settles—know that the time, expense and emotional impact exact a costly price.
Historically, attorneys have tried to settle cases before trial by negotiation. Sometimes, this involves a formal face-to-face meeting with attorneys and their clients, and other times, it involves a less formal discussion of offers and demands by mail or telephone. The new rules that follow now include “direct negotiation” as a formal ADR method. This does not change the age-old negotiation practice, except now, the judge can order the parties to engage in direct negotiation. Direct, face-to-face negotiation between the parties, without the use of a third party, involves the exchange of offers and counteroffers and a mutual discussion of the strengths and weaknesses of each party’s position. This method is usually most effective if skilled and knowledgeable counsel represent the parties and if both have an incentive to reach an agreed settlement.
An Alternative to a Lawsuit
Courts and law firms have started to put more emphasis on formal alternative methods to resolve disputes. The wide variety of alternative dispute resolution mechanisms are collectively referred to as ADR. There are many potential advantages to ADR, including reduced costs, faster resolutions, less emotional stress, the ability to construct solutions outside the courts’ authority and, in some cases, the opportunity to preserve personal or business relationships that a trial might shatter.
ADR occurs in many different contexts and encompasses various specific methods. ADR might be mandated as the settlement option in a written contract—construction contracts and securities brokers’ agreements frequently contain a mandatory arbitration clause. Even if there is no contract requiring arbitration or other ADR effort, ADR can be agreed to by the parties or ordered by the court. Party-initiated ADR can happen at any time and can use any method and procedure the parties find helpful. There are two basic types of court-sponsored ADR. The first occurs early in the legal process and is designed to avoid many common procedural steps and costs. Most court-ordered ADR occurs much later in the legal process, frequently after discovery is completed and final trial preparation has started. This last use of ADR is currently most common in Wisconsin, although the other examples are rapidly gaining acceptance nationwide.
ADR methods include binding arbitration, nonbinding arbitration, mediation, summary trial, moderated settlement conference and a number of other creative procedures designed to facilitate a fair and reasonable settlement. Any method might have several variations, as is discussed later. In almost every context, the parties can use any standard method they choose or invent their own procedure designed to meet their unique needs.
ADR can be conducted with or without attorney representation on either side. If attorneys represent participants, the ADR sessions can involve the attorneys, or the parties can conduct them without counsel present. ADR is not a “one-size-fits-all” proposition. The method and setting should be carefully selected to optimize the chances of a successful resolution of all disputed issues.
Cost savings by using ADR will depend on the complexity of the case, the timing of the ADR efforts and the method used. Savings also depend on the successful conclusion of a settlement. An early ADR resolution can save months of attorney fees, preparation costs and emotional stress. Even if ADR is used just before trial, the saving of attorney fees and costs can be substantial if a trial is avoided. Equally important are the nonmonetary benefits that can come from an opportunity to construct a settlement of your own design.
It is important to note that cost savings are not always realized. In some instances, the cost of the ADR procedure might equal or exceed the cost of litigation. More importantly, if time and resources are expended on an ultimately unsuccessful ADR attempt, the ADR costs are added to the litigation costs, thereby increasing, not decreasing, total costs. To maximize the probability of cost savings, both parties should be genuinely interested in an early and fair resolution of the dispute, and the type of ADR, as well as the facilitator, should be carefully chosen to fit the needs of the situation.
Typically, the parties share the cost of the ADR process equally, but that can vary by contract or by other agreement.