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Design your dispute resolution process

By Richard Chernick and Barbara Reeves Neal

Thirty-seven years ago Frank Sander unveiled the concept of a "multi-door courthouse" in which disputes arriving in court would be allocated to various dispute resolution mechanisms, such as court adjudication, arbitration, mediation, negotiation and other processes on the basis of criteria such as the nature of the dispute, the relationship between disputing parties, the amount in dispute and concerns regarding the speed and cost of dispute resolution. (Frank E.A. Sander, Varieties of Dispute Processing, The Pound Conference, 70 F.R.D. 111. 1976).

Courts have not gotten there yet, but dispute-resolution professionals can assist lawyers in designing dispute resolution processes to help lawyers resolve conflicts. Rather than leaving your client in the default position of facing court litigation, proactive dispute-resolution professionals (arbitrators, mediators, special masters and lawyers) can design dispute resolution processes that are tailored to the needs of the clients and their specific transactions. Planning ahead is the key.

This article explores techniques for achieving appropriate process agreements, for developing integrated conflict management systems and for effectively managing the resolution of disputes.

Predispute agreements

  • Transactional documents

The key to drafting an effective dispute resolution clause in connection with a transaction, at the time of contracting and prior to the emergence of contract-related claims or controversies, is to design a process that is flexible enough to suit the dispute once it arises. Contractual conflict resolution provisions must provide an appropriate framework for whatever dispute might later arise. A “step” procedure that incorporates negotiations between the parties, followed by mediation and, if that does not resolve the dispute, by non-binding evaluation or binding arbitration, is one alternative that allows the parties to progress toward resolution while maintaining control of the resolution process.

In drafting the dispute resolution clause, factors to consider are the nature of the process, i.e. mediation, mediation plus arbitration, arbitration or general court reference. If the process will produce a binding decision, specify the governing law, the venue (including which arbitral rules and who will administer the arbitration), qualifications and selection of the neutral, special discovery provisions or limitations, time deadlines, the arbitrator’s remedial powers and whether you want to provide for an appellate process.

  • Relationship documents 

In longer term relationships, such as construction projects, joint ventures, employment arrangements and long-term supply contracts, providing for “real-time” dispute resolution through a project neutral or ombudsman may be the key to preserving relationships and facilitating performance by providing for prompt response to and resolution of conflicts. One example is the appointment of a “dispute resolution adviser” who is involved from the commencement of the contractual relationship and extends throughout the life of the relationship to address conflicts as they arise, develops conflict resolution schemes and partners with the parties in the resolution of conflict. 

Finding a path to resolution of existing disputes

If a dispute arises and there is no pre-existing dispute resolution mechanism in place, parties may agree to submit their dispute to a resolution process. If they are unable to agree on a process, creative lawyers can move the dispute toward resolution by bringing in a mediator who is skilled in process design.

The mediator, who is a process expert, ought to be able to work with the parties, diagnose the dispute, and make suggestions about appropriate process choices. Is this case best handled by facilitating discussions between the parties and letting the parties be heard? Are there legal issues that could be carved out for an evaluation or opinion by a legal expert in the field (perhaps the mediator himself or herself)? Are there issues where an independent accountant or appraiser could break a deadlock? If there are multiple parties and/or multiple claims, can the mediator attempt to achieve settlement of part of the case? This dispute design process may itself reveal or lead to a resolution of the dispute.

It is crucial that the mediator understands how each process works, and how to make it enforceable. A “creative” dispute resolution agreement can flounder because of process errors or misidentification of the agreed process. A recent example of a misunderstood process arose in Bowers v. Raymond J. Lucia Companies, Inc, 206 Cal. App. 4th 724 (2012). The parties agreed to “binding mediation,” then disagreed as to what that meant after the mediator handed down a “binding mediator judgment.” The Court of Appeal held that the agreement was sufficiently certain to be specifically enforceable, but the parties went through a lot of disagreement and litigation on the road to resolution.

Parties in dispute should be aware that there are always alternatives to court litigation. Their counsel should be proactive in creating an atmosphere for creative resolution of disputes.

—Richard Chernick and Barbara Reeves Neal are arbitrators and mediators with JAMS. Chernick is the managing director of JAMS Arbitration Practice.