Legal View: Who can afford to litigate these days? Use ADR

By Guy Randles
The Daily Record Newswire

A common expectation in the legal field is that deteriorating economic conditions will cause a rise in litigation as employees are laid off, margins become tighter and stressed companies fail to perform obligations. However, in the current recession, the expected jump in litigation has not materialized to the extent anticipated. There may be various reasons why.

Of course, litigation requires something to fight over. If fewer projects are being built or fewer employees are being hired, then there are fewer activities to potentially spawn a dispute. Moreover, when disputes do arise, many potential litigants are concluding that they simply cannot afford the time and resources necessary for litigation.

When companies are struggling for survival, they are less likely to invest their dwindling resources on litigation when, in even the best situations, the payoff may be far down the road. Add the inherent risks of litigation to the equation, and it takes a very confident and well-healed party to launch a large-scale litigation effort these days.

While some parties may consciously take advantage of the suspected or known inability of their business partners to resort to litigation, most parties to a dispute honestly believe that their positions are justified. What is to be done, then, if a dispute does arise? The best course is to consider some kind of alternative dispute resolution (ADR), and the sooner the better.

The construction industry has been at the forefront of developing ADR techniques to avoid full-scale litigation. Given the large number of documents and potential witnesses in even the simplest construction case, the construction industry has turned to mediation, dispute panels, project neutrals, partnering and arbitration to avoid the potentially ruinous cost of civil litigation. Perilous economic times underscore the value of resorting to these tools early to resolve disputes.

One of the most cost-effective ADR techniques is early mediation, before significant discovery and other litigation costs are incurred. In the hands of experienced lawyers and a skillful mediator, the mediation process can give parties a clear understanding of the risks and rewards of their claim positions. What the parties give up by resorting to early mediation is gained by avoiding the costs and distraction of a prolonged litigation slog.

The vast majority of all cases settle before trial or an arbitration hearing. The advantage of using early mediation is that it facilitates settlement before significant litigation costs are incurred, thus permitting the “saved” litigation costs to be devoted to paying for settlement offers or inducing more modest settlement offers to be accepted.

One mistake that clients and others make in the mediation process is to treat it as a surrogate for a fact-finding determination. Mediators are not out to mete out justice; they are trying to facilitate a settlement, whether fair or not. The parties should tailor their approach to the mediation, and the mediator in particular, to take this into account.

For instance, if a mediating party demonstrates that it has a strong case on merits but signals that it is desperate for a settlement, a far different mediated result will occur than if that party gave the impression that it was prepared to litigate at any cost if a reasonable settlement could not be achieved. In the former case, the mediator would have a limited incentive to try to facilitate anything other than a minimally acceptable settlement. In the latter case, the mediator would likely conclude that a high-value settlement would be necessary to achieve the purpose: a settlement. The dynamics of the two different mediations would be vastly different.

Another mistake often made by a mediating party is to fail to objectively assess the merits of their case and the need to compromise prior to the mediation. Sometimes this failure comes from looking through rose-colored glasses; other times it results from a simple lack of proper preparation.

Mediating parties should anticipate and prepare for the opposing party’s positions and possible settlement strategies. The heat of mediation is no time to be caught flat-footed in assessing settlement offers and opportunities.

These days, construction disputes are most likely to be referred to mediation, which should be prepared for as the likely venue for resolution. While lawyers and judges may bemoan the “death of the jury trial,” clients should embrace the process as an opportunity to avoid or stop costs and uncertainty of litigation.

Guy A. Randles is a partner in the construction and design group of Stoel Rives LLP. He is a member of the Oregon and Washington state bars. Contact him at 503-294-9288 or garandles@stoel.com.

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