Legal View: Don't wait for trouble to seek ADR

Nancy Crotti, The Daily Record Newswire

Parties just going into business together may believe everything is going to work out swell. Litigators know it does not always happen that way.

Business attorneys would be wise to add an alternative dispute resolution clause to their clients’ contracts, just in case of a falling-out, according to Timothy Pramas, an attorney with Manty & Associates in Minneapolis. If they wait until a major disagreement arises, those once-amicable business partners could be headed down the long, expensive road to court.

Pramas should know. Until recently, he worked as an in-house counsel for Supervalu. The grocery chain added ADR clauses to contracts with many of its wholesale customers and vendors, Pramas said. He has also represented private-practice clients in arbitrations.

ADR should never be an afterthought, according to Pramas and attorney David Allgeyer, a partner at Lindquist & Vennum in Minneapolis and an arbitrator for 15 years. They recently led a seminar on the ins and outs of ADRs, focusing on arbitration.

“That’s to discuss on the front end, what the benefit might be to pursuing arbitration or some alternative,” Pramas said.

Alternative dispute resolution may include arbitration (which is usually binding), mediation or other types of non-binding resolution such as early neutral evaluation and summary jury trial. Mediators can help parties reach an agreement but cannot decide a case, which can still go to trial or settlement. Arbitrators take the place of judge or jury, deciding a case unless the parties opt to settle, but they cannot order the parties to mediation or a settlement conference.

Whether to add an ADR clause and what to include should depend on what is at stake, Allgeyer said. It may be difficult to determine how complex to make the clause because the parties do not know which issue, if any, might arise, he said.

Like any legal maneuver, arbitration has its pluses and minuses. Drawbacks include the filing fee ($10,000 in multi-million-dollar cases) and arbitrator’s fee, the possibility for delay when attorneys cannot agree whether to arbitrate or find a common a hearing date; and the fact that arbitration generally leaves little room for appeal, even if the arbitrator misinterprets the law.
In order to overturn an arbitrator’s ruling, the federal arbitration statute says a district court must find the arbitrator did one of the following:

• Was corrupt.
• Was biased against one party.
• Refused to change a hearing date despite sufficient cause.
• Refused to hear pertinent evidence.
• Exceeded his or her powers or executed them so poorly that “a mutual, final and definite award upon the subject matter was not made.”

For cases not involving interstate commerce, Minnesota law basically says the same. Even with those narrow grounds, some attorneys will launch a post-arbitration attack.

“That’s when you get your arbitration award,” Allgeyer explained. “It’s supposed to be final, but lawyers being lawyers, they just love to attack the award afterwards, trying to show they’ve met the grounds for vacating the arbitration decision.”

They rarely win, he added.

So why would anyone opt for arbitration? It may be faster and less expensive than going to court, according to Pramas and Allgeyer. For example, the parties may agree to limit the number of depositions, making the process less formal than going to court. The arbitrator may also be an expert in the disputed area, an unlikely trait among judges and juries. Unlike public court rulings, an arbitrator’s decision is private.

The most expensive part of going to court is taking depositions, exchanging documents and doing discovery, Pramas said. Keeping costs lower through arbitration also means attorneys learn less about the case before the hearing.

“Different clients as well as attorneys have different comfort levels,” Pramas said. “You’re never completely unprepared.”

Problems with arbitration may stem from ambiguous ADR clauses, Allgeyer said. Unless they agree up front, the parties may later squabble over which issues the process will cover. If the clause says the arbitrator can interpret the contract but has no power to decide issues of tort or statute, the parties may end up in court, he said.

Allgeyer and Pramas recommend using the American Arbitration Association’s Web page for guidance in drafting ADRs. Other sites include JAMS and the International Institute for Conflict Prevention & Resolution.

The Clausebuilder tool at clausebuilder.org walks an attorney through the process of writing an ADR, depending upon the nature of the contract or dispute type.

Attorneys considering arbitration would be wise to disregard the advice of colleagues who recently won or lost a case that went to arbitration, and instead keep their focus on their contract, Allgeyer and Pramas said.

“You should think objectively about whether the case is right for arbitration based on its size, complexity, and what the issues are likely to be,” Allgeyer said. “(In) a lot of business disputes, the costs of litigation overwhelm the problem.”

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Contact Nancy Crotti at ncrotti@gmail.com.

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