February 2000

Court-Ordered Alternative Dispute Resolution: Promises and Pitfalls

by Steven C. Bennett

Alternative dispute resolution (ADR) includes a well-established array of procedures for private resolution of disputes. Federal and state courts are increasingly employing ADR processes in an attempt to reduce their dockets and decrease litigation delays and costs. Court-ordered ADR is not, however, a cure-all for the ills of modern litigation. There are inherent limitations on the ability of courts to sponsor and participate in ADR.

For the practitioner, participation in court-ordered ADR requires a careful balancing of burdens and benefits. This article aims to introduce the practitioner to some of the principal procedures and issues involved.

"ADR" is a loose term, encompassing various forms of procedures sponsored by various organizations with various rules. The one thing common to all forms of ADR is that they are generally private dispute resolution methods, which parties may choose as an alternative to conventional litigation, and fashion to fit their particular needs.

One classic form of ADR is a settlement discussion between parties or their counsel, which may occur before or during litigation proceedings. Such discussion often leads to non-judicial resolution of disputes.

Another classic form of ADR is mediation, in which a neutral party attempts to facilitate settlement of a dispute by listening to the parties (together and/or separately) and uncovering the strengths and weaknesses of their positions so they can more rationally discuss settlement. A mediator may gather additional information (reviewing documents, receiving briefing positions from the parties, or interviewing witnesses) and may suggest solutions to the dispute. The mediator’s suggestions are generally not binding on the parties.

A final classic form of ADR is arbitration. An arbitrator or panel of arbitrators conducts an information-gathering process, which may include document exchange, briefing and testimony of witnesses. The arbitrator’s decision is generally binding on the parties, subject to limited review by a court on a motion to confirm or vacate the arbitration award.

These classic forms may be modified to create new forms. For example, in mediation/arbitration, a mediator is authorized to attempt to fashion a settlement of the case. If no settlement is reached, the mediator serves as the arbitrator for the matter. In a "mini-trial," a mediator or advisory "jury" hears a summary version of each party’s case and renders a non-binding advisory decision which may help the parties to reach consensus on a settlement.

Sponsoring organizations vary in their approaches even when they implement classic forms of ADR. For example, the rules of the International Chamber of Commerce (Paris) and London Court of International Arbitration (London) favor a European approach to issues like discovery. By contrast, the American Arbitration Association (New York) follows an American approach. There are dozens of additional sponsoring organizations in the United States and throughout the world. Many sponsoring organizations offer either specialized rules adapted to a specific kind of dispute (e.g., National Association of Securities Dealers and World Intellectual Property Organization), or lists of potential arbitrators/mediators with experience in particular subject matters and specialized geographical or language backgrounds.

Parties are generally free to agree to specialized rules, and to choose mediators and arbitrators with experiences and skills that meet their needs. The watchword of ADR is "flexibility."

Courts have always had inherent power to form creative procedures for dispute resolution, which can include ADR. However in 1983, Rule 16 of the Federal Rules of Civil Procedure was amended to grant express authority to federal district courts at pre-trial conferences to consider "settlement and the use of special procedures to assist in resolving the dispute when authorized by statute or local rule."2 

In 1990, Congress required federal district courts to implement "civil justice expense and delay reduction" plans.3  The congressional statement of findings for the Expense and Delay Reduction statute noted that "effective litigation management, and cost and delay reduction principles" might incorporate a variety of interrelated programs, including "utilization of alternative dispute resolution programs in appropriate cases."4 

The federal statute suggested a variety of forms of ADR, including programs administered directly by the court, such as:

1) Conferences before the presiding judge to explore "the parties’ receptivity to, and the propriety of, settlement or proceeding with the litigation[.]"5 

2) A "neutral evaluation program for the presentation of the legal and factual basis of a case to a neutral court representative selected by the court at a nonbinding conference conducted early in the litigation."6 

3) A "requirement that, upon notice by the court, representatives of the parties with authority to bind them in settlement discussions be present or available by telephone during any settlement conference[.]"7 

In 1998, Congress enacted the Alternative Dispute Resolution Act, which required every federal district court to authorize, by local rule, "the use of alternative dispute resolution processes in all civil actions," and to designate a judge or other employee to be knowledgeable in ADR practices.8 Congress required each federal district court to offer at least one form of ADR, including such procedures as mediation, early neutral evaluation, mini-trial or arbitration,9 but permitted each court to exempt specific cases, or categories of cases, as not "appropriate" for ADR.10 Congress required that the neutral parties used in ADR processes be adequately trained, and specifically suggested training of magistrate judges or use of professionals from the private sector.11 Congress permitted referral to arbitration, where parties consented, but only in cases valued at less than $150,000 in damages.12

Individual federal district courts have adopted many forms of ADR. Some of the more common forms include:13

1) Assignment of an independent judge to conduct settlement discussions;14

2) Court-annexed mediation, either for specific cases, or on a voluntary or "as needed" basis;15

3) Voluntary court-annexed arbitration;16

4) Mandatory, non-binding arbitration.17

State courts have also been experimenting with various forms of ADR.18 Federal and state statutes, moreover, may increasingly encourage ADR.19

Despite the increasing emphasis on court-ordered ADR, there is little hard evidence to support claims that ADR processes necessarily reduce litigation delays and costs. A RAND study of the mediation and early neutral evaluation components of court-sponsored ADR programs in six federal district courts concluded that there was "no strong statistical evidence" that such programs significantly affected time to disposition, litigation costs, or attorney views of fairness or satisfaction with case management. The RAND report concluded that such programs are "not a panacea for perceived problems of cost and delay."20

Some commentators suggest that the reason for the lack of demonstrated significant value of court-sponsored ADR programs is that such programs have been established only recently, and that some ADR programs are not funded and administered well. The time required to educate and train judges, arbitrators, mediators and lawyers may also impede the full effectuation of such programs.21 Other commentators suggest that, even though court-sponsored ADR (especially mediation) may not be "the revolution some expected," the emphasis on negotiation, rather than traditional litigation, may allow open communication, enhance litigant understanding and satisfaction, and offer at least the possibility for reducing litigation delay and cost.22

The involvement of courts in ADR processes presents some unique problems. Courts must administer justice with "impartiality."23 The requirement of impartiality generally requires that a judge avoid "even the appearance of impropriety whenever possible."24 For example, courts may suggest the possibility of "settlement,"25 but may not "impose settlement negotiations on unwilling litigants."26 As a result, court-ordered "settlement" of a case is clearly inappropriate.27

Even short of forced settlement, a suggestion that failure to settle a case may result in an adverse ruling from the court may be considered inherently coercive.28 Similarly, "preliminary" opinions on settlement may also be improper.29

Courts and juries are generally required to decide a case based solely on the evidence presented at trial.30 Information gathered by a judge in connection with settlement discussions may improperly affect the judge’s later substantive decisions. As a result, informal fact-gathering in aid of settlement may be considered improper.

Settlement discussions also often involve ex parte communications with the neutral person (mediator or judge). Generally, judges should "neither initiate nor consider ex parte or other communications concerning a pending or impending proceeding."31 Thus, it is considered "impermissible for a trial judge to deliberately set about gathering facts outside the record."32 Settlement discussions may include unsworn statements from witnesses and counsel which, if later relied upon by the court in substantive proceedings, could be considered improper.33

Given these limitations, the better practice may be for courts to direct the appointment of private mediators or magistrates, independent of the judge who will decide the merits of the case, for purposes of fostering settlement negotiations.34 The system of "early neutral evaluation," adopted in many jurisdictions, follows this approach. Absent independent settlement facilitators, a judge’s direct participation in settlement discussions may require disqualification from making subsequent substantive rulings in the case.35 At a minimum, a court probably should not conduct settlement discussions without the consent of the parties. The "consent" given, however, may be suspect, and does not necessarily cure the appearance of impropriety.36

Settlement, mediation and arbitration all depend upon the consent of the parties.37 Some decisions have held that court-ordered binding arbitration is inappropriate,38 but non-binding forms of ADR may be compelled.39 Some courts have also adopted procedures where "consent" is manufactured by virtue of a party’s failure to object to ADR procedures.40 A court may not, however, prevent a party from at least objecting to a court-ordered ADR process.41

A practitioner faced with the prospect of court-ordered ADR will be well advised to study the advantages and disadvantages of the available ADR system. The following is a checklist of issues that may be useful in organizing thinking about strategic responses to court-ordered ADR.

What are the rules? Many courts have been quite specific about how ADR programs are operated. Others have provided only vague (or terse) directives. Some programs are so new that the precise operation of the program has not yet been determined. In deciding whether to participate in court-annexed ADR, it is important to know how the ADR program will operate.

What are the potential benefits of participation in the program? Ideally, ADR will lead to resolution of the case. Even if not, other benefits may be derived. Issues may be narrowed for trial. Discovery may be streamlined (and "free" discovery obtained). Parties may wish to "get it off their chests." They may also wish to assess the appearance, competence and credibility of opposing witnesses and counsel, for purposes of estimating their likelihood of success in litigation.

Who pays for the program? Some courts have established an ADR program without providing adequate funding to implement the program. As a result, the mediators and arbitrators in the program may not have the experience and training required to conduct the program effectively. Other courts have used volunteer mediators and arbitrators. These self-selected officiants may not be as well qualified as is desirable. Still other courts will expect the participants in the ADR program to pay the costs of the mediation or arbitration, which may be an issue for some clients.

How is the ADR officiant selected? Where the court-annexed ADR program depends upon a specific list of mediators and arbitrators, it may be possible to determine, by reviewing the list, the general quality of the program. Even if the quality is generally good, an issue may arise about whether the "best" officiants will be available. Some courts insist on allocating mediators and arbitrators on a random basis. Others let the parties choose, often using a "strike" system.

Will the ADR process likely resolve the dispute? Some cases are difficult to settle, for a variety of reasons. If it is clear in advance that the case will not likely settle, then "going through the motions" of mediation may be pointless. Similarly, some adversaries will never give up, unless they have no further options. In such cases, going through non-binding ADR may merely add to the cost of the proceedings, without producing an effective resolution. Some methods for avoiding ADR may include:

1) Agreeing to a form of ADR in advance of litigation (if ADR has been tried and has failed, a court may be less inclined to compel further ADR processes in connection with the litigation);

2) Agreeing to a private form of ADR (other than the procedure offered by the court);

3) Making a motion for excuse from the ADR procedure (most courts permit such excuse where it is apparent that ADR would not be productive or appropriate).

Is it possible to opt out of the process once it has started? Many court-annexed mediation programs, for example, permit termination of the mediation if discussions have not produced progress toward settlement. Some programs, however, require a minimum amount of participation, or give discretion to the mediator to determine whether he/she believes that further sessions would be effective.

What are the total costs of participation in the program? In addition to mediator/arbitrator fees, a party will have to pay its own counsel’s fees, and may have to bear the cost and business interruption associated with attendance of representatives at the mediation or arbitration sessions. Participation in ADR may also delay processing of the litigation in court.

When is the best time to engage in ADR? Many programs assume that ADR should be instituted at the outset of litigation. However, litigants may require a ruling on some key issue before ADR can become effective, or may prefer ADR only on certain specific issues.

What will be the impact on the court of resisting ADR ? Many judges routinely admonish parties to settle their disputes without any real consequences for refusal. Other judges may, consciously or inadvertently, suggest that adverse consequences may result from refusal to engage in settlement discussions or other forms of ADR. Some judges have been bitten by the ADR bug and may be irritated with parties and counsel who do not share their enthusiasm for these innovative programs. It is a good idea not only to know something of the judge’s attitude toward ADR, but to also have a rational position on the merits and on the form of ADR that may be offered.

If there is anything certain about court-ordered ADR, it is that such programs are here to stay and will probably only grow in popularity and scope. The well-rounded practitioner of today (and certainly of tomorrow) will need to be a master not only of basic litigation skills, but also of the unique rules and strategies required to compete in an increasingly mixed public and private dispute resolution arena.

1 The views expressed are solely those of the author, and do not necessarily represent the views of the author’s firm or clients.

2 Fed. R. Civ. P. 16(c)(9).

3 See 28 U.S.C. Sec. 471.

4 Section 102, P.L. 101-650, 109 Stat. 292 (1990).

5 28 U.S.C. Sec. 474(a)(3)A).

6 28 U.S.C. Sec. 474(b)(4).

7 28 U.S.C. Sec. 474(b)(5).

8 28 U.S.C. Sec. 651.

9 28 U.S.C. Sec. 652(a).

10 28 U.S.C. Sec. 652(b).

11 28 U.S.C. Sec. 653.

12 See 28 U.S.C. Sec. 654.

13 For a complete summary of ADR processes in various jurisdictions, see Federal Judicial Center, The Civil Justice Reform Act Expense and Delay Reduction Plans: A Sourcebook (1995) (listing ADR methods approved in various districts).

14 See, e.g., Civil Justice Expense and Delay Reduction Plan ("CJEDR Plan"), S.D.N.Y., Part 5 (magistrate judge to be assigned in every case, with possibility that magistrate judge may conduct settlement discussions); CJEDR Plan, E.D.N.Y., Part II(F) (preliminary conference to discuss possibility of use of independent "settlement judge"), Part III(A)(2) (settlement conference to be convened in every case, unless judge considers it "unwarranted").

15 See, e.g., CJEDR Plan, S.D.N.Y., Part 16 (mandatory mediation for expedited cases, and for a "sample" of other civil cases); CJEDR Plan, E.D.N.Y., Part III(A)(4) (litigants may choose mediators from court’s panel on their own or through a reputable ADR organization).

16 See, e.g., CJEDR Plan, S.D.N.Y., Part 17 (voluntary arbitration to be discussed at preliminary conference).

17 See, e.g., CJEDR Plan, E.D.N.Y., Part III(A)(1) (mandatory non-binding arbitration for civil damage claims involving $100,000 or less, subject to trial de novo).

18 See, e.g., Operating Statement, Commercial Division, New York County Supreme Court (1995) (providing for mandatory mediation at discretion of trial judge, and encouragement of additional forms of ADR); Cal. Bus. & Prof. Code Sec. 465(d) (providing that courts should encourage greater use of ADR techniques); see generally Thomas L. Fowler, Court-Ordered Arbitration in North Carolina: Selected Issues of Practice and Procedure, 21 Campbell L. Rev. 191 (1999); Stevens H. Clarke & Elizabeth Ellen Gordon, Public Sponsorship of Private Settlement: Court-Ordered Civil Case Mediation, 19 Justice Syst. J. 311 (1997); Hon. Robert P. Murrian, Mediation From the Court’s Perspective, Tenn. B.J., Sept.-Oct. 1995, at 12; Andrea Nelle, Making Mediation Mandatory: A Proposed Framework, 7 Ohio St. J. on Disp. Resol. 287 (1992).

19 See, e.g., Y2K Act of 1999, H.R. 775, 106th Cong., 1st Sess., Sec. 7 (requiring pre-litigation notice as condition to pursuing Y2K claims, to which defendant may respond by offering to engage in ADR, thus suspending period for litigation by at least 60 days); Fla. Stat. Ann. Sec. 44.102 (court-ordered mediation and arbitration); Minn. Stat. Ann. Sec. 484.74 (providing for non-binding private trials, neutral expert fact-finding, mediation, mini-trials, and other forms of ADR when amount in controversy exceeds $50,000).

20 See James S. Kakalik, et al., An Evaluation of Mediation and Early Neutral Evaluation Under the Civil Justice Reform Act (1996).

21 See Sanford M. Jaffe and Linda Stamato, Views on RAND’s CJRA Report, 15 Alternatives to High Cost Litig. 67 (1997).

22 See Elizabeth Ellen Gordon, Why Attorneys Support Mandatory Mediation, 82 Judicature 224 (1999).

23 See 28 U.S.C. Sec. 455(a) (judge must "disqualify himself in any proceeding in which his impartiality might reasonably be questioned"); see also Code of Judicial Conduct, Canon 2A (judge’s obligation to avoid "appearance of impropriety").

24 Union Planters Bank v. L & J Dev. Co., 115 F.3d 378, 383 (6th Cir. 1997) (quotation omitted).

25 Fed. R. Civ. P. 16(c)(9).

26 Advisory Committee Notes, Rule 16; see generally In re NLO, Inc., 5 F.3d 154, 157 (6th Cir. 1993) ("Although judges should encourage and aid early settlement," they should not "attempt to coerce that settlement.").

27 See Weddington Productions, Inc. v. Flick, 71 Cal. Rptr.2d 265, 282 (Cal. App. 1998) (reversing attempt to "push the envelope" into "new territory" where private judge’s recommended settlement agreement was implemented by court without consent of the parties).

28 See In re Ashcroft, 888 F.2d 546, 547 (8th Cir. 1989) (court must avoid "appearance (as well as the reality) of coercion" caused by "linkage between settlement and the Court’s ruling" on pending motion); Wolff v. Laverne, Inc., 233 N.Y.S.2d 555, 557 (1st Dep’t 1962) ("gross abuse of discretion" for court to "penalize" litigant for "not succumbing to the pressure" of judge to settle); see also Cropp v. Woleslagel, 485 P.2d 1271, 1276 (Kan. 1971) (settlement efforts by court "should never work to coerce or compel a litigant to make a settlement").

29 See Krattenstein v. G. Fox & Co., 236 A.2d 466, 469 (Conn. 1967) (disapproving as "inconsistent with the proper exercise of the judicial function" procedure whereby trial judge expressed opinion as to dollar value of case and persisted in efforts at settlement by requiring counsel to convey that opinion to his client); Rosenfield v. Vosper, 114 P.2d 29, 33 (Cal. App. 1941) (error for judge to instruct attorneys to tell their clients that "it would be in their best interests to settle").

30 See Fed. R. Evid. 408 ("Evidence of conduct or statements made in compromise negotiations is … not admissible."); see also Breining v. Trimble, 669 N.E.2d 494 (Ohio Ct. App. 1995) (plain error for court to disclose settlement discussions to jury).

31 Code of Judicial Conduct, Canon 3A(4).

32 Knop v. Johnson, 977 F.2d 996, 1011 (6th Cir. 1992) (quotation omitted), cert. denied, 507 U.S. 973 (1993); see also Hathcock v. Navistar Int’l Transp. Corp., 53 F.3d 36, 41 (4th Cir. 1995) (judge required to recuse himself on remand due to ex parte contacts with counsel); United States v. Microsoft Corp., 56 F.3d 1448, 1464 (D.C. Cir. 1995) (judge required to recuse himself based, in part, on improper acceptance of ex parte submissions); United States v. Furst, 886 F.2d 558, 582 (3rd Cir. 1989) (judge required to recuse himself from sentencing based on ex parte communications with counsel), cert. denied, 493 U.S. 1062 (1990); Buckley v. Snapper Power Equip. Co., 813 P.2d 125, 128-29 (Wash Ct. App.) (judge required to recuse himself due to ex parte communications with guardian ad litem and counsel), review denied, 822 P.2d 287 (Wash. 1991).

33 See Lynn v. Smith, 281 F.2d 501, 507 (3rd Cir. 1960) (receipt of "oral statements" by witnesses at pre-trial conference "opens a Pandora’s Box"); see also In re Fernandez-Lopez, 37 B.R. 664, 670 (Bankr. App. Panel 9th Cir. 1984) (citing Lynn rule with approval); Gullett v. McCormick, 421 S.W.2d 352, 354 (Ky. Ct. App. 1967) (disapproving "the attendance of witnesses and the taking of testimony at a pretrial conference").

34 See H. Lee Sarokin, Justice Rushed is Justice Ruined, 38 Rutgers L. Rev. 431, 437 (1986) (suggesting that settlement negotiations should be conducted by magistrates, masters, lawyers or law panels).

35 See Schellin v. North Chinook Irrigation Assoc., 848 P.2d 1043, 1045 (Mont. 1993) (where a judge "participates in pre-trial settlement negotiations which subsequently fail, he should, upon request, disqualify himself from sitting as the trial judge") (quotation omitted); Fabber v. Wessel, 604 So.2d 533, 534 (Fla. Dist. Ct. App. 1992) (judge disqualified where disclosure of mediation communications might "poison" the ultimate judgment), review denied, 617 So.2d 322 (Fla. 1993).

36 See Timm v. Timm, 487 A.2d 191, 193 (Conn. 1985) ("When a judge engages in a pretrial settlement discussion in a court case, he should automatically disqualify himself from presiding in the case in order to eliminate any appearance of impropriety and to avoid subtle suspicions of prejudice or bias.").

37 See generally Mastrobuono v. Shearson Lehman Hutton, Inc., 115 S. Ct. 1212 (1995) (arbitration is a matter of "consent not coercion"); Volt Information Sciences, Inc. v. Stanford Univ., 489 U.S. 468 (1989) (policy favoring arbitration "does not require parties to arbitrate when they have not agreed to do so").

38 See Smith v. Smith, 1998 WL 10213 at *2 (Tenn. App. Jan. 14, 1998) (although court may order non-binding arbitration, it has no authority to order binding arbitration); Massey v. Farmers Ins. Group, 837 P.2d 880, 885 (Okla. 1992) (statutory requirement for private appraisal of damages resulted in non-binding award, because parties had not consented to waive their right to jury trial on damages issue); see generally United States v. Paramount Pictures, Inc., 334 U.S. 131, 176 (1948) (court has "no power to force or require parties to submit to arbitration in lieu of the remedies afforded by Congress").

39 See Arabian American Oil Co. v. Scarfone, 119 F.R.D. 448 (M.D. Fla. 1988) (Rule 16 authorizes court to order parties to engage in pretrial summary jury trial); McKay v. Ashland Oil Co., 120 F.R.D. 43 (E.D. Ky. 1988) (Rule 16 and inherent power of court authorizes mandatory summary jury trial); but see Strandell v. Jackson County, Ill., 838 F.2d 884 (7th Cir. 1987) (court may not compel summary jury trial).

40 See Enyart v. Columbus Metro. Area Comm. Action Org., 685 N.E.2d 550, 559 (Ohio Ct. App. 1996) (party’s failure to respond to court-ordered arbitration, and failure to demand trial de novo, waived objection to arbitration procedure and result).

41 See Keene Corp. v. Gardner, 837 S.W.2d 224, 232 (Tex. Ct. App. 1992) (reversing order imposing costs on party for failure to appear at mediation session with representative holding settlement authority, where session was scheduled on 24- hours’ notice, and party was not given an opportunity to object to the referral to mediation).

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