Only a few corporations have been left untouched by fallout from this decade's litigation explosion. New lawsuits filed in our nation's courts have more than doubled since 1975. And complex cases in which opposing lawyers bury each other under thousands of documents have quadrupled.
Corporations bear the bulk of this litigation burden, spending up to $20 billion a year on legal expenses. And that's a conservative estimate.
These staggering statistics do not reveal the drain on corporate resources induced by this surge in litigation. Anyone who has been through depositions can attest firsthand to the waste of productive time and energies. When one considers the prolonged delays of congested court dockets, the lost market opportunities, uncertainty of judicial decisions and disruption of business relationships, these high costs of litigation can no longer be just a common complaint but a serious management problem that must be addressed.
This effort is under way. New pragmatic forms of dispute resolution are being developed that use the negotiating and pragmatic problem-solving approach of business to resolve disputes at a fraction of the time and expense of regular litigation. As many as 150 general counsels of major corporations, 75 leading law firms and prominent academic organizations have joined the Center for Public Resource's (CRR) Legal Program to develop alternatives to the high cost of litigation being faced by corporations and public institutions.
The CPR Legal Program, founded in 1979, is a leading proponent of methods to resolve major corporate disputes in a pragmatic, economical and timely manner outside the courtroom.
The rapid growth of this program, in terms of its development of sophisticated private practices and membership base, is attributable both to the compelling need for new dispute-resolution procedures and their proven results in saving millions of dollars in litigation costs.
Alternative dispute resolution (ADR) is essentially a range of private practices designed to prevent, manage and resolve disputes cost-effectively.
Usually, when one thinks of alternatives to the courtroom, arbitration is likely to come to mind. The current effort, however, is different, notably by the inclusion of a business approach to problem-solving and a reliance on top executives to participate in fashioning solutions to legal disputes.
A prime example of this process and one of the most successful ADR techniques is the minitrial. The minitrial is a nonbinding settlement procedure structured to convert a legal dispute back into a business problem. Collateral legal issues are set aside and attorneys make abbreviated presentations, not to a judge or jury, but to business executives who are empowered to negotiate a settlement. These summaries are often also heard by a neutral third party -- a retired judge or authority on technical issues -- who presides and, if the parties agree, offers an advisory opinion to facilitate early settlement. After the attorney presentations, clients meet without their lawyers to negotiate an agreement that more frequently resembles a creative solution to a business problem than a legal judgment that is based on dollars and legalistic issues.
The minitrial has worked in a wide range of disputes. These include the multimillion-dollar contract case between Wisconsin Electric Power and American Can Co.; a major construction problem at Control Data Corp.; action brought by a key employe against Union Carbide Corp.; a six-sided construction dispute involving Standard Oil Co. of Indiana; a major lawsuit against the Insurance Co. of North American over a $10 million liability claim; a theft-of-trade-secrets case brought by Gillette Co.; two construction disputes involving Houston-based Austin Industries Inc.; a multimillion-dollar, highly technical controversy involving performance standards in a NASA satellite system built by TRW Inc. for SpaceCom; a 10-year contract dispute between Shell Oil Co. and Allied Corp; a construction suit brought by Industrial Contractors Inc. against the U.S. Army Corps of Engineers; and a $200 million antitrust breach-of-contract claim by Borden Inc. against Texaco Inc.
The successful resolution of the Borden-Texaco dispute is indicative of the cost savings and beneficial solutions inherent in the minitrial. Borden's claim rose out of a natural-gas contract in Louisiana. The case was so complex that, with only 30 percent of the search for relevant information completed, Texaco had produced 300,000 documents and spent a quarter of a million dollars on copying costs alone. Having frittered away more than two years in litigation, attorneys decided in 1982 to attempt a minitrial. The case was settled in three weeks by a solution that had never been considered during litigation.
The format for the minitrial was developed in an hour, and the rules were simple. First, the parties would present their case to the executive vice presidents of the companies. Second, the argument would be heard on neutral ground, agreed on to be a private room in the Union League Club in New York City. Third, the attorney for each company would have one hour, plus time for rebuttal, to make his presentation. The attorneys also had the option of using evidence, including live testimony. Fourth, the executives could have advisers other than lawyers. Senior operations and financial experts from the companies could be present at the minitrial to provide technical advice. No neutral third party was used, because the trial date was fast approaching and the attorneys felt it would take too long to educate an outsider on the facts of the case.
The three-and-a-half-hour minitrial hearing went smoothly, but private discussions between Texaco and Borden executives did not. Robert Gutheil of Borden wound up asking for more money than had been originally demanded, and Texaco's James Kinnear was so firm about his company's position that he contemplated pressing counterclaims against Borden. Yet they did not break off their discussions. They talked by phone and, over the next few weeks, reached what both parties described as a win-win settlement.
No money changed hands. Rather, the companies renegotiated another gas-supply contract -- one that had not been an issue in the case -- and created a new arrangement for transporting Texaco gas to Borden.
The settlement, given its technicality, could never have been fashioned by the courts. Courts lack the power and knowledge to resolve a multidimensional situation involving far more than the simple payment of money. Although both these businessmen walked away from the minitrial thinking they were still right, they were able to reach a solution. Both sides had gained a better understanding of how they could lose their cases and were able to use the knowledge of their own business objectives to forge a creative agreement.
The ability of the lawyers to make concise but strong presentations highlighting the hazards of litigation was also essential to the process.
Such a success story is not unique. Proponents agree that the minitrial can produce extraordinary benefits with a minimal investment in time and money.
These benefits include:
*A dramtic reduction in costs. Minitrial costs are estimated to be 10 percent of the cost of ordinary litigtion. In the cases listed earlier, legal savings amounted to hundreds of thousands -- sometimes millions -- of dollars. In the Texaco-Borden minitrial, for instance, Texaco estimated savings of between $4 million and $6 million in legal expenses.
*The amount of time spent on a lawsuit is reduced enormously. The U.S. Army Corps of Engineers minitrial was conducted in two days, with a settlement reached 12 hours later. The alternative would have been weeks of hearings before the U.S. Armed Service Board of Contract Appeals and months before a decision was reached.
Although, admittedly, executives involved in a minitrial must spend a degree of time studying the case, they certainly lose less time than if the case goes to trial or is settled on the courthouse steps after years of pretrial maneuvering.
*A minitrial provides confidentiality not afforded by formal litigation. The proceeding is held in private, so a mistake or dispute with an important business partner will not be publicized, trade secrets will not be revealed and consumers will not lose confidence in the company's products.
*The solutions devised by business executives in a minitrial are far broader and often more supportive of business objectives than those reached in traditional settlement negotiations or issued by the courts. These solutions preserve business relationships and avoid the acrimony of protracted litigation.
*Even if a minitrial fails, the time has been well-spent. The communication that has taken place between parties usually facilitates a future settlement.
The minitrial has been used in a wide range of cases from relatively simple commercial lawsuits to cases involving highly technical complex issues with hundreds of millions of dollars at stake. Since it is a completely private process, the flexible format allows the involved parties to construct the proceeding. Interestingly, when attorneys begin to negotiate the format for the minitrial, they often end up resolving the dispute itself. Discussing the proceeding places parties in a problem-solving role with an ability to discuss more constructively the merits of the case. To further assist attorneys in using this successful procedure, the CPA Legal Program has recently developed a model minitrial agreement that provides the practicing bar with suggested procedures that can be easily implemented. The model agreement can be used to draft commerical contracts with clauses providing for dispute resolution by a minitrial. And, in addition, CPA has also published a new workbook that provides parties with substantial background information on how to conduct a minitrial.
More than 140 corporations, recognizing the potential of ADR for increased profits and productivity, have recently adopted a formal policy known as the ADR Corporate Policy Statement. Chief executive officers and general counsel from these companies have signed this statement, declaring that they will explore the use of ADR or early settlement talks before pursuing full-scale litigation with another company that has also signed. The National Association of Manufacturers has supported this policy, suggesting that its membership sign up. Basically, the ADR pledge overcomes the pervasive concern that an initial offer to settle out of court is viewed as a sign of weakness by the other party.
This policy has already generated positive results. A growing number of companies have used it to resolve their intercorporate disputes in a timely and cost-effective fashion. To build on these results, the CPA Legal Program provides its members with continual information on innovative practices used by corporations and law firms to reduce legal costs. This information includes advances in mediation, management of discovery costs, joint defense agreements in multiparty litigation and litigation-risk analysis. Much of this work is developed in task forces of CPR members, working to apply ADR to toxic tort, employe, product liability, hazardous waste, government contracts, construction and health-related disputes. The information is communicated in meetings, a monthly newsletter, a major institute, publications and a computer database.
Perhaps one of the most promising advances for generating greater use of ADR is the CPR Judical Panel. The panel, a group of 60 prominent former judges and prestigious legal leaders, offers the services of highly qualified individuals to bring together parties to resolve disputes out of court. The impeccable credentials of panelists have been important to coalesce parties in complex cases involving high stakes or public impact. Unlike the courts, parties have the option of choosing a panelist with the experience appropriate to the dispute. By involving the best of lawyers as neutrals, new private processes are being developed for a wide range of disputes, with a limited level of bureaucracy and a maximum level of skills and flexiblity. Panelists can serve a variety of roles in two-party disputes -- as mediators, private judges or neutrals in a minitrial.
One panel assignment, however, illustrates that alternative methods can work not only in disputes among a limited number of parties, but in cases involving thousands of litigants who claim harm from occupational or environmental hazards. Such cases have a number of similar characteristics that prevent timely and effective court resolution. They include large numbers of claimants and defendants, a wide geographical spread of cases and long latency periods before diseases emerge.
These cases represent a legal phenomenon that the courts are ill-equipped to handle. They raise economic and social questions that cannot be answered by the "I win/you lose" judgments of litigation.
In one of the longest and largest legal battles of our time -- the asbestos case -- insurers, plaintiffs' counsel and defendant companies requested the judicial panel to assist in resolving the complex legal issues and help design a process to expedite claims and reduce high legal costs. The parties were faced with an awesome set of problems.
First, they had to find a means of expediting payment of thousands of claims estimated to total $38.2 billion over the next three decades. And next, they had to resolve disputes among producers and insurers over how much of this compensation would be covered by insurance policies. The scale of these disputes placed companies that had been financially secure in severe jeopardy. Panelist Harry Wellington, dean of Yale Law School, successfully directed the negotiations, which led to two major breakthroughs:
*The parties themselves developed a process that demonstrated that negotiated problem-solving can be employed by adversaries in lieu of years of acrimony and execessive costs of complex multiparty litigation. Conversely from arbitration proceedings or conventional settlement negotiations, these negotiations involved top managers, inside and outside counsel, and a sophisticated use of committees of financial, computer and other experts drawn from the companies. The result: a solution where all parties could benefit.
*The product of these negotiations is a proposal for a highly innovative one-stop claims facility, to be funded by insurance and defendant companies, that could process claims equitably and efficiently out of court. Claimants would be able to negotiate settlements without the delay and cost of litigation, but would not lose their right to return to court if dissatisfied. The concept of the facility encompasses resolution of the major insurance-coverage issues and cross claims among defendants, and provides for out-of-court procedures to reolve any future disputes among producers and insurers. If successful, savings would amount to literally billions of dollars in legal fees.
The success of the ADR process employed in the asbestos negotiations can indeed be replicated by panelists in other major cases. CPR has recently developed a proposal to use ADR and highly qualified neutrals to allocate liability among companies at hazardous-waste sites. Estimates of litigation costs for 1,800 hazardous waste sites are projected at more than $8 billion -- 55 percent of direct clean-up costs. Certainly, this is an area that would benefit from the use of alternative dispute resolution.
The successful application of ADR to the most complex cases confronting the legal system demonstrates that, although substantial progress has been made to improve dispute resolution, the potential of innovative alternatives has yet to be fully realized. As more companies become familiar with, utilize and participate in, the development of these private practices, alternative dispute resolution should become the norm, not the alternative.