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Chapter 5—Negotiation and

Alternative DisputeResolution Systems

REED SHEDDREED SHEDD PAGNATTARO PAGNATTARO MOREHEAD MOREHEAD

F I F T E E N T H E D I T I O NF I F T E E N T H E D I T I O N

TheThe Legal & Legal & RegulatoryRegulatory Environment of of BusinessBusiness

McGraw-Hill/IrwinCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights

reserved.

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Learning Objectives To understand why disputing parties seek alternative to the litigation process.

To appreciate the importance of effective negotiation and to recognize the basic methods of negotiation.

To evaluate the various forms of ADR systems.

To be able to explain the differences between arbitration and mediation.

To comprehend why courts have a very limited role in reviewing the actions of arbitrators and mediators.

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think

TANKthink

TANKthinkthink

TANKTANKCan a pie be cut in more than one way?Can a pie be cut in more than one way?

a.a. YesYesb.b. NoNo

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General Rule

95% or more of the lawsuits filed settle prior to the completion of the litigation process.

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Conflict and Disputes

Conflict leads to disputes when one party makes claim that

other denies.

Point of View

Point of ViewCONFLICT

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Negotiation

The process used to persuade or coerce someone to do what you want them to do.

DefinitionDefinition

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Negotiation Styles

[Insert Side bar 5.1]

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Methods Of Negotiations

Positional Parties state opinions Begins competitively Involves give and take

Principled

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High PriceHigh Price

Low PriceLow Price

Zone of Zone of AgreementAgreement

Buyer’s Buyer’s

Resistance PointResistance Point

Seller’s Seller’s

Resistance PointResistance Point

Positional Negotiation

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High PriceHigh Price

Low PriceLow Price

Buyer’s Buyer’s

Resistance PointResistance Point

Seller’s Seller’s

Resistance PointResistance Point

No Zone of No Zone of AgreementAgreement

Positional Negotiation

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Principled Negotiation:7 Elements

I. CommunicationI. Communication

IV. OptionsIV. Options

II. RelationshipII. Relationship

III. InterestsIII. Interests V. LegitimacyV. Legitimacy

VII. CommitmentVII. Commitment

VI. AlternativesVI. Alternatives

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Range of Alternative Dispute Resolution Options

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CostsCosts• Attorney’s feesAttorney’s fees• Court costsCourt costs

Personal reasonsPersonal reasons• Compromise is instinctiveCompromise is instinctive• Dislike of troubleDislike of trouble• Opinion of othersOpinion of others

Business reasonsBusiness reasons• Bad for businessBad for business• Sympathetic juriesSympathetic juries

CostsCosts• Attorney’s feesAttorney’s fees• Court costsCourt costs

Personal reasonsPersonal reasons• Compromise is instinctiveCompromise is instinctive• Dislike of troubleDislike of trouble• Opinion of othersOpinion of others

Business reasonsBusiness reasons• Bad for businessBad for business• Sympathetic juriesSympathetic juries

Reasons for Settlement without Litigation

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$4.85Billion $1.6

Billion

Merck Citicorp

Major Settlements

$1.2Billion

Eli Lilly

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Third party (arbitrator) makes final decision

Mandatory v. Voluntary Final decision (award)- binding Reasons

Quick/inexpensive resolution Ease court dockets Expert assistance

Arbitration

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Arbitration- Submissions Parties agree to arbitration -

written Specific matters agreed to

arbitrate Matters for arbitration

Questions of fact Questions of law Fact & law

Trend toward arbitration

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Chosen By Disputing Parties

Beyond Legal

Number = 1- 3

Authority- Authority- Granted By Granted By AgreementAgreement

Expert

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think

TANKthink

TANKthink

TANKAll of the following are advantages of All of the following are advantages of arbitration over litigation except:arbitration over litigation except:a.a. Right to appealRight to appealb.b. Takes less timeTakes less timec.c. NonpublicNonpublicd.d. Not as expensiveNot as expensive

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Arbitration - AwardsDisclosure of findings & reasons

• Not needed unless required by statute or agreement

•Parties bound by award

Court favors award & broad scope of authority

Final on submitted Issues – filed with court clerk & enforced by court

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“Role”•Enacted 1925 & 1947

•Covers any Arbitration clause involving Interstate

Commerce.

“Role”•Enacted 1925 & 1947

•Covers any Arbitration clause involving Interstate

Commerce.“Impact”

•Court assumes intention•May set aside state

laws under commerce andsupremacy clauses

“Impact”•Court assumes intention

•May set aside statelaws under commerce and

supremacy clauses

Federal Arbitration Act

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States adoptingStates adoptingSpeeds up processSpeeds up processMany qualified Many qualified

arbitratorsarbitratorsTypes of casesTypes of cases

• <$15,000<$15,000• Specific subject matterSpecific subject matter

Record of proceedings Record of proceedings requiredrequired

States adoptingStates adoptingSpeeds up processSpeeds up processMany qualified Many qualified

arbitratorsarbitratorsTypes of casesTypes of cases

• <$15,000<$15,000• Specific subject matterSpecific subject matter

Record of proceedings Record of proceedings requiredrequired

Mandated Arbitration

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Mandatory Arbitration- Procedures

Submit ClaimSubmit Claim

Arbitrator Determines:Arbitrator Determines:Admissibility Of EvidenceAdmissibility Of Evidence

Law/Facts Of CaseLaw/Facts Of CaseObjectionsObjections

HearingHearing

DiscoveryDiscovery

8 Months8 Months

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Parties AgreeTo Method By:

1) “Pre- DisputeArbitration

Clause” and

2) “Post-Dispute ArbitrationClause”

Voluntary/Contract-Based Arbitration

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Judicial Review of Arbitration

Voluntary/Contract-Based Award is final Findings of fact/law- conclusive Limited review by court Correct fraudulent/arbitrary actions/against public

policy Statutorily-Mandated

In accord with procedural/due process of law Constitutional challenges De Novo Review

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Judicial Review Under Federal Arbitration Act

Interstate Commerce issues – FAA Applies

Arbitration award may be vacated if:

•Fraud•Arbitrators corrupt•Misconduct•Exceed powers

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Third party assists in resolving Third party assists in resolving dispute- avoid litigationdispute- avoid litigation

Parties agree to useParties agree to use

Reduces court caseload- no Reduces court caseload- no judicial reviewjudicial review

Settlement = mutual choiceSettlement = mutual choice

Third party assists in resolving Third party assists in resolving dispute- avoid litigationdispute- avoid litigation

Parties agree to useParties agree to use

Reduces court caseload- no Reduces court caseload- no judicial reviewjudicial review

Settlement = mutual choiceSettlement = mutual choice

Mediation

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MediationAdvantage To Parties

•Determine Determine To PursueTo Pursue

•Retain Retain Control Of Control Of OutcomeOutcome

Disadvantage

•No No EnforcementEnforcement

•Selection Selection Mediator- Mediator- QualificationsQualifications

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Informal- Controlled By PartiesInformal- Controlled By PartiesInformal- Controlled By PartiesInformal- Controlled By PartiesMediatorMediator

Opening Statement/RulesOpening Statement/Rules

PartiesParties•View StatementView Statement

•ExchangeExchange•Discuss Options - CaucusDiscuss Options - Caucus

AgreementAgreement

Written/SignedWritten/Signed

Mediation Procedures

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Other Alternatives Combination Mock trial

Citizen review Reality for Plaintiff

Minitrial – Confidential Focus on central issues Back to business problem

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pop

QUIZpop

QUIZpop

QUIZIf the parties to a mediation sign an If the parties to a mediation sign an agreement at the end, that agreement is agreement at the end, that agreement is usually legally binding (can be enforced usually legally binding (can be enforced in court.)in court.)

a.a. TrueTrueb.b. FalseFalse