ADR Takes on Different Look

Alternative Dispute Resolution is taking on an different look in the 21st Century as adjustments are made to an ever-changing economy.
Layn R. Phillips provided a brief glimpse of future changes during the Distinguished Alumnus-In-Residence luncheon at the University of Tulsa College of Law.
The 1977 TU law school graduate is a former U.S. District Judge and currently is a partner with Irell & Manella LLP., Newport Beach, Calif.
To to that end, he asked his listeners to imagine they were in a time machine, going back to the beginning of the 20th Century where they would visit with jurists of that time. The audience’s role would be to tell those members of the legal of that time to consider the idea of traveling across country in hours, not days, and speaking to judges and attorneys on telephones without wires. It is difficult to imagine what will be introduced in the future.
It was Abraham Lincoln who encouraged ADR in the mid-19th century, he said. The 16th president said, ‘‘Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser, in fees, expenses, and a waste of time. As a peacemaker, the lawyer has a superior opportunity of being a good man. There will still be business enough.
‘‘Use litigation as a last resort — and be frank with your client about its costs and risks.’’ During the early part of the 21st Century this is a glimpse of what practicing in the forefront of Alternative Dispute Resolution might be experience in a tough economic cycle.
Mediation and Arbitration make up the two forms of ADR, he said.
Facilitative and Evaluative categories are placed under Mediation while three formats fit in Arbitration; one arbitrator format, baseball, modified baseball and high/low.
Anyone serving in the mediation/arbitrator role must abide by the 3Cs of the discipline that includes confidentiality, candor and commitment, he said.
‘‘I always wear my gambling tie to these sessions,’’ said Phillips who prefers mediation. At the conclusion, there is a fourth C — cash — as parties conclude, settle, and end discussions. Of course, they also can say ‘‘no thanks’’ and go on to court. But that big step is taken fewer times because of the cost it is not cost effective for either party.
Mediation dynamics for the parties are private, voluntary, confidential. They are informal, flexible and non-binding.
In addition, they are expeditious, cost effective and successful.
ADR tends to be used more during financial failures, Phillips said. Cases are coming earlier and are dramatically more complex. Some clients simply vaporize in the process.
Phillips became involved with some clients under the threat of bankruptcy through the Department of Treasury.
Factors in that scenario include economic uncertainty, institution stability, an increased government role and the need for resources.
Players include insurers, trustees, accountants, outside lawyers, settlement counsel, local counsel, coverage counsel, underwriters as well as criminal defense counsel.
Government involvement has made issues more complicated through bailouts and takeovers, he said. The question is whether it is a kinder, gentler approach or take it or leave it. Lifelines were thrown to trouble giants including Bank of America, Citigroup, Fannie Mae/Freddie Mac Conservatorship and the auto industry.
Delphi never made it out of bankruptcy and sometimes those efforts won’t happen because opponents dig in, eliminating any chance of success.
Consider the cases of AIG and government involvement, he suggested.
The initial shortfall in September 2008 started at $20 billion and quickly increased to $80 billion. The next question immediately following was whether or not AIG should file for bankruptcy or take the Fed’s $85 billion deal tonight.
Ironically, Phillips was in a New York conference room with AIG officials ready to start negotiations when suddenly they just got up and walked out.
As they left, they told Phillips they had to withdraw the proposal. Additional information would be forthcoming in the news media and they had nothing more to say at that time.
The government feared that the collapse of AIG would lead to devastating losses across the financial industry.
That led to a ‘‘deal,’’ Phillips said that was a ‘‘draconian 3-page term sheet, steep interest rates and the right to own 80 percent of AIG.
Secretary of the Treasury Timothy Geithner added, ‘‘this is the only proposal you are going to get — and there is one condition — we will replace you as CEO.’’
Bankruptcy of companies also loom over ADR, Phillips said. ‘‘GM was one of the successful companies coming out of the process. Tom Brett and I worked together on that issue.’’
Delphi never made it out of bankruptcy.
Stakes have never been higher and the Enron/Arthur Anderson litigation is a case in point, he said. The most recent ruling was in 2008 was the Enron/Arthur Anderson settlement for $16 million with the last $6 million to be paid over time due to ability to pay issues. The payment question really is moot because there are no funds.
Judges are pushing harder for settlement, Phillips said. There is an increasing trend of appointed settlement masters. Again, judicial philosophy of hands on versus hands off occurs in dealing with the masters.
Once a judge told the parties to resolve the case and then come back to court with the solution.
He held that stand until the parties involved reported back saying the case had been resolved.
While arbitration may be growing in popularity, the process also is receiving criticism that is reaching a crescendo, Phillips said.
That is because standard procedures are taking on the trappings of litigation with extensive discovery and motion practice, lengthy proceedings and high cost and the review procedures adopted by some.
Proposals are being made for sweeping reforms in litigation to reduce crippling expense and delay, he added. Those include returning to the fundamentals, being highly flexible that reduces costs, delays, provides greater efficiency, party control and business priority sensitivity.
Then there are the objectors, described as remoras, and defined by Webster ‘‘as a family of marine bony fishes with the anterior dorsal fin modified into a suctorial disk on the head by which they adhere especially to other fishes. In other words they are suckerfish attaching themselves to bigger sea-dwellers, like sharks, in order to gain transportation and protection.’’
There were objectors flocking to hijack large settlements such as the United Healthcare fee award, Phillips said.
The court received a motion from the Objectors’s Counsel seeking an award of fees, he said. That motion was denied.
‘‘The court ruled that those objecting to a class action settlement are not entitled to a fee award unless they confer a benefit on the class. These objectors have contributed nothing. Instead, in a pleading which charitably may be described as disingenuous, Objector’s Counsel argue they assisted the court in finding class counsel’s fees request unreasonable. They claim their efforts convinced the court to reduce class counsel’s fees from $110 million to $64.8 million. They have the temerity to suggest they are the ones who saved the class $45 million in attorney fees, entitling them to a six-figure fee of their own. The suggestion is laughable.
‘‘Accordingly, the court holds, as a matter of fact and law, objectors have conferred no benefit whatsoever on the class or on the court. Objectors’ Counsel are entitled to an award equal their contribution… nothing.’’
ADR is an interesting field, Phillips said. There always will be challenges.
Phillips said he gets involved in arbitration, but prefers mediation.

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