Posts Tagged ‘ADR’

Mediation! New Service Available at Wolfe Law

On December 8, 2012 Author By Seth Smiley        

Seth J. Smiley, partner at Wolfe Law Group, LLC and author of ConstructionLawMonitor.com is now a formally trained mediator. New Orleans just hosted the AAAU’s (American Arbitration Association University), Essential Skills for the New Mediator workshop in downtown, hosted by Neil Carmichael.

Why would parties want to mediate a dispute instead of going to court? That answer is easy, yet has many factors. The most important are that mediation is less expensive and much more efficient compared to litigation. But the most important factor is that the parties control their own outcome, rather than a group of strangers (jury).

So if you are in a dispute and are looking for an economical, logical and swift conclusion that is mutually agreeable between you and your adversary, then mediation may be just what you are looking for. Contact the Wolfe Law Group, LLC for more details.

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Louisiana Arbitration Law

On May 30, 2012 Author By Seth Smiley        

Over the past few months here at Wolfe Law Group, I’ve been involved in a number of disputes where where arbitration clauses were invoked and the matters traveled the path of arbitration rather than ordinary judicial proceeding. Mediation and Arbitration have been touted as the faster, cheaper and more efficient way to handle legal disputes. While this may be true due to the enormous built in delays and catastrophic costs of “going to trial” there are a number of ways that contractors can be disadvantaged by dealing with lawyers who are not experienced with this process.

First and foremost, there is no standard for the rules. This means that, unlike the slow judicial process, the rules by which each arbitration play by can be changed and altered based on the contracts between the parties and document that they incorporate. For example, the American Arbitration Association (AAA) is one of the leaders in construction arbitration. They publish a set of rules called “Construction Industry Arbitration Rules and Mediation Procedures.” These rules are the rules that govern the entire proceeding. What this means is that there is a completely different set of operations for an arbitration than there would be for a judicial proceeding. As all lawyers know and most laymen do not, procedural tactics and expertise can make or break a case, even before it gets to be heard on the merits.

The key to getting this set of rules to apply is by having a good unambiguous arbitration clause in your construction contract. The AAA even gives example clauses that a construction company can use in its construction contract:

“Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.” See AAA’s Guide to Drafting Dispute Resolution Clauses for Construction Contracts 

On of the more important aspects of the quote above it that it incorporates the AAA Construction Industry Arbitration Rules. The same can be said for just about any arbitration company, but the AAA tends to be the leader in the commercial and construction industry. Further, you can even go as far as having a local company such as ADR, Inc., host the arbitration and then the AAA rules will apply to that proceeding.

Another reason why this is important this that the law in Louisiana governing arbitration proceedings is relatively short and references other parts of the Civil Code and the Code of Civil Procedure. Louisiana Civil Code in its Revised Statutes §9:4201 – §9:4217 encompass Louisiana Arbitration Law. These statutory provisions are helpful in filling in the gaps where other rules fall short and that point to other areas of Louisiana law that govern arbitration proceedings.

Typically the process works like this: 1) first you look to the contract to see how the parties have agreed to have the matter arbitrated, such as a clause saying that arbitration is proper and which rules apply. 2) Then you see which rules apply (if any) and then that will be the governing set of rules for the proceeding. 3) In matters where the rules are silent, then parties are forced to look to the Louisiana Arbitration Law section of the Revised Statutes as gap filler. 4) Finally, if all areas are silent, then you seek a decision form the arbitrator for what to do or how to proceed based on public policy.

Knowing the rules is critical to the success of an arbitration or any type of legal proceeding. The term “the devil in the details” cannot be more applicable. Arbitration proceedings can save a company thousands of dollars and lots of time. The one negative is that the are final and cannot be appealed, save extreme circumstances.  Always consult with an attorney before deciding to insert an arbitration clause into your construction contract and if you decide to invoke it.

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Electing ADR Post-Contract: It’s Never Too Late

On June 2, 2008 Author By Scott Wolfe Jr        


This article is part of a three part series titled “Alternative Dispute Resolution – Why, When & How.” To read the other parts in this series, or to read more articles about ADR, navigate to the Wolfe Law Group ADR page here: ADR.

Under most circumstances, discourse about Alternative Dispute Resolution centers around the construction contract and the importance of “ADR clauses.” However, it’s never too late for the parties to agree to an alternative dispute resolution process.

Agreeing to ADR before filing suit
At the onset of a dispute, the parties can simply agree to forego filing a traditional lawsuit and to engage in some type of ADR process. When this choice is made, the parties are still “contracting” to submit to binding arbitration, but the notion is sometimes forgotten when the original contract is already history and the dispute has already riled the parties.

It’s advisable to include ADR clauses in the original contract to avoid this “heat of the moment” problem, but there are many circumstances when the parties – even at odds – can agree to ADR post-contract.

During the course of a construction project, there are many situations whereby the parties are amicably dealing with one another but encountering some disagreements. The ADR process can be very valuable to the parties in this scenario.

The parties can simply agree to submit to the decision of a neutral, or to participate in a speedy mediation on this issue. The decision of the neutral or compromise of the mediation can likely resolve the issue, prevent delay in scheduling and keep the parties on good terms.

It’s oftentimes more difficult to engage an opposing party in ADR in a more mature dispute, as the parties are less likely to agree to anything at the beginning of a adverse proceeding. However, the benefits of the ADR process may outweigh any urge to agree with the adversary, and if litigation is actually commenced, the parties can still later suspend the suit in lieu of ADR.

Agreeing to ADR after suit is filed.
As suggested above, it’s common for parties to submit to an ADR process even after suit has been filed. Depending on the county / parish of your litigation, there are different time requirements for when the parties may or may not participate in alternative dispute resolution. Across the board, however, these requirements are extremely liberal, and the parties are usually only limited when the action is close to trial.

While any ADR process may be elected during litigation, the most common ADR vehicle used by litigants is mediation. Mediation allows the parties to meet, express their position, and evaluate its pros and cons and the risks of litigation in hopes of reaching an acceptable compromise.

Mediation may be initiated most anytime, but litigants most often submit to mediation at the beginning of litigation or towards the end. There are pros and cons to mediation during both periods.

The pros and cons to mediating at the start of litigation:

Pros

  • The parties have not incurred much expense and frustration, and therefore may be more willing to compromise to avoid the same;
  • Even if a settlement is not reached, it provides the parties with an opportunity to analyze its case in-depth, and to get a better picture of the adversary’s position.
  • Usually, neither party has clear leverage over the other party. Oftentimes, at the end of litigation, certain facts have been exposed that weakens the position of one party. At the start of litigation, however, the party with the weaker position has a little more leverage than it will later in the proceeding.

Cons

  • The parties are less willing to compromise. The emotional connection to the dispute is still clear and present, and the expenses of litigation have not been exposed;
  • Stones are unturned – or, in other words, both parties are working on a limited set of facts and understanding of the issues at play. The litigation process allows the parties to research its and the opposing party’s position, and a mediation immediately after suit proceeds before this researching opportunity.

The pros and cons to mediating later in litigation:

Pros

  • The parties have incurred much expense and frustration throughout litigation, and they are more willing to compromise certain positions in exchange with “getting the matter behind them.”
  • Through the litigation process, the parties have an opportunity to develop their respective positions and to investigate their adversary’s position, which gives them a good understanding of their risks in going to trial.
  • The threat of trial is real and present, and the parties are more likely to make compromises to avoid the unpredictable event.
  • The “demands” of the respective parties are more developed and understood.

Cons

  • Since the positions of the parties are better developed and understood, the party with leverage will be aware of the fact and be less willing to make a significant shift in their position – and thus, settlement may be less likely.
  • With trial around the corner, parties may be more willing to wait the extra few weeks or months and let a judge or jury decide.

Electing ADR Post-Contract
Electing ADR post-contract is easy, but the actual process will likely depend on the ADR provider chosen by the parties. Typically, the parties should agree with one another in writing, and then submit the written agreement to the ADR provider.

The American Arbitration Association provides the following clauses as example clauses for choosing ADR post-contract:

Construction Dispute Mediation Submission Clause:
The parties hereby submit the following dispute to mediation administered by the American Arbitration Association under its Construction Industry Mediation Procedures (the clause may also provide for the qualifications of the mediator(s), method of payment, locale of meetings, the tolling of the statute of limitations, pre-dispute resolution step clause with time frames and any other item of concern to the parties). If a party fails to participate in any scheduled mediation conference, that party shall be deemed to have waived its right to mediate the issues in dispute.

Construction Dispute Arbitration Submission Clause:
We, the undersigned parties, hereby agree to submit to arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules the following controversy: (cite briefly). We further agree that the controversy be submitted to [one] [three] arbitrator(s). We further agree that we will faithfully observe this agreement and the rules, and that a judgment of any court having jurisdiction may be entered on the award.

Large, Complex Construction Dispute Submission Clause:
We, the undersigned parties, hereby agree to submit to arbitration administered by the American Arbitration Association under its Procedures for Large, Complex Construction Disputes the following controversy [describe briefly]. Judgment of any court having jurisdiction may be entered on the award.

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Alternative Dispute Resolution – Why, When & How (3-part series)

On May 11, 2008 Author By Scott Wolfe Jr        


This article is part of a three part series titled “Alternative Dispute Resolution – Why, When & How.” To read the other parts in this series, or to read more articles about ADR, navigate to the Wolfe Law Group ADR page here: ADR.

In the world of construction, litigation is perhaps unavoidable.

The complications and high stakes of each construction project make the construction industry a hotbed for dispute and litigation, and failing to prepare for disagreements can prove fatal.
Through dispute resolution planning, construction companies can minimize their potential exposure in the event of a disagreement.

Problems with Litigation
An adequate discussion of all the drawbacks to litigation would consume a volume of books, and so this brief summary should be taken in context. Nevertheless, it seems to be common knowledge that litigating disputes in courts of law can be time consuming, expensive, unpredictable and generally unfavorable to any of the participants.

The average lawsuit takes between 2-5 years from start to finish, and can cost thousands of dollars. The process is draining on the participants emotionally and physically, and in the end, the parties usually compromise their initial positions to reach a “settlement.”

Unlike in dispute resolution proceedings, a party to litigation cannot pick the judge or the venue, nor can the parties dictate the rules. Litigation is consumed by procedural requirements, motion hearings and discovery – each item contributing to increased time and expense.

The Option of Alternative Dispute Resolution
Alternative Dispute Resolution (“ADR”) is centered around the idea of the parties agreeing to resolve their differences through a non-litigation process. Instead of filing a lawsuit and incurring the associated expense and risk, the parties each submit to another procedure. This procedure is usually less formal than the state or federal court system, and is governed by rules crafted by the parties themselves.

Alternative Dispute Resolution can be chosen by the parties at anytime. Normally, parties will include an Alternative Dispute Resolution provision within their contract requiring each other to use ADR in the event of a dispute. In other circumstances, however, the parties will agree to engage in ADR even after filing a lawsuit in an effort to encourage a fair and speedy resolution.

ADR Types
Since ADR is largely driven by the goals and agreement of the parties, the manner in which a dispute will be adjudicated is restricted only by the parties’ creativity. There are, however, a number of ‘standard’ ADR mechanisms used frequently in the construction industry. Oftentimes, all three of the below types of ADR processes are used to resolve a dispute.

The three below discussed types of resolution are discussed in their usual order of use. In many cases, only one of the below ADR processes are used by the parties, and sometimes they are even mixed and matched with traditional litigation.

It’s important to recognize that each process will carry delay and expense, and so it might not make sense to schedule all three processes when the parties are only arguing over $10,000.00. Furthermore, when all resolution types are used, the parties could be faced with delays and costs that resemble traditional litigation. Accordingly, parties must be careful in their selection of their own ADR rules.

1. The Construction Neutral
The “neutral” concept in construction has recently been sanctioned by huge contract document publishers like ConsensusDOCS and AIA, whose documents now contemplate the appointment of a “Initial Decision Maker” to resolve disputes quickly and on-site.

Traditionally, the Architect served as an initial decision maker in a construction project. When an owner and contractor disagreed about a change order amount or quality of work issue, the decision of the architect would be sought.

Being hired and paid by the Owner, this put the architect in an uncomfortable and conflicting position. The dispute often escalated even after the architect’s decision, leaving the parties with expensive litigation and a delay in the project.

The idea of a “neutral” or “initial decision maker” simply tenders the decision-making role to a neutral third-party, appointed by the parties during or subsequent to contracting. The initial decision maker provides the parties with a fast and inexpensive third-party voice, hopefully capable of resolving the dispute and keeping the project on-track towards completion.

The decision of the initial decision maker is usually considered “final” by the parties for the purposes of the project’s progress, but in almost every instance, the parties allow the decision to be disputed through further dispute resolution processes (such as mediation, arbitration or litigation).

2. Mediation
Unlike almost every other type of dispute resolution procedure, mediation does not pit one party’s position against the other, does not provide a “decision” of a neutral party and is not binding upon the parties in anyway.

Contrary to any other dispute resolution procedure, mediation is a confidential meeting of the parties, whereby they each air out their positions and explore its strengths and weaknesses. The mediation process encourages settlement by providing a forum for an open discussion of the party’s respectful positions, and the road ahead in the event the parties continue in their disagreement.

Normally, the mediation will begin with a meeting of all parties and the mediator, whereby each party expresses their position and their concerns. The mediator then breaks the parties into different rooms, whereby they only communicate to one another through the mediator.

Mediation is a very successful settlement tool, and when used correctly it can help parties avoid the costs and risks of litigation.

While the mediator is greatly involved with the parties and works to help them settle, he or she will not make any decisions that will binding upon the party. The mediation proceeding is only “binding” if a settlement agreement is reached.

3. Arbitration
The third and final type of dispute resolution process discussed in this article is “arbitration,” perhaps the most traditional ADR procedure.

Arbitration is very similar to traditional litigation in that it involves a decision maker (i.e. judge), witnesses and testimony, a traditional review of evidence and procedural rules.

While similar to litigation in some manners, arbitration is certainly an entirely different proceeding. The parties are intimately involved with setting the rules and proce
dures, as well as even cho
osing who will arbitrate. The “rules” of the proceeding are also much less formal than traditional courts require.

In a typically arbitration, the parties will appear before a single arbitrator, or a panel of arbitrators. These decision makers are typically experienced in the field of law and industry at dispute, and they will listen to each side present their case. Thereafter, the arbitrator(s) will make a decision that is enforceable by one party over the other.

Pros and Cons of ADR
The pros and cons of ADR over traditional litigation is a worn topic.

While there are certainly a lot of positive characteristics to ADR, it is not a process that fits in every circumstance. Like almost any other legal decision, you should consult the advice of an attorney and consider the pros and cons of each procedure before deciding on one over another.

Although there are some circumstances when traditional litigation is preferred over ADR, in the construction industry ADR is a fact of life and is normally an asset to those working on projects of all shapes and sizes.

Here is an overview of some of the most discussed pros & cons to ADR:

Pros to ADR

  • ADR can help preserve the relationship between the parties. In construction, genuine disputes may arise between the parties on scope and quality issues, and although the parties are at odds over this issue they may likely have to continue working together or work on a project in the future. ADR may save the relationship while resolving the dispute.

 

  • The parties are in the driving seat. Unlike in litigation, the parties can choose the resolution procedures, the players, the rules…and even the outcome. Traditional litigation has rigid rules, and you get what you get. The parties are not allowed to explore creative alternatives, and the result may sometimes be unfair. When certain ADR solutions work (like mediation, or construction neutrals)….the result may actually be win/win.
  • Costs of ADR are typically lower than costs of litigation. Traditional litigation can be extraordinary expensive, regardless of whether the dispute is large or small. ADR costs more closely resemble the complexity of the dispute and the purse at stake. Further, its informality results in less obligations and lower costs.
  • ADR is efficient. ADR is run by private companies who get paid by getting claims in and out of the door. Traditional courts, obviously, do not have the same motivation. ADR moves at the pace of the parties, and not the courts.

 

Cons to ADR:

  • Instant Legal Remedy. Sometimes, the parties need an instant legal remedy (i.e. construction lien, construction lien removal, injunction, eviction, etc.). These instant remedies cannot often be obtained through ADR, and litigation is necessary. When an instant legal remedy is required and the parties have chosen to resolve their disputes through ADR, the party seeking the legal remedy may have boxed themselves in to an unnecessary and expensive process.

 

  • Loss of Leverage. Sometimes, the costs and burdens of litigation is actually leverage for one party over another. While not exactly fair, it is a fact of life in the legal world. If one party is better funded, or if one party is in possession of the money or property in dispute, the long and expensive process of litigation is actually leverage for that party against the other.
  • Quality Standards. While it might seem humorous to many to assert that the court systems have “quality control,” in reality there may be more quality control in that system than in ADR systems. In court, there are manners to appeal decisions not found with most ADR proceedings. Furthermore, arbitrators, mediators and neutrals are oftentimes not decision makers by trade, and that inexperience makes them prone to mistakes.
  • Too Focused on Compromise. A pro to the ADR system is its focus on settlement and compromise, but its also a con to the system. Sometimes, the parties do not want to compromise, or they cannot find “justice” in a compromise. The ADR system’s encouragement of compromise consumes a large amount of time and resources that is wasted on a litigant who seeks a final and fair determination. Even when the ADR system gets to the arbitrators, they are still less likely to impose severe penalties on one party or to make a very prejudicial decision.

 

Where Do I File For ADR?
With so much discussion of ADR, a reader may be quite curious as to who manages “ADR,” and where the ADR courthouse is located.

Interestingly, there isn’t a courthouse system for the ADR network. Every city has a number of private companies that offer ADR services, and these services are usually located in office buildings in-between doctors, lawyers and accountants. Since the parties are in the driving seat of ADR proceedings, they can even choose their neighbor or relative to conduct the proceedings (not recommended, but mentioned to highlight the informality of the processes).

Some companies are more established than others, and you should investigate any organization before choosing them to adjudicate your dispute. In many instances, the parties will actually select the ADR provider at the time of contracting .

The most popular provider of ADR services is the American Arbitration Association.

The Next Series
Next in this three part series on Alternative Dispute Resolution is a discussion on:

  • Choosing ADR in Contract: Well crafted ADR clauses and some of the factors you should consider when constructing your ADR requirements in contract.
  • Choosing ADR Post-Dispute: How to involve ADR in an already existing dispute
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