CPR Convenes Major Conference on Managing and Resolving Business Disputes (Mealeys)
January 22, 2008
Tue, Jan 22, 2008By: Russ Bleemer
Emerging Toxic Torts
[Editor’s Note: Russ Bleemer is the editor of Alternatives, the International Institute for Conflict Prevention and Resolution (CPR Institute) newsletter. For more information contact Russ at email@example.com or visit www.cpradr.org. Copyright 2008 by the author. Responses welcome.]
The 2007 Fall Meeting of the International Institute for Conflict Prevention and Resolution (CPR) Oct. 25-26, 2007, at Copley Plaza Hotel in Boston touched on nearly every hot conflict resolution issue affecting corporate legal practice today. It included sessions focused on how corporate clients pick law firms for their expertise in Alternative Dispute Resolution (ADR), the nuts and bolts of negotiating and a mock U.S. Supreme Court hearing on a hotly disputed business arbitration issue.
The first meeting day kicked off with CPR President Kathy Bryan discussing the current organization work: including early case assessment, preventive law and CPR committee efforts, including the new CPR Arbitration Committee rules.
Bryan was followed by David Lax of Lax Sebenius LLC, who discussed his consulting firm’s concept, “3D Negotiation” and the “core strategies” involved in applying it to business deals. The process builds on classic interest-based bargaining techniques, in which parties evaluate alternatives based on the interests they express to one another. The “3D” model, Lax said, tries “to elicit and sustain cooperation” between people with different values and interests.
The model emphasizes interpersonal negotiating, relying on interpersonal skills to probe bargaining positions. This involves listening actively and joint problem solving. It also encourages deal design: planning the negotiation process to identify anticipated impediments to an agreement, including both design barriers, and interpersonal barriers. This “3-D strategy” sets up the “right” negotiation, designs value-creating deals, and emphasizes problem-solving tactics, said Lax.
More information on Lax, and his theories and practices, can be found at www.negotiate.com.
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CPR next presented a two-hour discussion featuring a nine-person roundtable titled “How Do Corporate Clients Pick Firms for their ADR Expertise?” The session involved discussion among panelists, who included moderator Steven J. Comen; William J. Connolly III, vice president, senior litigation counsel at State Street Bank & Trust Co. in Boston; Michael Heyrich, associate general counsel at New York Citigroup Inc.; Bruce Patton, of Vantage Partners LLC in Boston, a management consulting firm; and Andrew E. Shipley, senior corporate counsel at Northrop Grumman Corp., in Arlington, Va., as well as several senior attorneys from the Boston firm Goodwin Procter LLP.
Patton declared at the outset that both in-house and outside counsel can bring value to deals and litigation matters when they work together effectively, but that outside attorneys must be driven by in-house counsel’s objectives. Corporate counsel needs to communicate expectations that ADR be used to advance the company’s core goals, mitigate business risks, minimize uncertainties and help the in-house attorneys manage costs.
Northrop Grumman senior corporate counsel Andrew Shipley discussed his company’s longstanding use and advocacy of ADR. “We embrace ADR as a rational means to resolve disputes,” he said. The aerospace company routinely builds ADR into its government contracting work. It received the Office of Management and Budget’s 2002 Federal Procurement Alternative Dispute Resolution Award, and deploys comprehensive ADR suitability processes.
Northrop Grumman executives and attorneys “participate in the shaping of the outcome,” through ADR instead of waiting for a third party, like a judge or arbitrator, to determine it. Shipley said he enjoys litigating, and the company’s willingness to proceed to trial provides ADR credibility.
“Although litigation may be fun for the litigators,” he said, “it is expensive. It is invasive. It is disruptive.” He said the ADR process “often takes on a life of its own and produces results” even when a party is initially resistant. The bottom line, Shipley said, is parties control the ADR process, so they can walk away if they have to. “And you are not hurt by using it,” he said.
Shipley provided factors Northrop Grumman uses in picking outside counsel. Some of the points included:
• Does outside counsel understand our business?
• Does outside counsel have knowledge of our product/industry?
• What is the reputation of the outside firm or attorney?
• If there’s no company experience with the attorney or firm, what do peers think of the outside lawyers?
• Are the outside lawyers familiar with mediation and arbitration, and the adversary’s counsel?
Michael Heyrich of Citigroup urged in-house counsel to take an unbiased view in their work for the business people. The in-house lawyer isn’t “a cheerleader,” he said. The corporate client needs unvarnished counsel that is aimed at accomplishing overall business objectives.
State Street Bank vice president and senior counsel William Connolly recognizes ADR’s value and relies on it to sustain business with institutional clients. “Preserving those relationships is essential to the success of our company,” he said. Besides vendor disputes where continuing relationships are an issue, Connolly said matters needing ADR often arise where contracts are terminating and relationships are ending.
Connolly’s key factor in hiring outside counsel is the attorneys thorough knowledge of the bank’s business. “Whatever you think you know,” he said, “you don’t know enough.”
Asked how State Street Bank uses outside lawyers for ADR matters, Connolly replied with two examples where State Street Bank didn’t use outsiders. Both involved situations where there was no continuing relationship at stake. “There was not much an outside counsel could bring that [State Street Bank] didn’t already have” to reach an agreement, he said.
Thomas M. Hefferon, a Goodwin Procter Washington, D.C., attorney, discussed actions. Again, knowledge of the business at issue was paramount. Hefferon said the businesses and the class action attorneys are teaming to devise a plan that will have to be adopted by everyone involved in the matter. Patrick S. Thompson of Goodwin Procter in San Francisco added that class action plans don’t provide “black or white” answers for the other side. But, he added, one tactic that may push the matter forward is to bring an outside litigator into the mix “who provides a stark choice” for the other side.
Bruce Patton examined the relationship between mediation process experience and substantive knowledge of the business at issue. He said since 1990 the shift to prominence of substance may have gone too far. “I worry that people devalue the process stuff,” he said.
For example, Patton said, the other party often turns out to be the problem — more so than the business issues. “How do I do a collaborative negotiation [with] someone who doesn’t feel collaborative to me?” he asked, to demonstrate the process focus he seeks in neutrals.
Andrew Shipley countered by noting, “Settlement of every dispute is not necessarily a good thing.” Again invoking the potential for litigation, Shipley said the ADR focus must be on the terms. He advised that the “best time to think about how to resolve a dispute is when the deal is on the table,” before there is a dispute.
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William W. Park, a law professor at Boston University School of Law, showed video snippets — enacting the parties’ and attorneys’ maneuvering in a run up to a big arbitration case — to illustrate arbitration practice points. Most of the videos showed the attorneys addressing preliminary issues. Among the points tackled in the videos, and discussed by Park and CPR meeting participants, were arbitrator disclosure; objections to processes including whether the proceedings should be bifurcated to decide arbitrability and the merits separately; counterclaims; and discovery issues, including the arbitrator’s authority for his ruling.
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Next up was an hour-long mock U.S. Supreme Court argument for Hall Street Associates v. Mattel, which the Court heard two weeks after the Boston meeting.
The case asks whether parties may contractually modify the statutory standards for judicial review of arbitration awards. Kathleen M. Scanlon, special counsel in the New York office of Heller Ehrman LLP, organized a six-member “Supreme Court” to hear the parties’ arguments.
J. Andrew Heaton, associate general counsel of Ernst & Young LLP, portrayed the attorney for petitioner Hall Street Associates, and Michael S. Greco, a partner in the Boston office of Kirkpatrick & Lockhart Preston Gates Ellis LLP and former American Bar Association president, represented toy maker Mattel.
In response to a question by “Justice” E. Joshua Rosenkranz, a partner in Heller Ehrman’s New York office, Heaton said contracting for standards of judicial review should be permitted just as parties may control by contract the limits of the arbitrator’s powers.
Justices Barbara E. Daniele, senior vice president and general counsel at GE Commercial Finance in Danbury, Conn., and John M. Townsend, a partner in the Washington office of Hughes Hubbard & Reed LLP, both suggested in their questioning of Heaton that they believed the contract conferred powers on judges that were beyond the scope granted by the Federal Arbitration Act (FAA).
“We’re seeking a level of party autonomy to be enforced,” Heaton said.
Greco argued the FAA’s integrity was at stake. Just as parties have no right to include something not in the act in their agreements, he argued, they also have no right to exclude something that Congress put in the act. Greco deflected Daniele’s assertion that a lower court could strike the arbitration award if it found it irrational — which had actually happened at an early stage of the case. There is no irrationality standard, only the FAA fraud grounds, and the judicially-propounded “manifest disregard of the law” standard, Greco said.
After the arguments, moderator Scanlon asked the justices to rule on the case. The result: The mock Supreme Court would have refused the customized judicial standard and required review of the award according to the FAA alone. An audience poll agreed, by a 2-1 margin.
In addition to Scanlon; Townsend, who is chairman of the American Arbitration Association board; Daniele of GE Commercial Finance; and Rosenkranz of Heller Ehrman, the mock panel included Michael B. Keating of Boston’s Foley Hoag LLP; and S. Elaine McChesney of Bingham McCutchen LLP.
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The first Fall Meeting day concluded with “Corporations, Accountability, and Human Rights,” a discussion of applications of ADR principles to address claims of corporate violations of human rights. John F. Sherman, deputy general counsel of National Grid, which generates and supplies power internationally said in 2003 his company set out a “framework for responsible business” with three elements: sustainable growth, profits with responsibility and investing in the future.
“A healthy company is one that listens,” he said. Noting that National Grid identifies and engages stakeholders and their interests in planning its construction projects, Sherman said that the company is using “the core of conflict resolution” to accomplish its work, and head off problems before they arise. He said the company adheres to values, which he attributed to MIT Prof. Lawrence Susskind, to head off conflict, urging factfinding; acknowledging the effects of company activities; downsizing plans where and when necessary to minimize detrimental effect; and accepting mistakes and taking responsibility for them.
Sherman was followed by Caroline Rees, of the Corporate Social Responsibility Initiative at Harvard University Kennedy School of Government in Cambridge, Mass. She explained few professionals have enough experience in doing business deals, managing human rights issues, and structuring conflict resolution systems to be able to embrace comprehensive techniques to address all three areas. Disputes such as Yahoo’s release of users’ identification to the Chinese government and Nike’s child labor issues “are not just about human rights,” said Rees, but are corporate and social issues that are imbued with “the rhetoric of human rights.”
“We’re seeing an increasing amount of experimentation ... to bring the advantages of ADR to the human rights arena,” she said. Rees emphasized a key to such dialogues is transparency. “You can’t have a private discussion on human rights,” she said.
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The second day at the CPR Fall Meeting kicked off with an examination of E-discovery and its role in arbitration. The panel included Charles R. Morgan, managing director and special counsel at FTI Consulting in Atlanta; Jeffrey A. Fuisz of Kaye Scholer LLP; and Jonathan Sablone of Nixon Peabody LLP.
Fuisz said it is impossible to impose a “litigation hold” on electronic communications, and “we need to streamline discovery to make it compatible with the goals of arbitration.” Sablone talked about data retention issues, particularly the ability to retain materials in searchable form. Organizations should aim to limit the amount of materials that needs to be saved, scanned and surveyed. Sablone also discussed the high costs of retrieving and hosting data-backup tapes, which originally were designed for disaster recovery, not for searchable topic-specific records. He pointed out that Federal Rule of Civil Procedure 26 allows judges to limit discovery requests in proportion to what is at stake in the case. But, he added, “You’re on your own” deciding what documents should be retained as part of a “litigation hold.”
Charles Morgan said organizations should establish and adhere to their own instant messaging retention policies. “Few [companies] follow their own policy to the letter,” he said. Worrying about documents isn’t an exciting business subject, according to Morgan. “People don’t set records retention as a business goal.”
Arbitrators have discretion to limit discovery, Fuisz said, but it’s tough to do. A tribunal should be “very proactive on what the dispute is about — not in the Federal Rules’ sense, but [instead,] ‘What is the heart of the matter?’” He said the arbitrators should limit date ranges, and establish the nature of what will be responsive to information requests.
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Charles Morgan returned for the next panel on diversity in ADR. Morgan serves as co-chair of the CPR National Task Force on Diversity in ADR, along with Thomas L. Sager, vice president and assistant general counsel of E.I. du Pont de Nemours & Co., and Carla Herron, group counsel for the Shell Group in Houston. With Hon. Timothy K. Lewis of Schnader Harrison Segal & Lewis LLP, Morgan reported on the Task Force efforts to increase use of women and minorities as neutrals and party representatives in arbitration and mediation.
“It’s not about one’s morals or politics,” Lewis said. “This is good business and it is also good practice within our profession.”
The panel, which included Cassandra J. Georges of Philadelphia, discussed efforts at increasing so-called“second seat” ADR opportunities for young, minority, and women attorneys. Georges reported on her one-year Dispute Resolution Fellowship in Pittsburgh, established by veteran Pittsburgh mediator Robert A. Creo.
Susan M. Yates, executive director of the Chicago-based Center for Analysis of Alternative Dispute Resolution Systems, reported on the American Bar Association Section of Dispute Resolution Task Force on Mediator Quality. The long-running project produced a view of mediation from the consumer standpoint via a series of focus-group meetings. Key elements in satisfaction by mediation users, Yates reported, are the neutral’s general preparation, the preparation in terms of case-specific process design elements, the mediator’s analytical input and the mediator’s persistence.
Yates said clients had high expectations of mediator preparation, as well as preparation by their legal advocates. About 70 percent of the focus group participants
wanted mediator analysis — at least some evaluation of claims and defenses, Yates said. Still, she said, there was a “big divide” among parties on whether mediators should make recommendations.
Yates called consumers’ view of the need for mediator persistence “one of those universal truths about practice in all areas of mediation.” She said the general view is that “pressuring the other guy is good — but pressuring me is bad.”
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The next session focused on arbitrability issues. Stuart M. Widman of Miller Shakman & Beem LLP said the state-of-the-law is a “triangulation” of tensions among the Federal Arbitration Act, the parties’ agreement and U.S. Supreme Court jurisprudence. Widman said there is “a lot of Supreme Court activity on fundamental arbitration questions. It tells us this is a very hot area, and a very challenging area.”
Panelist Paul Bennett Marrow said arbitrability keeps getting litigated because the law in the area was filled with ambiguity. Parties contract for arbitration, but then when faced with arbitration, one party decides to file suit to challenge the move to bring it before the arbitrator.
Former federal circuit court judge Tim Lewis said, “The parties should get what they bargained for in arbitration.” Shaking his head, Lewis said, “I think the courts have screwed this up, frankly.” Lewis’s view that the law is muddled was “borne out by so many divergent views” on what the arbitrability opinions mean.
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The CPR Fall Meeting concluded with a presentation on the ethical challenges posed by collaborative law and contingent fees in mediation. Scott R. Peppet, a professor at the University of Colorado School of Law in Denver, said, in collaborative law, parties hire an attorney to help them reach a settlement agreement with the understanding that the attorney will bow out of the matter if the parties go on to an adversarial proceeding. Peppett said the practice had a lot of ethically troubling elements. First, he noted some state bars have opined it is unethical for lawyers to take on a case and then bow out of it. The ABA ethics committee disagrees. Prof. Peppett had issues with both opinions. “This is odd,” Peppet said. “It’s an agreement with the lawyer on the other side. Most collaborative law practitioners haven’t thought about whether it’s a valid contract.”
Peppet noted only CPR’s ethics proposals — and the guidelines of the Union International des Avocats — address contingent fees in mediation. The concern is that a mediator’s drive for a settlement — and an enhanced fee — would affect neutrality. Peppet proposed that contingent fees are workable in mediation; though one proposed model, a fee based on percentage of the value created by the mediated agreement, “wouldn’t fly ethically.” He proposed an alternative that would allow them so long as “the fee arrangement does not create an appearance or actuality of partiality toward one party.”
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