THE ALTERNATIVE | ADR
The Argument for ADR Using
Customized Procedural Stipulations
By Richard Righi, Richard Tarangelo and Ann Carvalho
Aconfluence of circumstances and events, such as the conomic downturn, rising defense costs and unpre- dictable verdicts, have caused carriers to re-evaluate that perennially present quiver in their cost reduction arsenal — Alternative Dispute Resolution (ADR).
Despite the increased use of ADR in recent years, the crisis in
American courts remains acute. Presiding Federal District Court
Judge John Roll from Tucson lived the crisis every day. His mission to secure additional court resources was long standing, and
by now, well documented in the wake of his tragic shooting. And
while the crisis might be more dramatic in Arizona than other
parts of the country, an ever-growing populous, combined with
the recent economic downturn, foreshadows a chronic problem.
Codes and Restrictions “CC&Rs” and Purchase Contracts. By the
time a mass action ripens, a significant portion of the homes have
been sold to subsequent purchasers. The original homeowners
are subject to a contractual ADR process, but subsequent purchasers can maintain independent implied warranty claims in the
court system. These dispute resolution mechanisms may provide
inconsistent results and often provide differing rights to recover
costs and attorneys’ fees, and as a result, different incentives.
To solve the problem, lawyers have created a comprehensive,
customized procedure that takes the form of an “Arbitration
Agreement” or “Submission Agreement.” The goals of the agreement are four-fold: 1) Combine multiple plaintiffs with different
procedural rights into one binding arbitration process; 2) Limit
To solve the problem, lawyers have created a comprehensive, customized procedure
that takes the form of an “Arbitration Agreement” or “Submission Agreement.”
ADR is a healthy alternative to the court system, and therefore a
critical component of any program designed to reduce the burden on courts. The reasons are fairly obvious — ADR provides a
more efficient means to resolve disputes by reducing the length
and complexity of the process. And when efficiency is achieved,
expense is reduced. But perhaps more importantly, ADR provides
litigants better access to the system and control over the outcome.
Instead of waiting many months, and sometimes years, for their
voice to be heard, a litigant can participate in one of many procedures designed to allow an expedited, streamlined presentation
of their position. ADR allows the parties to customize the process, which promotes direct involvement and control. ADR reduces risk and provides more certainty. And, ADR can promote a
more cooperative and less adversarial process, which discourages
escalation of conflict and allows the preservation of relationships.
Disputants have found that resolution options available through
ADR are more broad and satisfying than a court decision.
While there are many commonly accepted methods of ADR in use
today, a creative, newer method in complex, multi-party actions
may be unfamiliar to many. Complex, multi-party “mass” actions
can present unique procedural problems, and are the greatest opportunities for ADR. In Arizona for example, construction defect
claims involving multiple plaintiffs and varying contractual provisions often require different forums. In recent years, national
homebuilders have employed ADR provisions in Covenants,
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discovery to only that which is necessary; 3) Stipulate to a meaningful fee shifting mechanism that merges contractual ADR provisions with applicable fee and cost statutes; and, 4) Allow sufficient time for initial investigation and mediation prior to the
commencement of fee shifting.
The process contemplates binding arbitration within one year of
the submission agreement. Each agreement incorporates a provision requiring each party to bear its own fees and costs in the investigative stage. Three or four months are normally set aside from
the date the agreement is executed to allow the parties to exchange
documents, finalize claims and perform site inspections. Mediation
is scheduled at the end of the initial investigative stage.
Each party enters the mediation in good faith with enough knowledge to understand the nature of the dispute, but in advance of
formal discovery. The goal at mediation is obviously to resolve the
case, but if that does not occur, formal offers can be made that can
later be used to determine the prevailing party in post-arbitration
proceedings. While it takes some effort to craft an effective agreement acceptable to the parties, it’s proven successful by streamlining the process and creating significant cost savings.
Richard Righi is an attorney with the Righi Hernandez Law Firm based in Phoenix.
New York-based Richard Tarangelo is Director, Complex Claim Unit with CNA. Ann
Carvalho is the Executive General Adjuster with McLarens Young International.