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SELF-DETERMINATION IN DISPUTE SYSTEM DESIGN AND MANDATORY COMMERCIAL ARBITRATION. Lisa B. Bingham Keller-Runden Professor of Public Service Director, Indiana Conflict Resolution Institute Indiana University School of Public and Environmental Affairs

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SELF-DETERMINATION IN DISPUTE SYSTEM DESIGN AND MANDATORY COMMERCIAL

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SELF-DETERMINATION

IN DISPUTE SYSTEM DESIGN

AND MANDATORY COMMERCIAL

ARBITRATION

Lisa B. Bingham

Keller-Runden Professor of Public Service

Director, Indiana Conflict Resolution Institute

Indiana University

School of Public and Environmental Affairs

Bloomington, Indiana


Self-Determination:Case and DSD Levels

  • Case level: one dispute, one set of parties, one process

  • Dispute System Design (DSD) level: generally multiple disputes, multiple parties, multiple cases, may be series of steps and processes


Dispute System Design

  • Ury, Brett and Goldberg

  • Grievance mediation as new step before labor arbitration

  • Includes ombuds programs, mediation programs, integrated conflict management systems

  • Array of steps from low to high cost, ideally from interest-based to rights-based processes


Self-Determination in ADR

  • At case level, parties may have self-determination as to outcome in mediation or cede control to an arbitrator

  • At DSD level

    • They may mutually design the process

    • One party may design it unilaterally

    • A third party may design it for them


Control over DSD in Mediation

  • Both parties design system: ad hoc mediation, grievance mediation in labor relations

  • One party designs system: REDRESS at USPS

  • Third party designs: Mandatory mediation in public sector labor relations, court-annexed programs


Control over DSD in Arbitration

Both Parties

Labor arbitration, CPR, Cotton Industry, Diamond Industry

One Party Unilaterally

Mandatory, adhesive arbitration of commercial disputes

Third Parties

Court-annexed programs

Court of Arbitration for Sport (also mandatory)


Diamond Dealers’ Club: (Bernstein 1992)

  • Private arbitration system with mandatory conciliation step (this settles 85% of 150 cases annually)

  • System mandatory as a condition of membership in DDC

  • Non-members ask to use it

  • Fact-finding by elected Floor Committee

  • If material issue of fact, goes to elected Board of Arbitrators


Diamond Dealers’ Club Process

  • Arbitration confidential

  • Arbitrators are club members elected to two-year terms

  • Arbitration fee is small and arbitrators may decide to refund it

  • Appeal to 5-member board from same elected pool but different panelists

  • DDC will refuse to arbitrate based on “complicated statutory rights” or on forum nonconveniens

  • If DDC refuses, parties have usual remedies


Both Parties: Cotton Industry (Bernstein 2001)

  • Merchants and Mills create Board of Appeals, agree to use as condition of membership in professional associations

  • Board has two elected members, one from each association

  • Paper review, party identities redacted, intended to control for bias

  • Public circulation of written opinions


Cotton Industry continued

  • Alternative forum: Memphis Cotton Exchange panel of seven arbitrators appointed annually by Board of Directors

  • Oral hearings, some discovery, counsel, no publication of opinions

  • Norm of CONSENSUS, only 4 of 92 cases not unanimous over 50 year period


One Party Designs: Mandatory Commercial Arbitration

  • Partial list of dispute system design elements

    • time limits

    • selection of arbitrator(s)

    • selection of third party administrator

    • location of hearing

    • filing fees

    • arbitrator fees

    • attorneys’ fees

    • class action availability, limitations on damages


Bargaining in Shadow of Private or Public Civil Justice System?(Galanter 1988)

  • Settlement range = difference in parties’ reservation prices, taking into consideration transaction costs

  • One Party DSDs shift transaction costs.

  • This alters the settlement value of the case.


Filing and Arbitrator Fees

  • Public Citizen (2002) for $20,000 claim, maximum administrative (not arbitrator) fees:

    Court: $221

    AAA: $375

    NAF: $2,325

    JAMS: $750

    NET SHIFT IN SETTLEMENT VALUE:

    IF NAF IMPOSED: $2,104


CLASS ACTION PRECLUSION

  • Transaction costs for attorneys’ fees for individual small claim can exceed economic value of claim.

  • Result shifts settlement value of claim to zero.


LOCATION OF FORUM

  • Happens with forum shopping, too, but other elements of DSD controlled by 3d party (court)

  • Gateway - Chicago

  • Franchise agreements - near franchisor home base

  • Predatory mortgage lenders - force borrowers to travel to distant location


LOCATION OF FORUM

  • Added transaction costs for travel compared to local small claims court or county court

  • Costs shift settlement value of claim.

  • May exceed value of small claim.


THIRD PARTY DESIGNS

  • “Mandatory” is not the problem. Control over DSD is.

  • Amateur Sports: athlete, NGB/NSO, NOC, IF, and IOC

  • Court of Arbitration for Sport: mandatory submission to its jurisdiction as a condition of Olympic participation


Court of Arbitration for Sport (CAS) (McLaren 2001)

  • Initially designed by IOC, 3d party compared to athlete, NGB, IF, NOC

  • Independent 20-member International Council of Arbitration for Sport

  • Supervise CAS, representative body, cannot themselves arbitrate or serve as counsel

  • CAS arbitrator panels viewed as more independent, neutral, experienced than those of IF or NGB panels.

  • Expertise and Transparency


CONTRAST: One Party NGB DSD (Haslip 2001)

  • Canada

  • NGB/NSO is party to dispute

  • Designs procedure including arbitration

  • Critics charge: power differential with athletes, lack of arbitrator independence, secret awards, no repeat player specialized counsel for athletes

  • Recommendation: Canada take over DSD and create a national dispute resolution system


CONCLUSION: CONTROL OVER DSD IS THE ISSUE

  • We need systematic policy analysis of different dispute system designs

  • What is their effect on the pattern of outcomes?

  • Until we know that, we need judicial skepticism toward one-party adhesive arbitration designs.


Judicial Skepticism

  • Shifting burden of proof, e.g., in motion to compel arbitration, drafter of DSD has burden of proving all elements of arbitration agreement enforceable

  • Construe ambiguity or silence against the drafter

  • Evidence that DSD shifts settlement value to zero, taking all transaction costs into account, should render arbitration clause unenforceable as one that concerns substance, not forum


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