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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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 forum1

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

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

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

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

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

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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