Photo Credit: iStock
Photo Credit: iStock
Lawsuit Reform

Supreme Court Preserves Lawsuit Alternatives

On May 21, 2018, the Supreme Court ruled in favor of businesses that use alternative dispute resolution (ADR) when resolving wage and labor disputes with employees. The case, Epic Systems Corp. v. Lewis, hinged on whether businesses were allowed to require arbitration of wage and labor claims to the exclusion of collective actions, such as class action lawsuits, as a condition for employment. In delivering the opinion of the Court, Justice Neil Gorsuch argued, “[A]s a matter of law the answer is clear. In the Federal Arbitration Act, Congress has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings.” As the courts continue to consider ADR-related issues, it is important to remember the benefits of ADR for reducing costs and backlog in court systems.

Alternative dispute resolution is a method for dealing with disputes that avoids the traditional court system. The Alternative Dispute Resolution Act, an ALEC model policy, creates a way for states to take advantage of the cost, time, and stress-saving features of ADR. The ADR Act creates a program in a state’s court system that provides opportunities for parties to resolve their disputes through various types of ADR. The system encourages the use of ADR procedures that lead to cost-savings and judicial expediency: limited discovery, confidential proceedings, and the provision of non-judicial assistance for the evaluation of a party’s claim.

There are different forms of ADR employed by American courts, but three common forms are arbitration, mediation, and early neutral evaluation. Arbitration typically looks like a less formal trial in which an arbiter presides over a case, hears arguments by the opposing sides, and decides an issue on its merits. Decisions by arbiters are usually binding, but the exact terms of arbitration are stipulated by the parties beforehand. Mediation usually involves the use of a mediator to facilitate dialogue between two parties in a case and encourage agreement on a resolution. Mediation is typically non-binding, but like arbitration, the exact terms are stipulated beforehand. Finally, early neutral evaluation utilizes an impartial party to weigh the strengths and weaknesses of each side and encourage the parties to take a realistic view of their case and hopefully come to a resolution.

The replacement of traditional jury trails with ADR has been on the rise over the last several decades. This shift away from traditional civil trials towards ADR is predominantly a product of the many direct and indirect benefits ADR offers. For example, the Department of Justice studied its own use of ADR and found that in 2017, 75% of voluntary ADR proceedings were resolved without the need for a formal trial. Even in the instances where the case was not resolved via ADR, 77% of cases achieved some other sort of success like narrowing of issues at trial, resolving discovery disputes, or progressing towards a settlement. The ALEC ADR Act promotes voluntary proceedings, which had the highest success rate in the DOJ’s study and helped avoid adding the cost of ADR onto a case that would inevitably proceed to trial. The DOJ also found that using ADR saved it time and money: in 2016 alone, the ADR saved the DOJ $70,610,263 in litigation and discovery expenses as well as 26,388 days of attorney and staff time and 2,733 months of litigation.

These successes extend beyond the Department of Justice. ADR is typically faster than traditional litigation – arbiters do not necessarily suffer from the backlogged caseloads of the civil court system and may be able to schedule proceedings at atypical times, such as nights and weekends. Moreover, ADR allows the parties to avoid the complicated paperwork and lengthy hearings, depositions, and subpoenas native to normal court procedure. Generally, ADR is also cheaper than traditional litigation, as long as the ADR case does not proceed to trial.  Attorneys’ fees significantly augment the cost of litigation – of shifting damages from a responsible party to an aggrieved party. ADR can minimize the transfer cost of civil damages.

Studies also suggest that, contrary to the opinions of some commentators, arbitration in particular provides a fair chance of a successful claim to consumers or employees bringing suit against a business. Research by Christopher Drahozal and Samantha Zyontz found that “the consumer claimants[s] won some relief against the business more than half of the time.” They also found that these claimants were usually awarded between 42% and 73% of the amount they claimed.  At least in consumer suits, ADR provides a faster and cheaper alternative to the traditional court system that still has a reasonable opportunity for success.

ADR also has non-economic benefits. While a traditional courtroom is naturally adversarial, ADR proceedings can avoid the hostility of a trial and in many cases preserve the parties’ relationship. A study by the International Finance Corporation found in 2006 that ADR improved professional and business relationships due to the non-adversarial nature of mediation. The study also found reason to believe that ADR could improve court effectiveness, the business environment, and even trust in the legal system.

As the Supreme Court continues to be presented with cases assessing when and where the use of ADR is appropriate, state legislatures can instead find ways for state courts to realize the full potential of non-traditional methods of resolving claims with reasonable ADR legislation.

In Depth: Lawsuit Reform

State legal systems and the liability they exert on businesses and individuals are a disincentive to bad behavior and allow fair players to succeed in the marketplace. When lawsuits inappropriately punish good actors, resources are sucked out of the business economy, away from research & development and job creation. Lawsuit…

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