Can We Talk?

December 1998

Managing:Legal Issues

Can We Talk?

Settling disputes outside a court of law can save you time, money and aggravation. Alternative dispute resolution is the way


You hear the term alternative dispute resolution (ADR) in practically every industry, profession and area of law today, but there's a lot of misunderstanding about it. Let's look at what ADR is, how it's being used among jewelers and what it may come to mean to the industry.

The History
Disputes between parties, whether for business or personal reasons, need to be resolved. When there's no mechanism to settle disputes, history shows chaos or even violence occur as people take matters into their own hands. For centuries, disputes were resolved by village elders, tribal chieftains, kings or other leaders. In the past few centuries, courts with judges and juries became the predominant means of settling disputes that people couldn't settle themselves. But in the last decades of the 20th century, the court system has become increasingly slow, complex and ruinously expensive.

ADR has several benefits over litigation. In most cases, it's quicker and less expensive. Backlogged court dockets and schedule conflicts of busy attorneys can drag out court cases for months or years. Legal fees for lawsuits can range from a few thousand dollars to hundreds of thousands or millions. Tens of thousands of legitimate disputes go unresolved because the cost of pursuing a claim is more than the claim is worth. It's become clear to many people involved in business disputes an alternative to litigation is necessary. ADR, in its many forms, is that alternative.

What Forms Can ADR Take?
There are two major kinds of ADR: arbitrationand mediation.They differ in some fundamental ways and require different skills of the person conducting them. But they share the goal of resolving disputes quickly, efficiently, inexpensively and fairly.

They also share the requirement the arbitrator or mediator be impartial, be perceived by both parties as impartial and be highly skilled in the practice of arbitration or mediation.

In many ways, arbitration is a private court system. The parties present their case to the arbitrator, who sits as judge and jury. The rules are made by or explained to the parties before the arbitration starts, and the parties agree to them, usually in writing. Then the arbitrator listens to both parties (or reads their submissions if the arbitration is done "on the papers") and renders a decision.

The decision can be binding (no right to an appeal) or non-binding (either party can appeal to a preagreed-upon authority such as a panel of arbitrators, an administrative agency or the court system). Even in binding arbitration, however, a court can overturn a decision for fraud or other significant improprieties in the process.

A mediator doesn't render a decision, but works with the parties as a neutral and guides them to resolve their dispute themselves. The underlying principle in mediation is that most disputes have a solution that's beneficial to both sides, though it's usually not exactly what either party wanted in the beginning.

Mediation is effective for a wide range of disputes. Hundreds of towns and cities have instituted community dispute resolution programs to keep feuding neighbors out of police stations and backlogged municipal courts. Divorce mediation has become so accepted that some states require all divorcing couples to attempt some degree of mediation before resorting to litigation. Even school children are being trained in "peer mediation" as a way to resolve classroom and schoolyard disputes.

Mediation is particularly useful and effective in disputes between people whose relationship is likely to be ongoing. This is why neighbors and school children who continue to have contact with each other do better when they mediate and settle disputes themselves than when a judge or teacher imposes a solution on them. The same thing is true for divorcing couples with children. Their paths will continue to cross as their children grow. People who mediate their divorces have far fewer problems afterward than those whose divorce terms are imposed by a judge.

For these reasons, mediation can be highly effective in business situations too. Because of the small and close-knit nature of the U.S. jewelry industry, you'll likely deal with many of the same vendors, customers and competitors over the years, even though new ones appear also. And while many employee-relation disputes arise only after the employee has left, many do not; if resolved quickly and fairly, you may not have to lose and replace the employee at all.

In each of these circumstances, it's far easier to maintain relationships when you've all resolved your disagreement fairly and efficiently in the less-hostile environment of mediation.

How ADR Works
Under ADR, the claim and resolution are usually confidential, unless agreed otherwise by the parties in advance. For a jeweler with a reputation to protect, this is an important factor. One lawsuit reported in your local newspaper can undo years of hard work you spent establishing trust and credibility – even if you ultimately win. The news media are under no obligation to give your victory the same coverage they gave the initial allegations. This applies to customer/retailer disputes as well as retailer/retailer disputes.

Parties to an ADR process can almost always use attorneys to help them or represent them in the proceeding, but many choose not to. Attorneys tend to be more involved in arbitration than mediation and in binding than non-binding arbitration.

John Spadea, a trained and certified mediator in Lemon Grove, CA, sees a major role for ADR in disputes between suppliers and retailers. He's less optimistic about the widespread adoption of ADR in consumer disputes. The problem is the issue of impartiality and trust on the part of the customer, says Spadea, who is a former jeweler and now runs a consulting business for retailers. For such a process to work, there would need to be a program that's nationally recognized as fair and impartial, he says. Recently, the Jewelers Vigilance Committee developed guidelines for just such a program. It has codified the goals, criteria and procedures of its Alternative Dispute Resolution Services, which are designed to handle a wide range of disputes throughout the industry.

William H. Donahue Jr. is an attorney in New Jersey and a trained mediator, accredited by the New Jersey Association of Professional Mediators.

 Disputes at DDC

The Diamond Dealers Club of New York has had an alternative dispute resolution program since 1931. The program differs somewhat from an ADR program the Jewelers Vigilance Committee is developing for the jewelry industry. The primary difference is that all 1,800 DDC members are required to submit disputes to arbitration if they can't be resolved by other forms of ADR, such as mediation.

To be members, dealers must agree they won't circumvent the process by going to court first to resolve disputes. The arbitrator's decision is binding and is enforceable in New York state and federal courts without a rehearing on the issues or merits of the case.

This is a comprehensive system of dispute resolution and an effective means of preventing costly and prolonged litigation for club members.

DDC President Eli Haas says arbitration tribunals decide 100-150 cases yearly.

Copyright © 1998 by Bond Communications.


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