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Chapter 4

Terms in this set (53)

Chapter Overview
The role of dispute resolution in business planning.

The process of using civil litigation to resolve disputes.

Methods of alternative dispute resolution.
Civil Litigation
is the term used to describe a dispute resolution process where the parties and their counsel argue their view of a civil (noncriminal) controversy in a court of law.
Litigation
litigation is used as synonymous with the word trial, the scope of litigation is much broader and includes pretrial events as well. There are many varieties of business litigation, including contract disputes, and lawsuits related to employment, negligence, collection actions, and bankruptcy. The odds of a business organization becoming involved in litigation have increased precipitously in recent years. From 1980 to 2005, the number of civil cases filed in federal courts more than doubled. The American Bar Association reported that, for the first time in the history of the court system, the total number of civil cases filed in state and federal courts in 2008 combined exceeded 20 million cases per year.
Prelawsuit: Demand and Prelitigation Settlement Negotiations
When a dispute arises between two parties, one party will typically make an informal demand of the other party in which the principals (or their attorneys) lay out the basics of the dispute and demand a certain action. This usually leads to informal discussions. In some states it is necessary to make a formal demand before filing suit. The demand is often followed by an informal prelitigation settlement discussion involving the parties and their lawyers. If the issues are relatively simple, this can be a cost-effective method to resolve a dispute fairly. However, if the legal issues are more complex or the parties are antagonistic toward each other, the prelitigation discussion will simply act as notice that a party intends to file a lawsuit if an agreement cannot be reached. This also minimizes publicity.
Standing
In order for one party to maintain a lawsuit against another party, she must have standing Requirement for any party to maintain a lawsuit against another party, necessitating that the party asserting the claim must have suffered an injury in fact and that harm must be direct, concrete, and individualized. to sue. This means that the party asserting the claim: (1) must have suffered an injury in fact; (2) suffered harm that is direct, concrete, and individualized; and (3) articulates what legal redress exists to compensate for the injury. In a business context, most lawsuits involve economic interests and, therefore, most parties in commercial litigation have no trouble meeting the requirements for standing. However, businesses and industries can sometimes be the target of consumer advocacy organizations and other groups that use litigation to advance their group's policy objectives. In Case 4.1, a federal court of appeals applies the rules of standing to a lawsuit filed against several businesses in the same industry.
Parties of a lawsuit
Plaintiff and Defendants
Plaintiff
The party who initiates a lawsuit by filing a complaint with the clerk of the court against the defendant(s) demanding damages, performance, and/or court determination of rights.
Defendant
The party sued in a civil lawsuit or the party charged with a crime in a criminal prosecution. In some types of cases (such as divorce), a defendant may be called a respondent.
Pleading Stage
Complaint and Summons, Answer, Counter Claim,Cross-Claim
Complaint and Summons
If informal attempts at resolution fail, formal action begins when the plaintiff initiates a lawsuit by filing a complaintThe first formal document filed with the local clerk of courts when the plaintiff initiates a lawsuit claiming legal rights against another. with the local clerk of courts.1 This sets the pleadings stage in motion with both sides filing documents that set out the facts of the case, theories of liability, and any available defenses. At the same time, the plaintiff is typically required to arrange for service of the defendant with a summonsFormal notification to the defendant that she has been named in the lawsuit and informs her that an answer must be filed within a certain period of time. along with a copy of the plaintiff's complaint. The summons is formal notification to the defendant that she has been named in the lawsuit and informs her that an answer must be filed within a certain period of time. In some cases, the summons and complaint may be served by certified mail to the defendant. In other cases, a deputy sheriff or process server must deliver the documents in person. Statutes and court rules impose time limits on the litigants (the adverse parties involved in litigation) requiring pleadings to be initiated within a set time frame. Failing to adhere to the timelines may result in the loss of any legal rights or defenses. The complaint sets out the plaintiff's version of the facts of the case, the damages that have been suffered, and why the plaintiff believes that the defendant is legally responsible for those damages. Court procedures prescribe how the complaint should be served upon the defendant to ensure timely notice of the claims asserted by the plaintiff. Figure 4.1 sets out a sample complaint for the hypothical CRO v. SignCo. dispute.
Answer
Once the defendant is served with the complaint, she must provide a formal answerDefendant's formal response to each paragraph of the complaint. within a prescribed time frame (normally within 20 days). The answer responds to each paragraph of the complaint. Often, the answer is simply a device for the parties to understand what issues they agree on and what issues will be in dispute at trial. If the defendant does not answer on time, she is said to default and generally will automatically lose the case without the benefit of trial. This is known as a default judgment.Figure 4.2 sets out to answer CRO's complaint.
Countercliaim
If the defendant believes that the plaintiff has caused her damages arising out of the very same set of facts as articulated in the complaint, the defendant files both an answer and a counterclaimFiled when the defendant believes that the plaintiff has caused her damages arising out of the very same set of facts as articulated in the complaint. (in some states, this is called a countersuit). The counterclaim is similar to a complaint in that the defendant's allegations and theory of liability against the plaintiff are set out in the pleading. The plaintiff must now answer the counterclaim allegations by the defendant within a prescribed time period.
Cross Claim
The defendant can also file a cross-claimFiled when the defendant believes that a third party is either partially or fully liable for the damages that the plaintiff has suffered and, therefore, should be involved as an indispensable party in the trial. to bring in a third party to the litigation. A cross-claim is filed when the defendant believes that a third party is either partially or fully liable for the damages that the plaintiff has suffered and, therefore, should be involved as an indispensable party in the trial.
Discovery Stages
Depositions

Interrogatories

Requests for production

Request for Admissions
Discovery Stage
Once the initial pleadings are filed, most lawsuits move into the DiscoveryProcess for the orderly exchange of information and evidence between the parties involved in litigation (or in some cases arbitration) prior to trial. stage in which the parties attempt to collect more evidence for trial. While it may make television shows and movies more interesting, surprise evidence may not be introduced at an actual trial. Discovery is the legal process for the orderly exchange of evidence. Each side has the right to know and examine the evidence that the other side has, including evidence that is both inculpatory and exculpatory.

Everything relevant to the dispute is discoverable. Unless the information is protected by a legal privilege, such as certain conversations between attorney and client, it must be produced in discovery if the information is relevant or could be useful in any way for resolving the dispute.
Depositions
are oral questions asked of a witness in the case. A deposition can be taken at a courthouse, but is more commonly taken in the setting of a conference room at a law firm. Although there is a court reporter present to create a written record and the witnesses are under oath, no judge is present. Depositions can be taken from the plaintiff, the defendant, or any other witness in the case.
Interragatories
are written questions to be answered by one of the litigants (plaintiffs or defendants) involved the case. Generally, interrogatories involve questions to which the litigant does not have readily available knowledge. The litigant may have to review files, memoranda, transcripts, and so forth in order to properly answer the questions.
Request for Productions
These requests are aimed at producing specific items to help one party discover some important fact in the case. Requests for productionRequests aimed at producing specific items to help one party discover some important fact in the case. are usually very wide in scope so that a request would cover all documents, memoranda, reports, notes, calendars, videotape, audiotape, e-mail, computer hard drives, and so on. In a complex securities or banking fraud case or one where many documents are involved, it is not uncommon for the parties to send a truckload of boxes containing materials that were requested by the other side.
Requests for Admissions
While the first attempt to narrow the issues in dispute is through the defendant's answer, a Request for AdmissionsA set of statements sent from one litigant to an adversary, for the purpose of determining what facts are in dispute and which facts both parties accept as true. furthers the objective of determining what facts are in dispute (and, thus, must be proved at trial) and which facts both parties accept as true. For example, one party may request that they admit the existence and date of a certain contract. If the other party refuses to admit those facts, witnesses must be called at trial to prove the existence and date of the contract.
Motions used during Litigation
To Dismiss

For Summary Judgment

To Compel Discovery

To Dismiss for Mistrial

For Judgment as a Matter of Law
To Dismiss
State of Litigation - Pretrial - To dismiss the case because of procedural defect such as a courts lack of jurisdiction. Or failure to state a recognized legal theory in the complaint
For Summary Judgment
State of Litigation - Pretrial - To enter judgment in the requesting parties favor with out a trial because no issues of fact are presented in the case and thus no jury trial is needed. The requesting party believes that they win as a matter of law.
To compel Discovery
Stage of Litigation - Pretrial - To issue a court order demanding that a party comply with a lawful discovery request.
To dismiss for mistrial
State of Litigation - Trial - To stop the trial in progress and dismiss it because of some extraordinary circumstance resulting in prejudice against on one side or the other.( rare in civil litigation)
For Judgement as a Matter of Law
Stage of Litigation - Post trial - To reverse the verdict of the jury because, no reasonable jury could have heard the evidence presented at trial and rendered such a verdict.
Bridgestone Americas,Inc. v. Mayberry, 854 N.E.2d 355 (Indiana 2006)
For over a quarter century, courts have consistently applied a three-part balancing test when a party seeks an order protecting trade secrets from discovery. [...] First, the party opposing discovery must show that the information sought is a 'trade secret or other confidential research, development, or commercial information' and that disclosure would be harmful. Then the burden shifts to the party seeking discovery to show that the information is relevant and necessary to bring the matter to trial. If both parties satisfy their burden, the court must weigh the potential harm of disclosure against the need for the information in reaching a decision
Synopsis of decision and Opinion for Bridgestone vs Mayberry
The Indiana Supreme Court ruled in favor of Bridgestone. The court found that Mayberry had not demonstrated the necessity of disclosing the formula and that the record demonstrated that the skim stock formula is a trade secret. Bridgestone demonstrated that the skim stock formula qualified as a trade secret because (1) it frequently took several years to arrive at the detailed formula for a new rubber compound; (2) the steel belt skim stock formula represented one of the tire companies' most valuable assets and most closely guarded secrets; and (3) access to the recipes was very narrowly limited. The court reasoned that although Mayberry successfully demonstrated the general relevance of the skim stock formula, she failed to show that it was necessary to the presentation of her case. An inspection of the failed tire's appearance was a more than adequate substitute for examining the skim stock formula.
Pretrial Confrence
Several weeks before a trial, the parties will typically attend a pretrial conferenceA meeting between the attorneys for the parties and the judge in the case several weeks prior to trial, with the objectives of encouraging settlement and resolving any outstanding motions or procedural issues that arose during the pleadings or discovery stages. with the judge. The conference is generally held between the attorneys for the parties and the judge in the case and no court reporter is present. The purpose of the conference is to accomplish two primary objectives. The primary reason is to encourage settlement. A judge can often give a neutral face value view of the case and facilitate some negotiations between the two sides or eliminate any obstacles that have blocked negotiations such as one party's refusal to discuss settlement. Second, the court will resolve any outstanding motions, confirm that discovery is proceeding smoothly, and dispose of any procedural issues that arose during the pleadings or discovery stages.
Trial
If the case cannot be settled, the parties will eventually go to trialStage of litigation occurring when the case cannot be settled, generally taking place in front of a judge as the finder of law and with a jury as a finder of fact.. The trial generally takes place in front of a judge as the finder of law and with a jury as a finder of fact. As the finder of law, the judge determines such important rulings as what evidence will be admitted, what witnesses may testify, what the jury will hear and not hear, and even what legal arguments the attorneys may present to the jury. Juries, as a finder of fact, determine whose version of the facts is more believable by examining the evidence and listening to the testimony of witnesses. In some cases, the judge will act as both the finder of fact and the finder of law at the same time. This is known as a bench trialTrial without a jury where the judge is both the finder of law and the finder of fact.
Jury Selection and Opening
The actual trial begins with jury selectionThe process of asking potential jurors questions to reveal any prejudices that may affect their judgment of the facts.. This is the process of asking potential jurors questions to reveal any prejudices that may affect their judgment of the facts. The questioning process is known as voir dire.3 For a criminal trial, voir dire can be extensive and last for days or even weeks depending on the case. However, in civil litigation the voir dire process is not as extensive and the jury will be seated (selected) in relatively short order. After the jury is selected, the attorneys present their theory of the case and what they hope to prove to the jury in opening statementsAttorneys' presentation of their theory of the case and what they hope to prove to the jury at the onset of the trial..
Testimony
After the opening statement, the plaintiff's attorney then asks questions, known as direct examinationThe first questioning of a witness during a trial in which the plaintiff's attorney first asks questions of the witnesses on the plaintiff's list., of the witnesses on the plaintiff's list. The defendant's attorney may then conduct cross-examinationThe opportunity for the attorney to ask questions in court, limited to issues that were brought out on direct examination, of a witness who has testified in a trial on behalf of the opposing party. of the witness. The cross-examination is composed of questions limited to issues that were brought out on direct examination.
Submission of Evidence
The same process is repeated for the defendant's witnesses. Each side also uses its witnesses to introduce relevant evidence. Witnesses may be called upon to authenticate documents, to verify physical evidence, or to provide expert testimony accompanied by charts or graphs shown to the jury.
Closing Argument
Once the testimony is completed and the evidence has been submitted to the jury, the attorneys sum up the case and try to convince the jury that their version of the case is more compelling. This is known as a closing argumentAttorneys' summation of the case with the objective of convincing the jury of what theory to decide the case upon, occurring after testimony is completed and evidence has been submitted..
Charging the Jury
The judge then proceeds with the charging of the juryInstructions given from judge to the jury on how to work through the process of coming to a factual decision in the case., by giving them instructions on how to work through the process of coming to a factual decision in the case. The judge will also inform the jury that the standard of proof in a civil case is a preponderance of the evidenceA standard used to decide a civil case whereby the jury is to favor one party when the evidence is of greater weight and more convincing than the evidence that is offered in opposition to it..
Deliberations
After receiving the charge, jurors move to a private room and engage in deliberationsThe process in which a jury in a trial discusses in private the findings of the court and decides by vote with which argument of either opposing side to agree..
Verdict
the jury returns a decision known as the verdictThe final decision of a jury in a case.. If, however, the jury cannot agree on a verdict, this is known as a hung juryTerm used to describe a jury that cannot come to a consensus decision on which party should prevail in a case. and the litigants must start the process all over again with a new jury. Rules in state courts for civil litigation frequently do not require a unanimous verdict, so hung juries are rare in a commercial dispute.
Post trial Motions and appeals
As discussed earlier in this section, there may be posttrial motions in which the losing party tries to convince the original judge that the verdict was flawed. Finally, the losing party may appeal to a higher court. Appellate courts engage in judicial review to decide whether any errors were committed during the trial and also have the power to reverse or modify the decisions of trial courts.
Collecting the Judegment
Although the prevailing party may have received a court judgment stating what she is entitled to recover from the defendant, collecting judgments may sometimes be difficult, especially if the defendant's assets are tied up in nonliquid forms such as real estate, or are exempt from claims of creditors through a bankruptcy filing. However, the law does afford the prevailing party some tools to collect the judgment. For example, some states allow a judgment to be collected through the garnishment of wages whereby the defendant's employer is ordered by the court to pay part of the defendant's wages directly to the holder of the judgment. The holder of a judgment also becomes a creditor (typically called a judgment creditor) and has the right to pursue the defendant's assets to satisfy the debt owed. Rights and regulation of creditors and debtors are discussed in detail in Chapter 20 "Creditors' Rights and Bankruptcy."
Concept Summary Stages of Litigation
CONCEPT SUMMARY


Stages of Litigation

Prelawsuit: Demand and Prelitigation Settlement Negotiations
Standing
Pleadings Stage
Complaint and Summons
Answer
Counterclaim
Cross-Claim
Motions
Discovery Stage
Methods of Discovery
Pretrial Conference
Trial
Jury Selection and Opening
Testimony and Submission of Evidence
Closing Arguments and Charging the Jury
Deliberations and Verdict
Posttrial Motions and Appeals
Collecting the Judgment
Alternative Dispute Resolution
(ADR) is the process (usually in a private setting) by which disputes involving individuals or businesses are resolved outside of the federal or state court system through the help of third parties. According to the American Arbitration Association, an increasing number of businesses and individuals have turned to ADR and use of certain forms of alternative dispute resolution methods has increased between 20 percent and 31 percent each year for the past five years.
Alternative Dispute Resolutions popular due to
Increasingly popular due to the following:

Cost

Time

Privacy
Costs
ADR could potentially cost a fraction of the normal legal costs. Depending on the location of the trial, trial attorneys may charge anywhere between $200 per hour (in smaller markets) to as much as $1,000 per hour in, for example, New York City. Although some of the more mundane work in litigation may be done by nonlawyer professionals (such as legal assistants or paralegals) at lower rates, the legal fees accumulate quickly once a lawsuit is commenced and accelerate once discovery begins.
Time
The time spent in ADR is a small percentage of the normal two to three year (or more) period normally associated with discovery, a civil jury trial, and possible appeal.
Privacy
ADR may be held in private with no public record required. This ensures that any confidential business information is not at risk of accidental disclosure in the public eye (including competitors) of the court system. The privacy factor is also helpful in avoiding any unwanted publicity in the matter.
Arbitration
Voluntary or Contractual

vs

Legally mandated
Voluntary or contractual
During arbitration, an individual arbitrator (or group of arbitrators) conducts a hearing between the parties in the dispute. The hearing is similar to a court setting, but is less formal. Parties seeking arbitration typically apply for an arbitrator through an ADR agency. The largest provider in the United States is the American Arbitration Association (AAA). The AAA receives the application and first appoints a tribunal administrator who coordinates the case and prepares the parties by informing them of procedures and rules of arbitration. Next, an arbitrator who is mutually agreed upon by the parties is appointed to the case. The arbitrator functions much like a judge would in a standard trial, and in some states even has the power of subpoena (the ability to demand certain documents or witnesses). For arbitration cases, although an attorney is not required, parties in a business dispute often opt to be represented by counsel. An arbitration hearing resembles a trial in that there are opening statements, both parties present limited evidence and calls a predetermined number of witnesses, each party has the right of cross-examination, and both parties make closing arguments. At the beginning of the arbitration both parties agree to either binding or nonbinding arbitration. If binding, the arbitrator's decision is final unless both parties agree to have the case reopened.
Legally Mandated
When the parties agree to arbitrate, this is known as a private arbitration. Additionally, most states and the federal judiciary have a requirement (either by statute or a court-imposed procedure) that certain civil lawsuits go through an arbitration hearing before the case proceeds to trial. In this type of arbitration, the arbitrators are typically attorneys from that jurisdiction who are fulfilling a duty to serve on an arbitration panel imposed by the professional rules that govern attorneys. Although the arbitration is nonbinding (the losing party has the right of automatic appeal to the trial court), the idea is to encourage the parties to settle before trial. The key advantage of legally mandated arbitration is that each side is able to present the case to a neutral party and the arbitrator's decision can be used as a starting point for settlement negotiations.
Mediation
Another common form of ADR is mediationMethod of alternative dispute resolution where a mediator attempts to settle a dispute by learning the facts of a dispute and then negotiating a settlement between two adverse parties.. Mediation is becoming increasingly common as a cost-efficient form of dispute resolution primarily because mediation is relatively informal and does not require as much time or preparation as arbitration. A mediator is typically appointed in much the same manner as an arbitrator and, in fact, the American Arbitration Association provides mediation services as well. A mediator is often, but not required to be, an attorney that is specially trained in negotiations and dispute resolution, and is paid by a set hourly rate or fixed fee for a certain period of time (usually per day). The mediator's task is to listen to the grievances and the arguments of both sides and communicate each party's concerns to the other. The mediator defuses some of the antagonism between the two parties and focuses the parties on working toward a solution. Note, however, that in mediation no decision is rendered and if the parties do not reach an agreement, they must attempt to resolve their dispute using another method.
Green Tree Financial Corporation v. Randolph, 531 U.S. 70 (2000)
Randolph financed the purchase of a mobile home through Green Tree Financial Corporation (Green Tree). The finance contract contained an arbitration clause whereby both parties waived any right to a trial and agreed to arbitrate any disputes, but the clause was silent on the location of the arbitration. Randolph, as lead plaintiff, filed a class action lawsuit against Green Tree in a federal district court alleging a violation of a federal statute that regulates consumer lending. Green Tree moved to have the matter dismissed based on the arbitration clause in the financing contract. Randolph sought to have the clause invalidated because it was too costly for Randolph to arbitrate and this effectively resulted in Randolph's rights under the federal consumer protection statutes being severely curtailed.

SYNOPSIS OF DECISION AND OPINION The U.S. Supreme Court ruled in favor of Green Tree, holding that the arbitration clause was valid. The Court reasoned that the Federal Arbitration Act's purpose was to favor the use of arbitration over litigation and that any party to an arbitration agreement that was resisting arbitration had the burden of proving that the claims at issue are not suitable for arbitration. The Court held that while high arbitration costs could potentially preclude a consumer from exercising her rights under federal statutes and would thus be invalid, Randolph had not proved that such prohibitively expensive costs would be incurred in her case.

WORDS OF THE COURT: Purpose of the FAA "In considering whether [Randolph's] argument to arbitrate is unenforceable, we are mindful of the FAA's purpose 'to reverse the longstanding judicial hostility to arbitration agreements [...] and to place arbitration agreements upon the same footing as other contracts.' [W]e have recognized that federal statutory claims can be appropriately resolved through arbitration, and we have enforced agreements to arbitrate that involve such claims."
Expert Evaluation
For parties involved in a business dispute where the issues are somewhat complex and related to the intricacies of a certain industry or profession, expert evaluationMethod of alternative dispute resolution where an independent expert acts as the neutral fact-finder; particularly useful for parties involved in a business dispute where the issues are somewhat complex and related to the intricacies of a certain industry or profession. (neutral fact-finding) by an independent expert who recommends a settlement is an attractive alternative. The expert evaluatorThe neutral fact-finder in expert evaluation who reviews documents and evidence provided by each party and draws on her range of experience and expertise in the industry to offer an opinion on the merits and value of the claim and recommend a settlement amount. reviews documents and evidence provided by each party that gives a full description of the events and circumstances leading to the claim and the resulting loss. The evaluator follows up with questions and will sometimes take statements from witnesses if necessary. Drawing on her range of experience and expertise in the industry, the evaluator gives her opinion on the merits and value of the claim and recommends a settlement amount. The goal of this process is to facilitate a negotiated settlement without the expense and time of a trial or other methods of ADR.
Hybrid Form of ADR
In some cases, parties to a dispute want to have the opportunity to settle the case through mediation, but want some degree of certainty in the event that mediation fails. In those circumstances, parties may use a hybrid of mediation and arbitration. Sometimes known as med-arbMethod of alternative dispute resolution whereby the parties begin with mediation and if mediation fails in a fixed time period, the parties agree to submit to arbitration., both parties first submit to mediation for a set period of time (perhaps two business days). If the mediation fails, the process then moves to binding arbitration. The goal is to reach an agreement with the least amount of formality possible. The hope is that the dispute can be settled during mediation, but since both parties are determined to conclude the matter, arbitration is available as an automatic fallback method should mediation fail.
Learning outcomes Checklist
4 - 1 Identify the ways in which dispute resolution can be used in business planning.

4- 2 Explain the meaning and purpose of civil litigation as a method of resolving disputes.

4- 3 Articulate the concept of standing.
4- 4 Name the stages of litigation and identify the characteristics of each stage.

4- 5 List the methods of alternative dispute resolution (ADR) and potential advantages of using ADR.

4- 6 Distinguish between arbitration and mediation and explain both processes .


4- 7 Apply the legal standards for when an arbitration clause may be held invalid.

4- 8 Explain how online dispute resolution can be used to solve small claim disputes.

4 - 9 Provide an example of a hybrid form of alternative dispute resolution.
Concept Summary (Alternative Dispute Resolution)
The primary advantages of ADR are reductions in costs and time and preserving business relationships and privacy.

ADR usually arises as a result of a contract between two parties that have agreed ahead of time to resolve any disputes using a certain ADR method such as arbitration.

The primary methods of ADR are arbitration, mediation, expert evaluation, or some hybrid of those three methods.

In arbitration, the parties submit their dispute to one or more arbitrators, present evidence and limited witness testimony, and then a decision is made.

Mediation is the attempt by a trained third party to bring the parties to an agreement on the dispute by proposing possible solutions.

The primary difference between arbitration and other methods of ADR is that arbitration provides the parties with a decision.

Online dispute resolution is an attractive alternative for resolving disputes where the amount in controversy is relatively low.
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