Court-Ordered Alternative Dispute Resolution

By: Jim Wagstaffe And The Wagstaffe Group

The article discusses the various types of alternative dispute resolution (ADR) for a federal case and covers topics such as the courts’ requirement to develop ADR procedures and their power to require parties to consider or participate in them, cases exempt from ADR, mediation, arbitration, early neutral evaluations, judicial settlement conferences, and summary jury trials.

THE PURPOSE OF ADR IS TO PROVIDE AN EFFICIENT AND economical means of resolving disputes between parties who might otherwise be involved in lengthy and expensive court proceedings.¹ Federal district courts are required to devise, implement, and administer an ADR program to be used in civil actions.² As a result, most federal civil lawsuits may be subject to referral to some type of ADR process during the litigation. At a minimum, every federal litigator needs to be familiar with the local district court ADR processes and rules and any standing orders pertaining to ADR of the particular judge assigned to the case.

Preliminary Matters

Federal district courts are required to develop ADR procedures for use in civil actions. Except as otherwise provided, “(e)ach district court shall provide litigants in all civil cases with at least one alternative dispute resolution process, including but not limited to mediation, early neutral evaluation, mini-trial, and arbitration . . .”³

Settlement and ADR are topics that may be considered at a pretrial conference and upon which action may be taken by the court.⁴ No particular ADR procedure or timing is mandated. Rather, each court “shall devise and implement” its own ADR program by local rules.⁵

Each court must designate an employee or judicial officer “knowledgeable in alternative dispute resolution practices” to oversee its program. That person may also be responsible for recruiting and screening neutrals to serve in the program.⁶ In appropriate cases, the court has inherent power to order parties to participate in ADR procedures not specifically authorized by local rules, provided adequate procedural safeguards are imposed.⁷

The court may order an unwilling party to take part in and share costs of mediation conducted by a private mediator, where this method seems reasonably likely to serve the interests of justice and the order contains adequate safeguards on duration of the mediation and fees.⁸

Courts disagree on whether they have inherent power to compel parties to participate in non-binding summary jury trials.

Cases Exempt from ADR Procedures

A district court may (after consulting with members of the bar and the U.S. Attorney for the district) exempt cases or categories of cases in which use of ADR procedures would be inappropriate.⁹ In addition, no ADR program can alter or conflict with the authority of the Attorney General or federal agencies to conduct litigation on behalf of the United States.¹⁰

Mandatory Consideration

Local rules must require civil litigants to “consider the use of an alternative dispute resolution process at an appropriate stage in the litigation.”¹¹ But it is up to each district court to decide whether to require the use of ADR procedures in any case. Only mediation, early neutral evaluation, and voluntary arbitration may be required.¹²

If you can present some compelling argument why your client’s case is inappropriate for referral to ADR, advise the court of these reasons. In the event the case has already been referred to ADR, advise the mediator, arbitrator, or other neutral of the reasons why the process likely will not be productive. In that event, an experienced neutral generally will shortcut the process so that the parties do not spend unnecessary time and money.

Confidentiality Protections

There are no national rules on confidentiality. Each district court must adopt local rules that provide for the confidentiality of ADR proceedings and prohibit disclosure of confidential communications.¹³

Most local rules, however, do not apply the rules of confidentiality to private mediations; nor do they create privileges otherwise recognized under federal law. Rather, such private mediations and ADR processes are governed by state law and contractual confidentiality obligations.¹⁴

Sanctions

Failure to participate in good faith in court-ordered ADR procedures constitutes failure to obey a pretrial order and is sanctionable under Fed. R. Civ. P. 16(f).¹⁵

Early Neutral Evaluation and Mediation

Early neutral evaluation (ENE) and mediation are the ADR procedures most widely utilized in federal district courts.

Both programs involve presentations to a neutral third party in a non-binding, non-adjudicatory format. ENE programs typically refer cases to the neutral shortly after commencement of the action; mediation may be utilized at any stage of the proceedings. ENE is intended to help identify the issues and lay a foundation for resolution (i.e., not just relevant to settlement). Mediation is intended to bring about a settlement.

Appointment, Compensation, and Role of Neutrals

District courts that authorize mediation must adopt procedures for making neutrals (ENE evaluators and mediators) available for use by the parties and must establish criteria for the selection of such persons to serve on its panels.¹⁶

Persons selected as mediators or to serve in ENE programs must be qualified and trained accordingly. Magistrate judges or other persons who have received appropriate training may be selected to serve on such panels.¹⁷ However, there is no provision for certification of mediators as there is for arbitrators.

Under many local rules, neutrals perform quasi-judicial functions and are entitled to the immunities and protections afforded to all persons performing judge-like functions.¹⁸

Pending adoption of national rules on the subject, each court must issue local rules for disqualification of neutrals on the same grounds as a judicial officer.¹⁹

The district court must establish the amount of compensation a neutral receives for his or her services.²⁰ Presently, the rate varies from court to court.

In addition, the court may reimburse neutrals for actual transportation expenses incurred in performance of their duties.²¹ However, the statute is not clear on whether such compensation is paid by the court or the parties. The regulations to be promulgated by the Judicial Conference under 28 U.S.C. § 658(b) may clarify this.

Some court rules governing ENE proceedings require each party to present to the neutral a detailed written statement of its contentions, demands, and defenses. The ENE proceedings themselves, however, are informal, off the record, confidential, and privileged.²²

Arbitration, Binding and Non-binding

Subject to the exceptions listed below, district courts are generally authorized, with the parties’ consent, to refer to nonbinding arbitration cases seeking money damages of $150,000 or less.²³ Where parties have agreed to binding arbitration of a dispute (usually in a pre-dispute agreement relating to other matters), courts may enforce their arbitration agreement (for example, by staying litigation, appointing an arbitrator, etc.). Because arbitration generally requires the parties’ consent, it is less likely to be utilized than other ADR procedures.

Courts may not refer civil actions to arbitration where either:

• The parties do not consent.
• The relief sought is money damages exceeding $150,000.
• The action is based on an alleged violation of constitutional rights.
• The action is based in whole or in part on an alleged deprivation of civil rights (jurisdiction under 28 U.S.C. § 1343).
• The district court has exempted the specific case or cases of the same category as not “appropriate” for alternative dispute resolution.²⁴

To facilitate referral to arbitration, a district court may presume damages are not in excess of $150,000, unless counsel certifies that damages exceed such amount.²⁵

To overcome this presumption, counsel must certify that the damages reasonably recoverable exceed $150,000. The prayer of the complaint is not sufficient.²⁶

Pending adoption of national rules, local rules must ensure that “consent to arbitration is freely and knowingly obtained” and that “no party or attorney is prejudiced for refusing to participate in arbitration.”²⁷

Appointment, Compensation, Role and Powers of Arbitrators

Each court is required to establish panels of persons qualified to serve as arbitrators and to establish rates of compensation for their services. Each court that authorizes arbitration must establish standards for certification of arbitrators, which shall require the arbitrator to take the same oath as a judicial officer and be subject to the same grounds for disqualification.²⁸ Pending adoption of national rules on the subject, each court must issue local rules for disqualification of arbitrators on the same grounds as a judicial officer.²⁹ Courts may also establish “other appropriate law and professional responsibility standards.”³⁰

Arbitrators are performing quasi-judicial functions and are entitled to immunities and protections that the law affords to all persons serving in such capacities.³¹

Arbitrators have the power to conduct hearings, to administer oaths and affirmations, and to make awards.³²

Fed. R. Civ. P. 45 (relating to subpoenas) applies to subpoenas for attendance of witnesses and production of documentary evidence at an arbitration hearing.³³

Filing and De Novo Review of Award

The prevailing party must promptly file the award and proof of service on the other parties. The clerk shall enter judgment on the award unless any party timely demands a trial de novo.³⁴

Within 30 days after an arbitration award is filed, any party may file a written demand for a trial de novo in the district court. This prevents entry of judgment on the award. The action is restored to the court’s docket and “treated for all purposes as if it had not been referred to arbitration.”³⁵

Local rules must provide for sealing the arbitration award after it is filed and that its contents may not be made known to any judge who might be assigned to the case until the action is terminated.³⁶

At the trial de novo, the court shall not admit any evidence that there has been an arbitration, the nature or amount of any award, or any other matter concerning the arbitration unless the parties agree or the evidence would otherwise be admissible under the Federal Rules of Evidence.³⁷

There is no statutory provision authorizing an award of attorney's fees and costs against the party demanding a trial de novo if he or she fails to obtain a more favorable judgment.

When there is no trial de novo demand, a judgment rendered at a non-binding arbitration “shall not be subject to review in any other court by appeal or otherwise.”³⁸

Judicial Settlement Conference

The Federal Rules authorize settlement discussions at any pretrial conference.³⁹ Some courts also require a separate settlement conference. Few judges are willing to conduct settlement conferences in their own cases. Most judges assign such conferences to others (other judges, mediators, magistrate judges).

Common Procedures During Conference

There are no standardized procedures for conducting settlement conferences. However, there are some common approaches. The judge or magistrate judge may require a settlement conference statement to be submitted at or in advance of the conference.⁴⁰ Most judges or magistrate judges require the attendance of an attorney and his or her clients or representatives who are knowledgeable about the case and have authority to settle.⁴¹

If the settlement conference is ordered pursuant to Rule 16(c) (2)(I), attendance is required of at least one of the attorneys for each party with authority to enter into stipulations and to make admissions.

Judges or magistrates normally meet first with all attorneys (without clients) and then separately with each side. They generally try to evaluate each side’s credibility, the prospects of liability, and the evidence regarding damages. They then offer a general opinion about the risks and suggest an appropriate settlement figure or range.

There are limits, of course, on the judge’s power to bring about a settlement.⁴²

Statements made during settlement negotiations have been held to be privileged against discovery by third parties.⁴³ Where settlement is reached at a court settlement conference, the judge will often cause the agreement to be put on the record (i.e., the terms will be stated in open court, taken down by a court reporter, or entered in the minutes, or both.)⁴⁴

This serves several purposes:

• It provides a record of exactly what was agreed to.
• It assures that all settling parties actually heard and consented to the same settlement terms.
• It provides a basis for enforcement of the settlement, if necessary.

Putting a Settlement on the Record

Settlements are typically put on the record as follows:

• The judge will take the bench and note the presence of the attorneys and the parties (or a representative of the insurance carrier as to parties defended by an insurance carrier).
• One of the attorneys will then be asked to state the terms of the settlement (usually the payment of a certain sum of money in exchange for a dismissal with prejudice, a release, and a mutual waiver of costs).
• Opposing counsel will be asked to confirm that the settlement, as stated, accurately embodies the agreement.
• The judge may then question the parties, asking whether they understand the settlement terms, whether they have any questions for their attorneys, whether they understand that the settlement puts an end to their claims and that they may not later reopen the case or sue again, and whether they accept the settlement as stated.
• The judge may (or may not) proceed to enter a judgment of dismissal based on the proceedings in court.

Alternatively, the judge may render a conditional dismissal and set a time within which the parties are to execute whatever documents are required to memorialize their incourt agreement.

The in-court settlement is generally binding even though it is contemplated that the terms will thereafter be reduced to a signed writing. If a party refuses to sign the written memorial of the oral settlement, the remedy is a motion to enforce the settlement.

Summary Jury Trial

One ADR option occasionally used in very large cases is a nonbinding summary jury trial. In such trials, the attorneys make opening and closing arguments combined with a narrative statement of evidence, but no live testimony; the judge then instructs; and the jurors then deliberate and return individual or consensus verdicts. The verdicts are not binding (unless the parties agree otherwise).

Courts are split on whether parties may be compelled to participate in this process.

Several cases decided under an earlier version of Rule 16 hold judges may not force parties to submit to nonbinding mini-trials.⁴⁵

The present Rule 16 may authorize such procedure where required under local rules.⁴⁶

Local court rules in some districts require summary jury trials in certain cases as part of their case management plans under the Civil Justice Reform Act, 28 U.S.C. § 473(a)(6)(B).

Because summary jury trials are treated as settlement tools rather than public adjudication, some courts hold that the proceedings may be closed to the public.⁴⁷

James M. Wagstaffe is a renowned author, litigator, educator, and lecturer, and the premier industry authority on pretrial federal civil procedure. He is a partner and co-founder of Kerr & Wagstaffe LLP, where he heads the firm’s Federal Practice Group. He maintains a diverse litigation practice, including complex litigation, professional and governmental representation, will and trust disputes, legal ethics, First Amendment cases, and appeals in state and federal courts. He has particular expertise on virtual world issues, including electronic discovery and wi-fi technology. In 2017, California Lawyer named him Attorney of the Year for his successful representation of The State Bar of California in a high-profile privacy trial. He has authored and co-authored a number of publications, including The Wagstaffe Group^® Practice Guide: Federal Civil Procedure Before Trial. As one of the nation’s top authorities on federal civil procedure, Jim has helped shape the direction and development of federal law.

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1. See 28 U. S. C. § 651(a). 2. Alternative Dispute Resolution Act of 1998, 28 U. S. C. §§ 651–658. 3. 28 U. S. C. § 652(a). 4. See former Fed. R. Civ. P. 16(c)(9) advisory committee’s note 1993 amendment. 5. 28 U. S. C. § 651(b). 6. 28 U. S. C. § 651(d). 7. In re Atl. Pipe Corp. , 304 F. 3d 135, 143 (1st Cir. 2002). 8. In re Atlantic Pipe Corp. , 304 F. 3d 144–145. 9. See 28 U. S. C. § 652(b). 10. 28 U. S. C. § 652(c). 11. 28 U. S. C. § 652(a). 12. Id. 13. 28 U. S. C. § 652(d); Facebook, Inc. v. Pac. Northwest Software, Inc., 640 F. 3d 1034, 1041 (9th Cir. 2011). 14. Facebook, Inc. v. Pac. Northwest Software, Inc. , 640 F. 3d 1040-1041. 15. Nick v. Morgan’s Foods, Inc. , 270 F. 3d 590, 595 (8th Cir. 2001); Lucas Auto. Eng’g, Inc. v. Bridgestone/Firestone, Inc. , 275 F. 3d 762, 769 (9th Cir. 2001) (upholding Rule 16(f) sanctions against corporate president who failed to attend court-ordered mediation). 16. See 28 U. S. C. § 653(a). 17. 28 U. S. C. § 653(b). 18. N. D. Cal. ADR L. R. 2-5(e); E. D. Wash. Rule 16. 2(g); D. Ak. LR 16. 2(h); see Wagshal v. Foster, 28 F. 3d 1249, 1252–1254 (D. C. Cir. 1994); Todd v. Ellis, 2014 U. S. Dist. LEXIS 90612, at *7–*9 (E. D. Cal. July 1, 2014). 19. 28 U. S. C. § 455 plus “other applicable law, and professional responsibility standards”. 28 U. S. C. § 653(b). 20. 28 U. S. C. § 658(a). 21. 28 U. S. C. § 658(b). 22. See 28 U. S. C. § 652(d). 23. See 28 U. S. C. §§ 654–658. 24. 28 U. S. C. §§ 654(a), 652(b). 25. 28 U. S. C. § 654(c). 26. Id. 27. 28 U. S. C. § 654(b). 28. 28 U. S. C. § 655(b). 29. See 28 U. S. C. § 455. 30. 28 U. S. C. § 653(b). 31. 28 U. S. C. § 655(c); see Myers v. Morris, 810 F. 2d 1437, 1466–1467 (8th Cir. 1987); Wagshal v. Foster, 28 F. 3d 1252–1254 (court-appointed case evaluator entitled to absolute immunity). 32. 28 U. S. C. § 655(a). 33. 28 U. S. C. § 656. 34. 28 U. S. C. § 657(a). 35. 28 U. S. C. § 657(c)(1) & (2). 36. 28 U. S. C. § 657(b); see also Tonry v. Sec. Experts, Inc. , 20 F. 3d 967, 973–974 (9th Cir. 1994) (improper to refer to arbitration award on appeal). 37. 28 U. S. C. § 657(c)(3). 38. 28 U. S. C. § 657(a). 39. See Fed. R. Civ. P. 16(c)(2)(I). 40. Fed. R. Evid. 408. 41. See United States v. U. S. Dist. Ct. for Northern Mariana Islands, 694 F. 3d 1051, 1061 (9th Cir. 2012) (although court can order attendance of federal government at settlement conference, it should take a “practical approach” in ordering attendance of critical decision-maker for federal government and should consider less drastic steps before doing so). 42. Kothe v. Smith, 771 F. 2d 667, 669 (2d Cir. 1985) (improper to impose sanctions for not settling at level judge recommended); Dawson v. United States, 68 F. 3d 886, 896–897 (5th Cir. 1995) (court cannot sanction attorneys for failing to make settlement offers: “The horses may be led to water. Whether they drink is up to them”); see also Goss Graphics Sys. v. DEV Indus. , Inc. , 267 F. 3d 624, 627 (7th Cir. 2001) (parties’ refusal to settle not a valid ground for dismissal). 43. Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc. , 332 F. 3d 976, 980 (6th Cir. 2003). But see The Wagstaffe Group Practice Guide: Fed. Civ. Proc. Before Trial §34-[IV][G] for a discussion of a split among the courts over whether there is a federal common law settlement negotiation privilege. 44. See Doi v. Halekulani Corp. , 276 F. 3d 1131, 1138 (9th Cir. 2002); Lynch, Inc. v. Samata-Mason Inc. , 279 F. 3d 487, 490 (7th Cir. 2002) (standard practice to dictate terms to court reporter where settlement reached during informal conference). 45. See Strandell v. Jackson Cty. , 838 F. 2d 884, 887 (7th Cir. 1987); In re NLO, Inc. , 5 F. 3d 154, 157 (6th Cir. 1993). 46. See Fed. R. Civ. P. 16(c)(2)(I) (authorizing court’s use of “special procedures to assist in resolving the dispute”); In re Southern Ohio Correctional Facility, 166 F. R. D. 391, 395 (S. D. Oh. 1996); Arabian American Oil Co. v. Scarfone, 119 F. R. D. 448, 449 (M. D. Fla. 1988) (mandatory summary jury trial upheld under district court’s inherent power and as “conferences” under Fed R. Civ. P. 16(a)(1), (5) & (c)(2)). 47. Cincinnati Gas & Elec. Co. v. General Elec. Co. , 854 F. 2d 900, 903–905 (6th Cir. 1988); In re NLO, Inc., 5 F. 3d 157 (if parties consent to summary jury trial, public may be excluded under some circumstances).