Use of Non-Binding ADR In Environmental And Construction Disputes Through Teamwork With Outside Counsel
From The Metropolitan Corporate Counsel, p.28, August 1999
John E. Osborn and Christopher J. Platt
Litigation or Arbitration Often Does Not Make Business Sense
Our law firm is a boutique litigation firm. We litigate and arbitrate complex construction and environmental disputes on behalf of owners of real estate (residential, commercial, office buildings, hotels, and hospitals). Without question, the greatest ratification of a trial lawyer's effectiveness is the successful jury verdict. Jury trials on construction and environmental cases are particularly challenging. The drama and suspense live up to the best lawyer movie or television show you have seen.
The question is, if it is hard to imagine a better showcase for displaying a trial lawyer's talent than a successful jury verdict or arbitration award, why, then, do we emphasize dispute resolution through non-binding ADR when we define success? The answer is that the emphasis is on non binding ADR because, at a business level, the client really only wins when the dollars and cents make sense. We are most appreciated when economics and efficiency are optimized. When a law firm is able to optimize results this way, the client may refer to that lawyer as 'astute', 'smart', 'prepared', 'responsive', 'clever' and 'thorough'. This evaluation is given after the whole process is put into context. Considerations include the following: the settlement amount, the promptness of the resolution, legal fees, expert fees, and court or arbitration costs. Even further, the impact on the client is of critical consideration: how much time of key executives, project managers and inhouse legal staff has been tied up and for how long? We feel that when the final analysis is made, non-binding ADR is the most economical and efficient method to resolve most disputes because arbitration and litigation fail to reach core issues until the process has been drawn out and much time and expense have been expended.
Getting Results Cost Effectively and Quickly Puts Our Best Foot Forward: Success with Mediation
Probably the most compelling mediation story we tell has to do with a condominium project, beautiful views and luxurious apartments mixed in with more than a few design and construction failures. These failures included faulty pile design (which allowed the garden floor slab to sink significantly), a leaky roof, prestressed and poured in place concrete problems, as well as heating, mechanical and plumbing issues. The solutions were not obvious. Our developer client had attempted to solve each of the problems by calling upon the original design professionals and contractors. This did not work and the problems persisted. Ultimately, the condominium association commenced a multimillion dollar lawsuit against the developer.
Our immediate reaction to the lawsuit was to fix the building. We needed to bring in the best engineering and architecture experts to examine and correct every legitimate problem, effectively and promptly. This was done.
The next steps involved: (1) gathering every stitch of paper on the project - correspondence, job meeting minutes, everything (once collected, we numbered and entered a summary of each document into a searchable database for future use); and (2) interviewing each of the people who worked on the project. We reviewed this information and proceeded with an effective litigation strategy.
To preserve rights before expiration of the statute of limitations, we sued fourteen parties. Suing also helped to get each of the parties to the bargaining table. After suit, we immediately implemented mediation. Through the mediation process, we presented each culprit (two architects, two engineers and ten contractors) with a detailed report specifying each breach, backed by relevant plan and specification references, correspondence, job meeting minutes, and opinions of our experts. We were specific as to the dollar damage alleged and how much had already been spent to correct the defect. Without a single deposition - through the use of mediation - we were able to settle the entire case. The settlement paid for all of the repairs to the project and for all of the expert and attorney fees.
Litigation has a way of 'settling on the court house steps' after an extraordinary amount of time and money has already been spent. Before going that far, mediation should be employed. A detailed analysis of every relevant document, coupled with an indepth review of the knowledge of each expert and fact witness, presented through a mediation should, without fail, be able to accomplish the same result before it has been necessary to make extraordinary expenditures.
The Effectiveness of In-House Counsel Is Key to the Successful Use of Mediation
Litigation or arbitration of a complex construction or environmental case is a lot of work. It taxes the resources and budgets of the client and has the tendency to sour relations with outside counsel. Steering the litigation or arbitration to a resolution that matches client expectations is often difficult. One reason for this is that it is difficult to discover the client's true objectives: for some within the company fighting longer makes sense - holding off resolution delays making admissions of fault; for others, an immediate 'fire sale' settlement makes sense so that legal and executive staff can get back to work and litigation costs avoided.
Inhouse counsel who is well integrated into the business operations of the client and has the confidence of management serves a critical role. An effective inhouse counsel is able, not only to facilitate outside counsel's ability to get to the heart of the matter by gathering information, finding documents, and locating crucial witnesses, but also to evaluate the client's true needs by having the end in mind - where does the client need to end up? what is the real financial picture? who is helped or hurt by the outcome? who will want to settle? who will want to fight all the way?
Without excellent communication with inhouse counsel, outside counsel's ability to involve executives in the mediation process is almost impossible. It is simply not likely that outside counsel will succeed if they need, on their own, to reach into the client organization to determine who the decision makers are, what they know about the case and what they think. It is important, therefore, for inhouse and outside counsel to communicate extensively at the outset if executives are to be effectively involved in the mediation process.
Astute inhouse counsel recognize the need to take an early and active role in the mediation process. Once a complex matter goes to binding dispute resolution, it develops a life of its own. For inhouse counsel without an open line of communication with management, the structure offered by litigation may be easier. Also, preparing for mediation takes creativity, insight and commitment on the part of inhouse counsel. If inhouse counsel does not fully understand preparation requirements, and is unable to infuse a sense of urgency into management, mediation efforts will flounder.
Is It a "Negative" For Outside Counsel to Urge Mediation
When outside counsel selection is made for complex construction or environmental litigation cases, and mediation is urged by the candidate, what impression does it make? The answer is hard to know. Many clients, at the outset, are 'in a fighting mood' and simply want a strategy to decimate the adversary. Hearing the other side's story is not a priority. Sophisticated and experienced inhouse counsel and clients, however, will find it a negative if mediation is not mentioned as an option. Mediation must be integrated into any effective litigation strategy. It is important to stress to the client that thorough preparation at an early stage is needed before effective mediation can be undertaken. Hiring experts, interviewing witnesses, conducting tests and setting up computerized data bases of all project information are essential before proceeding to mediation.
Conclusion: Mediation Works
It is worthwhile to note that when the parties commit to mediation, the case almost always settles. Surveys have shown that in excess of 85% of disputes entering mediation, resolution is reached. Our percentages are even higher. In each of the hundreds of contracts we draft, we add a mediation requirement with resort to the courts if mediation does not work. The more detailed the requirements, the better, because the more detailed the procedure, the more likely the parties are to follow it.
It is clear that inhouse counsel are in the best position to set the stage for the use of mediation through active advocacy in the initial contract drafting and through choosing outside counsel with the capability of carrying it out.