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Ch. 4 Reading ReflectionAssignment Instructions
Reading Reflection Instructions
1. Pick three to five topics, terms, concepts, or subjects that interested you in this chapter.
2. Discuss in detail the chosen topics, terms, concepts or subject areas, to include what you
learned and why it interests you.
3. Each topic, term, concept or subject area highlighted should be no less than one
paragraph containing four to five sentences.
4. See the grading rubric for my grading philosophy for this assignment.
5. Type your reflective response in the text entry area provided using the instructions
provided.
6. This is worth 100 points of your grade, but weighted according to the Grading Schema
listed in Grades.
Read Chapter 4 Textbook
https://saylordotorg.github.io/text_the-legal-and-ethical-environment-of-business/s07alternative-dispute-resolution.html
Chapter 4Alternative Dispute Resolution
LEARNING OBJECTIVES
After reading this chapter, you should understand alternative dispute resolution (ADR) options,
including the benefits and drawbacks to different methods of dispute resolution. You will know the
legal basis for mandatory arbitration, as well as why parties enter into voluntary ADR methods. You
will understand current debates regarding the fairness of ADR. Additionally, you should be able to
answer the following questions:
1. What are the benefits and drawbacks of ADR as compared to litigation?
2. What legal basis supports the use of ADR rather than litigation?
3. What unique challenges exist in ADR efforts among B2B (business to business), B2C (business
to consumer), and B2E (business to employees)?
4. What are the ethical implications of ADR between parties that are unequal in power?
Imagine that you’ve been wronged by a supplier, by your employer, or by a business where you are a
customer. You’ve correctly determined that you have an actionable legal claim. What are you going to
do? You probably won’t run to the courthouse to file a formal complaint to initiate litigation. This is
because litigation is very expensive and time consuming. Besides, you may wish to continue doing
business with the supplier, employer, or business. Perhaps the matter is of a private nature, and you
do not want to engage in a public process to determine the outcome. You would like the dispute to be
resolved, but you do not want to engage in public, time-consuming, expensive litigation to do it.
A common method of dispute resolution that avoids many of the challenges associated with litigation
is alternative dispute resolution. Alternative dispute resolution (ADR) is a term that encompasses
many different methods of dispute resolution other than litigation. ADR involves resolving disputes
outside of the judicial process, though the judiciary can require parties to participate in specific types
of ADR, such as arbitration, for some types of conflicts. Moreover, some ADR methods vest power to
resolve the dispute in a neutral party, while other strategies vest that power in the parties
themselves. See Figure 4.1 “A Continuum of Different ADR Methods” for a continuum of different
ADR methods based on where power to solve the dispute is vested.
Figure 4.1 A Continuum of Different ADR Methods
Source: Adapted from New York State Unified Court
System, http://www.nycourts.gov/ip/adr/images/continuum2.jpg.
Common methods of ADR include negotiation, mediation, and arbitration. Lesser used methods of
ADR include minitrials, hybrid forms of mediation-arbitration (with elements of both), and
collaborative goal-oriented processes. ADR is often used to resolve disputes among businesses,
employers and employees, and businesses and consumers. ADR can also be used in many other types
of conflicts. For instance, ADR strategies can be used in domestic law cases, such as divorce, or in
international legal issues, such as issues relating to transboundary pollution. This chapter limits its
focus to the use of ADR methods in business. Particularly, we will examine the common methods of
ADR, including the benefits and drawbacks to each. We will also examine potential consequences to
parties that have unequal bargaining power. Additionally, we will examine the use of ADR methods
in situations where ADR may not be the most appropriate method of dispute resolution, such as civil
rights violations.
ADR methods are used outside of the courtroom, but that does not mean that they are outside of the
interests of our legal system. Participation in ADR has important legal consequences. For instance,
parties that have agreed by contract to be subject to binding arbitration give up their constitutional
right to bring their complaint to court. The Federal Arbitration Act (FAA) is a federal statute under
which parties are required to participate in arbitration when they have agreed by contract to do so,
even in state court matters. Indeed, the FAA is a national policy favoring arbitration.Southland Corp.
v. Keating, 465 U.S. 1 (1984). The Southland Corp. Court said that “in enacting…[the FAA], Congress
declared a national policy favoring arbitration and withdrew the power of the states to require a
judicial forum for the resolution of claims which the contracting parties agreed to resolve by
arbitration.” This is an example of federal preemption exercised through the Supremacy Clause in
the U.S. Constitution.
There is a very good chance that you will—or already have—signed a contract that contains a
mandatory arbitration clause. This means that if a dispute arises under that contract, then you will
be required to arbitrate your claim rather than going straight to court. Under a binding arbitration
clause, you will have waived your constitutional rights to go to court. Even if you have never signed
such a contract and never will, there is still a good likelihood that you will be involved in a
commercial dispute at some point in your life. Because of this, it’s important to understand the ADR
process, situations in which litigation is a better choice than ADR, and special issues that arise when
parties have unequal bargaining power.
Key Takeaways
Alternative dispute resolution (ADR) is a body of dispute-resolution methods outside of the litigation
process. ADR is often faster, less expensive, and more private than litigation. For this reason, ADR
can be the preferred dispute-resolution method, particularly when an ongoing relationship between
disputants is desired. However, some types of disputes might be best resolved through litigation,
such as in cases where parties have unequal power or resources or in civil rights violations. Common
methods of dispute resolution are negotiation, mediation, and arbitration. Mandatory arbitration
clauses are common in contracts, and such clauses are enforceable against the parties even if they
wish to litigate their claims.
4.1 Negotiation
LEARNING OBJECTIVES
1. Understand the role of negotiation in avoiding and settling disputes.
2. Explore negotiation as it is commonly employed in business.
3. Understand the implications of bargaining power during negotiation.
4. Become familiar with the benefits and drawbacks of negotiation as a form of alternative
dispute resolution (ADR).
Imagine that you are a tent manufacturer. Your supplier of tent fabric routinely supplies you with
appropriate water-resistant fabric to construct your tents, so that you can produce your products and
bring them to market. After many years of a good working relationship, your fabric supplier
delivered nonconforming goods. Specifically, the fabric delivered was not water-resistant, despite
your need for water-resistant fabric to produce your tents. However, on your notifying the supplier of
the problem, the supplier denied that the fabric was nonconforming to your order. You refused to
pay for the goods. The fabric supplier insisted on payment before future delivery of any additional
fabric. Without water-resistant fabric, you cannot continue to produce your tents.
This is an example of a business to business (B2B) dispute. Despite the problem, you will likely wish
to continue working with this supplier, since you have a good, long-standing relationship with it.
This problem seems to be a “hiccup” in your regular business relationship. Accordingly, you will
probably want to resolve this dispute quickly and without hard feelings. It is very unlikely that you
will immediately hire an attorney to file a formal complaint against your supplier. However, that
does not change the fact that there is a dispute that needs to be resolved.
One of the first strategies that you and your supplier are likely to employ is
negotiation. Negotiation is a method of alternative dispute resolution (ADR) that retains power to
resolve the dispute to the parties involved. No outside party is vested with authoritative decisionmaking power concerning the resolution of the dispute. Negotiation requires the parties to define the
conflicts and agree to an outcome to resolve those conflicts. Often, this can take the form of a
compromise. Note that a compromise does not mean that anyone “loses.” Indeed, if both parties are
satisfied with the result of the negotiation and the business relationship can continue moving
forward, then both parties will be very likely to consider this as a “winning” situation.
Benefits to negotiation as a method of ADR include its potential for a speedy resolution, the
inexpensive nature of participation, and the fact that parties participate voluntarily. Drawbacks
include the fact that there are no set rules, and either party may bargain badly or even unethically, if
they choose to do so. In a negotiation, there is no neutral party charged with ensuring that rules are
followed, that the negotiation strategy is fair, or that the overall outcome is sound. Moreover, any
party can walk away whenever it wishes. There is no guarantee of resolution through this method.
The result may not be “win-win” or “win-lose,” but no resolution at all. Also, generally speaking,
attorneys are not involved in many negotiations. This last point may be seen as a drawback or a
benefit, depending on the circumstances of the negotiation.
Though our example involves B2B, the parties may or may not have equal bargaining power. If your
business and your supplier are both dependent on each other for roughly equal portions of the
respective businesses, then they are most likely relatively equal with respect to bargaining power.
However, in our example, if your business is a very small business but your supplier is a very large
business—perhaps with a patent protecting the rights to the specialty fabric that you need—then we
might say that the B2B negotiation is potentially unbalanced, since one party has a much more
powerful bargaining position than the other. Specifically, your business needs that particular type of
fabric, which is only available from one supplier. But your supplier does not need your business
because it has a legal monopoly in the form of a patent for its product, and it probably sells to many
manufacturers. This would be an example of unequal bargaining power.
When the negotiation occurs as a result of a dispute, but not a legal dispute per se, then the party
with the weakest bargaining position may be in a very vulnerable spot. This is illustrated in Note 4.13
“Hyperlink: Rubbermaid’s Unequal Bargaining Power”. When Rubbermaid’s raw materials price for
resin increased, it needed to raise its prices. However, Wal-Mart refused to accept the necessary
price increase for Rubbermaid products. This refusal had a substantial negative impact on
Rubbermaid’s business, since Wal-Mart was its main customer. In short, Rubbermaid needed WalMart, but Wal-Mart did not need Rubbermaid.
Hyperlink: Rubbermaid’s Unequal Bargaining Power
A Question of Ethics
http://www.pbs.org/wgbh/pages/frontline/video/flv/generic.html?s=frol02s48aq71&continuous=1
Watch “Muscling Manufacturers,” a clip from Is Wal-Mart Good for America? to see how unequal
bargaining power can affect the least powerful party in a negotiation.
As economist Brink Lindsey from the Cato Institute commented, “We’ve definitely seen a shift in the
balance of bargaining power between manufacturers and retailers…Back in the old days,
manufacturing was a high-productivity endeavor; retailing and distribution was fairly lowproductivity…And so manufacturers called the shots.”Hedrick Smith, “Who Calls the Shots in the
Global Economy?” PBS, November 16,
2004, http://www.pbs.org/wgbh/pages/frontline/shows/walmart/secrets/shots.html (accessed on
August 23, 2010).
That doesn’t appear to be the case anymore.
Negotiation is a skill often developed by people who are charged with settling existing disputes or
with creating new agreements. Since we are focusing on dispute resolution in this chapter, we will
limit our discussion to the resolution of disputes rather than the negotiation of new contract terms,
but keep in mind that these activities essentially draw on the same skills.
In Getting to Yes, written by members of the Harvard Program on Negotiation, the goal of
negotiation is viewed as “win-win.”Roger Fisher, William Ury, and Bruce Patton, Getting to Yes (New
York: Penguin Books, 1991). Note that this is a substantially different goal from litigation. Our
adversarial legal system requires one party to “win” and the other party to “lose.” Getting to
Yes focuses on principled negotiation, and it sets forth specific steps and discusses strategies to allow
participants to achieve the “win-win” goal. This book’s popularity perhaps suggests that people have
a real interest in learning about ADR, avoiding litigation, and ensuring that all parties leave the
resolution process as “winners.” Some concepts common in negotiation include the BATNA,
WATNA, and the bargaining zone. For example, the authors of Getting to Yes encourage negotiators
to know their best alternative to a negotiated agreement (BATNA). This ensures that unfavorable
terms will not be accepted and terms consistent with a negotiator’s interests won’t be rejected.Roger
Fisher, William Ury, and Bruce Patton, Getting to Yes (New York: Penguin Books, 1991),
100. Likewise, the worst alternative to a negotiated agreement (WATNA) is a concept used by some
negotiators prior to entering negotiations. The bargaining zone is the area in which parties to a
negotiation are willing to trade, barter, or negotiate their positions, within which parties can find an
acceptable agreement. If you think of a Venn diagram, the bargaining zone would be where the two
ovals overlap. The reservation point is essentially a party’s “bottom line,” beyond which it will not
agree to terms.
Let’s go back to our example. Imagine that after negotiating with your fabric supplier, the following
facts emerged: The fabric supplier believed that it sent the correct fabric to you, because one of your
new employees inadvertently ordered the wrong fabric. You reviewed your business records and
determined that this allegation was true. This sounds like a misunderstanding that would be easy to
clear up in negotiation, doesn’t it? Imagine the embarrassment and hard feelings that would have
been caused by immediately filing a formal complaint in court, not to mention the great expense that
both parties would have incurred. Through negotiation, chances are very good that this
misunderstanding will be resolved in a win-win outcome and that you will be able to continue your
working relationship with your supplier.
KEY TAKEAWAYS
Negotiation is a method of alternative dispute resolution (ADR) in which the parties retain power to
decide on a resolution of the issue themselves, without relying on a neutral decision maker.
Negotiation is also used between parties entering into agreements, when there is no legal dispute.
Negotiation is often the first method of dispute resolution attempted, because it is inexpensive and
relatively fast. Additionally, parties that wish to continue working together in the future often employ
negotiation as a friendly method to resolve disputes. Negotiation between parties with unequal
bargaining power can result in the stronger party being heavy-handed at the negotiation table, which
can result in unfair outcomes for the weaker party. Since negotiation does not follow an externally
imposed set of rules, parties may negotiate as their conscience dictates. However, negotiation is
often considered a dispute-resolution option that can result in a win-win situation for all parties, as
illustrated by the popular book Getting to Yes, in which negotiation strategies are set forth in detail.
EXERCISES
1. Visit http://www.sfhgroup.com/ca/training/online-training/test-your-skills.php and click
“Negotiate with Bill” under “Online Negotiation Course.” This is a free interactive negotiation
exercise. After completing the negotiation, answer the following questions: How far did you
get? (If you did not get to level three, go back and try it again. See if you can get all the way
through to level three.) What negotiation strategies did you learn? In other words, what
works? What doesn’t work?
2. What are the benefits of negotiation as a dispute-resolution method? What are the
drawbacks?
3. How can parties that have unequal bargaining power negotiate meaningfully, without one
party taking advantage of the other? Have you ever negotiated with someone who had more
bargaining power than you? What were your strategies during the negotiation? Did you
obtain your goal by the conclusion of the negotiation?
4. Watch the video in Note 4.13 “Hyperlink: Rubbermaid’s Unequal Bargaining Power”. If you
were a manufacturer and you had to raise prices due to an increase in price for your raw
materials, and if Wal-Mart was your most important customer, what strategies would you
employ so that both parties would have a chance to have a “win-win” outcome?
4.2 Mediation
LEARNING OBJECTIVES
1. Learn what mediation is.
2. Explore the process of mediation as an alternative dispute resolution (ADR) strategy.
3. Identify disputes suitable to mediation as a form of ADR.
4. Become familiar with the benefits and drawbacks of mediation as a form of ADR.
Mediation is a method of ADR in which parties work to form a mutually acceptable agreement. Like
negotiation, parties in mediation do not vest authority to decide the dispute in a neutral third party.
Instead, this authority remains with the parties themselves, who are free to terminate mediation if
they believe it is not working. Often, when parties terminate mediation, they pursue another form of
ADR, such as arbitration, or they choose to litigate their claims in court. Mediation is appropriate
only for parties who are willing to participate in the process. Like negotiation, mediation seeks a
“win-win” outcome for the parties involved. Additionally, mediation is confidential, which can be an
attractive attribute for people who wish to avoid the public nature of litigation. The mediation
process is usually much faster than litigation, and the associated costs can be substantially less
expensive than litigation.
Unlike in many negotiations, a third party is involved in mediation. Indeed, a neutral mediator is
crucial to the mediation process. Mediators act as a go-between for the parties, seeking to facilitate
the agreement. Requirements to be a mediator vary by state. See Note 4.23 “Hyperlink:
Mediators” to compare the requirements between states. There are no uniform licensing
requirements, but some states require specific training or qualifications for a person to be certified as
a mediator. Mediators do not provide advice on the subject matter of the dispute. In fact, the
mediators may not possess any subject-matter expertise concerning the nature of the dispute.
However, many mediators are trained in conflict resolution, and this allows them to employ methods
to discover common goals or objectives, set aside issues that are not relevant, and facilitate an
agreement into which the parties will voluntarily enter. Mediators try to find common ground by
identifying common goals or objectives and by asking parties to set aside the sometimes emotionally
laden obstacles that are not relevant to the sought-after agreement itself.
Hyperlink: Mediators
http://www.mediationworks.com/medcert3/staterequirements.htm
Visit this site to see the various requirements and qualifications to become a mediator in the
different states.
Disputants choose their mediator. This choice is often made based on the mediator’s reputation as a
skilled conflict resolution expert, professional background, training, experience, cost, and
availability. After a mediator is chosen, the parties prepare for mediation. For instance, prior to the
mediation process, the mediator typically asks the parties to sign a mediation agreement. This
agreement may embody the parties’ commitments to proceed in good faith, understanding of the
voluntary nature of the process, commitments to confidentiality, and recognition of the mediator’s
role of neutrality rather than one of legal counsel. At the outset, the mediator typically explains the
process that the mediation will observe. The parties then proceed according to that plan, which may
include opening statements, face-to-face communication, or indirect communication through the
mediator. The mediator may suggest options for resolution and, depending on his or her skill, may
be able to suggest alternatives not previously considered by the disputants.
Mediation is often an option for parties who cannot negotiate with each other but who could reach a
mutually beneficial or mutually acceptable resolution with the assistance of a neutral party to help
sort out the issues to find a resolution that achieves the parties’ objectives. Sometimes parties in
mediation retain attorneys, but this is not required. If parties do retain counsel, their costs for
participating in the mediation will obviously increase.
In business, mediation is often the method of ADR used in disputes between employers and
employees about topics such as workplace conditions, wrongful discharge, or advancement
grievances. Mediation is used in disputes between businesses, such as in contract disputes.
Mediation is also used for disputes arising between businesses and consumers, such as in medical
malpractice cases or health care disputes.
Like other forms of dispute resolution, mediation has benefits and drawbacks. Benefits are many.
They include the relative expediency of reaching a resolution, the reduced costs as compared to
litigation, the ability for parties that are unable to communicate with each other to resolve their
dispute using a nonadversarial process, the imposition of rules on the process by the mediator to
keep parties “within bounds” of the process, confidentiality, and the voluntary nature of
participation. Of course, the potential for a “win-win” outcome is a benefit. Attorneys may or may not
be involved, and this can be viewed as either a benefit or a drawback, depending on the
circumstances.
Drawbacks to mediation also exist. For example, if disputants are not willing to participate in the
mediation process, the mediation will not work. This is because mediation requires voluntary
participation between willing parties to reach a mutually agreeable resolution. Additionally, even
after considerable effort by the parties in dispute, the mediation may fail. This means that the
resolution of the problem may have to be postponed until another form of ADR is used, or until the
parties litigate their case in court. Since mediators are individuals, they have different levels of
expertise in conflict resolution, and they possess different backgrounds and worldviews that might
influence the manner in which they conduct mediation. Parties may be satisfied with one mediator
but not satisfied in subsequent mediations with a different mediator. Even if an agreement is
reached, the mediation itself is usually not binding. Parties can later become dissatisfied with the
agreement reached during mediation and choose to pursue the dispute through other ADR methods
or through litigation. For this reason, parties often enter into a legally binding contract that
embodies the terms of the resolution of the mediation immediately on conclusion of the successful
mediation. Therefore, the terms of the mediation can become binding if they are reduced to such a
contract, and some parties may find this to be disadvantageous to their interests. Of course, any
party that signs such an agreement would do so voluntarily. However, in some cases, if legal counsel
is not involved, parties may not fully understand the implications of the agreement that they are
signing.
KEY TAKEAWAYS
Mediation is a method of ADR in which the parties retain power to decide the issue themselves
without vesting that power in an outside decision maker. However, mediation relies on neutral
mediators who facilitate the mediation process to assist the parties in achieving an acceptable,
voluntary agreement. Mediation is more formal than negotiation but less formal than arbitration or
litigation. Mediation is relatively inexpensive, fast, and confidential, unlike litigation. Though
nonbinding mediation resolutions are not binding on the parties, these resolution agreements may
be incorporated into a legally binding contract, which is binding on the parties who execute the
contract. Mediation does not follow a uniform set of rules, though mediators typically set forth rules
that the mediation will observe at the outset of the process. Successful mediation often reflects not
only the parties’ willingness to participate but also the mediator’s skill. There is no uniform set of
rules for mediators to become licensed, and rules vary by state regarding requirements for mediator
certification.
EXERCISES
1. Visit the link in Note 4.23 “Hyperlink: Mediators” and find your state’s requirements and
qualifications for mediators. What would it take for you to become a mediator in your state?
Do you think that your state requirements ensure that only qualified mediators practice?
Why or why not?
2. Identify a situation in which you would choose mediation as your preferred method of
dispute resolution. Why is mediation the best method in this situation? What are the
potential benefits and drawbacks of mediation in this situation?
3. Should mediators be required to be licensed, like attorneys or physicians, before practicing?
Why or why not?
4. Visit http://www.sfhgroup.com/ca/training/online-training/test-your-skills.php and scroll
down to Mediation game. Click on “play game” under “The Angry Neighbours.” This is a free
interactive mediation exercise. After completing the mediation, answer the following
questions: Were you able to successfully mediate this dispute? If you did not reach a
successful resolution, go back and try it again. See if you can reach a successful resolution.
What mediation strategies did you learn? What works? What doesn’t work?
4.3 Arbitration
LEARNING OBJECTIVES
1. Explore the option of arbitration as an alternative dispute resolution (ADR) strategy.
2. Explore contemporary issues of fairness in arbitration.
3. Determine when arbitration is a viable option for dispute resolution.
4. Examine the benefits and drawbacks of arbitration as a form of ADR.
Arbitration is a method of ADR in which parties vest authority in a third-party neutral decision
maker who will hear their case and issue a decision, which is called an arbitration award.
An arbitrator presides over arbitration proceedings. Arbitrators are neutral decision makers who are
often experts in the law and subject matter at issue in the dispute. Their decisions do not form
binding precedent. Arbitrators may be members of the judiciary, but in arbitrations they are not
judges. Arbitrators act in an analogous capacity to judges in trials. For instance, they determine
which evidence can be introduced, hear the parties’ cases, and issue decisions. They may be certified
by the state in which they arbitrate, and they may arbitrate only certain types of claims. For instance,
the Better Business Bureau trains its own arbitrators to hear common complaints between
businesses and consumers (B2C).
Participation in the arbitration proceeding is sometimes mandatory. Mandatory arbitration results
when disputes arise out of a legally binding contract involving commerce in which the parties agreed
to submit to mandatory arbitration. Arbitration is also mandatory when state law requires parties to
enter into mandatory arbitration.
Although perhaps not obvious, federal law lies at the heart of mandatory arbitration clauses in
contracts. Specifically, Congress enacted the Federal Arbitration Act (FAA)9 U.S.C. §1 et seq.through
its Commerce Clause powers. This act requires parties to engage in arbitration when those parties
have entered into legally binding contracts with a mandatory arbitration clause, providing the
subject of those contracts involves commerce.9 U.S.C. §2. In Southland Park v. Keating, the U.S.
Supreme Court interpreted this federal statute to apply to matters of both federal and state court
jurisdiction. Indeed, the Court held that the FAA created a national policy in favor of arbitration. It
also held that the FAA preempts state power to create a judicial forum for disputes arising under
contracts with mandatory arbitration clauses.Southland Corp. v. Keating, 465 U.S. 1 (1984). In a
later decision, the Court held that the FAA encompasses transactions within the broadest permissible
exercise of congressional power under the Commerce Clause.Citizens Bank v. Alafabco, Inc., 539
U.S. 52 (2003).This means that the FAA requires mandatory arbitration clauses to be enforceable for
virtually any transaction involving interstate commerce, very broadly construed.
Some states require mandatory arbitration for certain types of disputes. For instance, in Oregon, the
state courts require mandatory arbitration for civil suits where the prayer for damages is less than
$50,000, excluding attorney fees and costs.ORS 36.405. Many parties accept the arbitration award
without appeal. However, when state law requires mandatory arbitration of certain types of disputes,
parties are permitted to appeal because the arbitration is nonbinding. In nonbinding arbitration, the
parties may choose to resolve their dispute through litigation if the arbitration award is rejected by a
party. However, some states have statutory requirements that, in practice, create a chilling effect on
appealing an arbitration award. For example, in the state of Washington, if the appealing party from
a nonbinding mandatory arbitration does not do better at trial than the original award issued by the
arbitrator, then that party will incur liability not only for its own expenses but also for those of the
opposing side.Washington State Court Rules of Procedure, Superior Court Mandatory Arbitration
Rules 7.3. In nonbinding arbitration, this is a powerful incentive for parties to accept the arbitration
award without appealing to the judicial system.
Voluntary arbitration also exists, and it is frequently used in business disputes. Sometimes parties
simply agree that they do not want to litigate a dispute because they believe that the benefits of
arbitration outweigh the costs of litigation, so they choose voluntary arbitration in hopes of a speedy
and relatively inexpensive outcome. Other times, parties are not certain how strong their case is. In
such cases, arbitration can seem much more attractive than litigation.
Arbitration awards can be binding or nonbinding. Some states, like Washington State, have codified
the rule that arbitration decisions are binding when parties voluntary submit to the arbitration
procedure.Uniform Arbitration Act, RCW 7.04. In binding arbitration, the arbitration award is final;
therefore, appealing an arbitration award to the judicial system is not available. In many states, an
arbitration awards is converted to a judgment by the court, thereby creating the legal mechanism
through which the judgment holder can pursue collection activities. This process,
called confirmation, is contemplated by the FAA and often included in arbitration agreements. But
even if the FAA does not apply, most states have enacted versions of either the Uniform Arbitration
Act or the Revised Uniform Arbitration Act. These state laws allow confirmation of arbitration
awards into judgments as well.
Like any other form of dispute resolution, arbitration has certain benefits and drawbacks. Arbitration
is an adversarial process like a trial, and it will produce a “winner” and a “loser.” Arbitration is more
formal than negotiation and mediation and, in many ways, it resembles a trial. Parties present their
cases to the arbitrator by introducing evidence. After both sides have presented their cases, the
arbitrator issues an arbitration award.
Rules related to arbitration differ by state. The rules of procedure that apply to litigation in a trial do
not typically apply to arbitration. Specifically, the rules are often less formal or less restrictive on the
presentation of evidence and the arbitration procedure. Arbitrators decide which evidence to allow,
and they are not required to follow precedents or to provide their reasoning in the final award. In
short, arbitrations adhere to rules, but those rules are not the same as rules of procedure for
litigation. Regardless of which rules are followed, arbitrations proceed under a set of external rules
known to all parties involved in any given arbitration.
Arbitration can be more expensive than negotiation or mediation, but it is often less expensive than
litigation. In Circuit City Stores Inc. v. Adams, the U.S. Supreme Court noted that avoiding the cost
of litigation was a real benefit of arbitration.Circuit City Stores, Inc., v. Adams, 532 U.S. 105
(2001). The costly discovery phase of a trial is nonexistent or sharply reduced in arbitration.
However, arbitration is not necessarily inexpensive. Parties must bear the costs of the arbitrator, and
they typically retain counsel to represent them. Additionally, in mandatory arbitration clause cases,
the arbitration may be required to take place in a distant city from one of the disputants. This means
that the party will have to pay travel costs and associated expenses during the arbitration proceeding.
The Circuit City Court also noted that mandatory arbitration clauses avoid difficult choice-of-law
problems that litigants often face, particularly in employment law cases.
Arbitration is faster than litigation, but it is not as private as negotiation or mediation. Unlike
mediators, arbitrators are often subject-matter experts in the legal area of dispute. However, as is
true for mediators, much depends on the arbitrator’s skill and judgment.
A common issue that arises is whether mandatory arbitration is fair in certain circumstances. It’s
easy to imagine that arbitration is fair when both parties are equally situated. For example, business
to business (B2B) arbitrations are often perceived as fair, especially if businesses are roughly the
same size or have roughly equal bargaining power. This is because they will be able to devote
approximately the same amount of resources to a dispute resolution, and they both understand the
subject under dispute, whatever the commercial issue may be. Moreover, in B2B disputes, the
subjects of disputes are commercial issues, which may not implicate deeper social and ethical
questions. For example, contract disputes between businesses might involve whether goods
are conforming goods or nonconforming goods under the Uniform Commercial Code (UCC). No
powerful social or ethical questions arise in such disputes. Indeed, resolving such disputes might be
seen as “business as usual” to many commercial enterprises.
However, issues of fairness often arise in business to employee (B2E) and business to consumer
(B2C) situations, particularly where parties with unequal bargaining power have entered into a
contract that contains a mandatory arbitration clause. In such cases, the weaker party has no real
negotiating power to modify or to delete the mandatory arbitration clause, so that party is required
to agree to such a clause if it wants to engage in certain types of transactions. For example, almost all
credit card contracts contain mandatory arbitration clauses. This means that if a consumer wishes to
have a credit card account, he will agree to waive his constitutional rights to a trial by signing the
credit card contract. As we know, the FAA will require parties to adhere to the mandatory arbitration
agreed to in such a contract, in the event that a dispute arises under that contract. In such cases,
questions regarding whether consent was actually given may legitimately be raised. However, the
U.S. Supreme Court has held that in B2E contexts, unequal bargaining power alone is not a sufficient
reason to hold that arbitration agreements are unenforceable,Gilmer v. Interstate/Johnson Lane
Corp., 500 U.S. 20 (1991). and it is not sufficient to preclude arbitration.Lozano v. AT & T Wireless,
504 F.3d 718 (9th Cir. 2007).
Additionally, concerns about fairness do not end at contract formation. If a dispute arises and
mandatory arbitration is commenced, the unequal power between parties will continue to be an
important issue. In the case between a credit card company and an average consumer debtor, the
credit card company would clearly be in a more powerful position vis-à-vis the debtor by virtue of the
company’s financial strength and all that comes with it, such as experienced attorneys on staff,
dispute-resolution experience, and contractual terms that favor it, rather than the consumer debtor.
In such cases, if the consumer debtor is the aggrieved party, he may very well decide to drop the
matter, especially if the arbitration clause requires arbitration proceedings to occur in a distant city.
The credit card company will have vast financial resources as compared to the consumer debtor.
Moreover, in this example the credit card company’s legal counsel will know how to navigate the
arbitration process and will have experience in dispute resolution, processes that often confound
people who are not trained in law. Additionally, the list of arbitrators may include people who are
dependent on repeat business from the credit card company for their own livelihoods, thereby
creating—or at least suggesting—an inherent conflict of interest. Many mandatory arbitration clauses
create binding awards on one party while reserving the right to bring a claim in court to the other
party. That is, a mandatory arbitration clause may allow the credit card company to appeal an
arbitrator’s award but to render an award binding on the consumer debtor. Obviously, this would
allow the credit card company to appeal an unfavorable ruling, while requiring the consumer debtor
to abide by an arbitrator’s unfavorable ruling. To a consumer debtor, the arbitration experience can
seem like a game played on the credit card company’s home court—daunting, feckless, and
intimidating.
Additionally, some types of disputes that have been subjected to mandatory arbitration raise serious
questions about the appropriateness of ADR, due to the nature of the underlying dispute. For
example, in some recent B2E disputes, claims relating to sexual assault have been subjected to
mandatory arbitration when the employee signed an employment contract with a mandatory
arbitration clause. Tracy Barker, for example, was reportedly sexually assaulted by a State
Department employee in Iraq while she was employed as a civilian contractor by KBR Inc., a former
Halliburton subsidiary. When she tried to bring her claim in court, the judge dismissed the claim,
citing the mandatory arbitration clause in her employment contract. After arbitration, she won a
three-million-dollar arbitration award. As KBR Inc. noted, this “decision validates what KBR has
maintained all along; that the arbitration process is truly neutral and works in the best interest of the
parties involved.” Despite this statement, KBR Inc. has filed a motion to modify the award.Juan A.
Lozano, “Woman Awarded $3M in Assault Claim against KBR,” AP News, November 19,
2009, http://www.thefreelibrary.com/Woman+awarded+%243M+in+ assault+claim+against+KBRa01612064743 (accessed September 24, 2010).
In a similar case, employee Jamie Leigh Jones worked for KBR Inc. in Iraq when she was drugged
and gang raped. She was initially prohibited from suing KBR Inc. in court because her employment
contract contained a mandatory arbitration clause. However, when considering this case, the Fifth
Circuit Court of Appeals ruled that sexual assault cases may, in fact, be brought in court rather than
being subjected to mandatory arbitration, despite the contract language requiring mandatory
arbitration.Jones v. Halliburton Co., 583 F.3d 228 (5th Cir. 2009). Jones’s claims were beyond the
scope of the arbitration clause, because sexual assault is not within the scope of employment.
Moreover, under Senator Al Franken’s lead, the Senate took action to prohibit the Department of
Defense from contracting with defense contractors that require mandatory arbitration for sexual
assault claims. If such action is passed, it would essentially allow the Fifth Circuit’s holding to apply
in all federal jurisdictions rather than just in the Fifth Circuit. Check out Note 4.44 “Video Clip: Al
Franken” to hear the details of Senator Franken’s work on this matter. One might think that passing
such a law would be a “no brainer” to lawmakers. However, some Senators voted against the
measure, arguing that the federal government should not insert itself into rewriting contracts.
Instead, some argued that the use of arbitration and mediation should be expanded for such cases.
Video Clip: Al Franken
Watch Senator Al Franken discuss the facts of the Jamie Leigh Jones case here:
(click to see video)
In B2C cases, different issues of fairness exist. As noted previously, when the disputants possess
unequal power, these issues can be magnified. Public Citizen, a nonprofit organization that
represents consumer interests in Congress, released a report concerning arbitration in B2C disputes.
Specifically, the report argued that arbitration is unfair to consumers in B2C disputes and that
consumers fare better in litigation than in arbitration. According to the report, incentives exist to
favor businesses over consumers in the arbitration process. It pointed to the lack of appeal rights,
lack of requirement to follow precedents or established law, limits on consumers’ remedies,
prohibitions against class-action suits, limitations on access to jury trials, limitations on abilities to
collect evidence, and greater expense as additional factors speaking to the unfairness of arbitration
over litigation in B2C disputes. Check out Note 4.45 “Hyperlink: Arbitration” for the full report.
Hyperlink: Arbitration
http://www.citizen.org/documents/ArbitrationDebateTrap(Final).pdf
Check out this Public Citizen report, The Arbitration Debate Trap: How Opponents of Corporate
Accountability Distort the Debate on Arbitration, which argues arbitration is bad for consumers in
B2C disputes.
Importantly, and despite the FAA’s broad interpretation, not all binding arbitration clauses have
been upheld by courts in B2C cases. In 2007, the Ninth Circuit Court of Appeals ruled that AT&T’s
binding arbitration clause for wireless customers is unenforceable under California state law.Lozano
v. AT & T Wireless, 504 F.3d 718 (9th Cir. 2007). The court further noted that the relevant state law
is not preempted by the FAA, because the FAA does not prevent the courts from applying state law.
In this case, that law involved unconscionability of contract terms. As noted previously, the FAA
requires parties to submit to mandatory arbitration when they agree to do so in a legally binding
contract, and it preempts state powers to provide a judicial forum in those matters. However, the
Ninth Circuit’s holding in this case underscores the fact that state contract law is not circumvented
by the federal statute.
Arbitration is a widely used form of ADR, but important questions have been raised about its
appropriateness in certain types of disputes. Before signing a mandatory arbitration agreement, it’s
important to realize that under current law, your opportunity to bring your claim in court will be
severely restricted or entirely precluded. Moreover, if you sign such an agreement with a party who
holds inherently greater power than you, such as your employer, then you may find yourself at an
extreme disadvantage in an arbitration proceeding.
KEY TAKEAWAYS
Arbitration is a form of ADR in which parties vest authority to decide a dispute with a third-party
arbitrator, who hears the evidence and issues an arbitration award. Arbitration may be binding or
nonbinding, and it may be mandatory or voluntary. Arbitration awards issued by arbitrators can be
confirmed to judgments by judges. Issues of fairness arise in arbitration when disputants possess
unequal power, such as arbitration in employment or consumer disputes. Questions concerning the
appropriateness of mandatory arbitration arise in cases involving issues of civil rights violations. The
Federal Arbitration Act requires enforcement of mandatory arbitration clauses in contract disputes
involving commerce where mandatory arbitration clauses exist. The Arbitration Fairness Act of 2009
would resolve several issues of unfairness, but this act has not yet been passed in to law.
EXERCISES
1. Check out Jon Stewart’s perspective on Senator Franken’s proposed measure to prevent the
Department of Defense from contracting with defense contractors that require mandatory
arbitration for disputes arising from sexual assaults
at http://www.thedailyshow.com/watch/wed-october-14-2009/rape-nuts. Does the
comedian accurately portray this issue? What role does popular culture have in shaping our
opinions and conceptions of our legal system?
2. In the Barker v. Halliburton Inc. case, does the three-million-dollar arbitration award in favor
of the sexual assault victim prove that arbitration works, even in violations of civil rights
disputes? Why or why not?
3. Choose one argument in The Arbitration Debate Trap: How Opponents of Corporate
Accountability Distort the Debate on Arbitration in Note 4.45 “Hyperlink: Arbitration” and
develop a counterargument to support the contention that arbitration is good in B2C
disputes. Compare your argument with the argument in the report. Which side is the most
persuasive? After completing this exercise, do you believe that arbitration is good or bad for
consumers in B2C disputes? Why?
4. Bank of America announced that it would no longer require mandatory arbitration in
disputes arising between it and consumer credit card account holders. Review the story
here: http://www.reuters.com/article/idUSTRE57D03E20090814. What are the benefits and
drawbacks to Bank of America’s credit card account customers with respect to this change?
5. In what contexts have you entered into an arbitration agreement (e.g., home purchase,
credit card agreement, cell phone agreement)? Write a short essay discussing the
implications of entering into that agreement.
4.4 Other Methods of Alternative Dispute Resolution
LEARNING OBJECTIVES
1. Learn about in-house dispute-resolution methods, med-arb, private judging, minitrials, and
summary jury trials.
2. Explore the benefits and drawbacks to forms of alternative dispute resolution (ADR)
discussed in this section.
Remember that ADR is a broad term used to denote methods to resolve disputes outside of litigation.
This can really be any method, whether or not it bears a specific label or adheres to a particular
procedure. For instance, negotiation might be a quick meeting in the hallway between disputants, or
it might involve a formal round of negotiations where all parties are represented by legal counsel.
However, when parties are attempting to resolve a dispute, it makes sense for them to agree to a
specific procedure for doing so beforehand, so that each party understands how to proceed.
Negotiation, mediation, and arbitration are the most common forms of ADR. However, these
methods might not be appropriate for every dispute. Other forms of ADR exist, ranging from inhouse programs to very formal external processes. This section briefly discusses commonly used
alternatives to resolving disputes besides negotiation, mediation, arbitration, or litigation.
Some ADR processes or programs are available only to certain groups of people, such as members of
a particular organization. For instance, some organizations, like Boeing, have an internal ethics
hotline. This hotline is available for employees to report perceived ethics violation that they have
observed. Ethics advisors answer employees’ questions and follow up on reports that need further
investigation. One major benefit is that reporting parties generally (but not always) remain
anonymous. Another benefit is that the company has time to redress problems that could give rise to
disputes of much greater magnitude if left unaddressed.
An open-door policy is an in-house program that allows company employees to go directly to any
level of management to file a complaint or grievance, without threat of retaliation for their reporting.
In theory, this policy creates an open atmosphere of trust, and it breaks down class barriers between
groups of employees. However, many employees may not feel comfortable in making a complaint
about a manager’s decision. Moreover, supervisors may not be comfortable with their employees
bypassing them to file complaints. Open-door policies sound very good in theory, but they may not
work as well in practice.
Another type of in-house program is an ombudsmen’s office. These stations generally hear
complaints from stakeholders, such as employees or customers. Ombudsmen try to troubleshoot
these complaints by investigating and attempting to resolve the issues before they escalate into more
formal complaints.
More formal methods of ADR include mediation-arbitration (med-arb), which is essentially a
mediation followed by an arbitration. If the mediation does not produce a satisfactory outcome, then
the parties submit to arbitration. The neutral party mediating the dispute also serves as the
arbitrator if the dispute-resolution process goes that far. Med-arb has the same benefits and
drawbacks as mediation and arbitration alone, with some important differences. For instance,
parties in a med-arb know that their dispute will be resolved. This is unlike mediation alone, where
parties may walk away if they do not think that the mediation is serving their interests. Moreover, the
parties in med-arb have an opportunity to reach a win-win outcome as in mediation. However, if
they do not reach a satisfactory outcome, then one party will “win” and one party will “lose” during
the arbitration phase. The knowledge that an arbitration will definitely follow a failed mediation can
be a strong incentive to ensure that the mediation phase of a med-arb works.
Private judging, contemplated by many state statutes, is a process in which active or retired judges
may be hired for private trials. Private judging is essentially private litigation. The hired judge can
preside over a private trial that is not truncated by limits on discovery or abbreviated rules of
procedure, as would be the case in arbitration. Additionally, the judge who oversees the process is
highly experienced in such matters as evidence and decision rendering. Moreover, the parties who
can afford to pay for this service have a substantial benefit in not having to wait to have their cases
heard in the public court. The private trial is also private rather than public, which may be important
to parties who require confidentiality. In states where statutes permit hiring a judge for such matters,
the parties’ ability to appeal is often preserved. Drawbacks include the sometimes questionable
nature of enforceability of judgments rendered, though some state statutes allow enforceability of
those judgments as if they were issued in public court. Moreover, this system may benefit those who
can afford to pay for this service, while others must wait for their case to appear on the docket in
public court. This raises questions of fairness. See Note 4.54 “Hyperlink: Private Judges” for one
state’s frequently asked questions (FAQ) regarding private judges.
Hyperlink: Private Judges
http://www.in.gov/judiciary/admin/private-judges/faq.html
Check out Indiana Courts’ Web page with frequently asked questions about private judges.
Does your state permit private judging?
A minitrial is a procedure that allows the parties to present their case to decision makers on both
sides of the dispute, following discovery. This is a private affair. After the cases are presented, the
parties enter into mediation or negotiation to resolve their dispute.
A summary jury trial is a mock trial presented to a jury whose verdict is nonbinding. The
presentation is brief and succinct, and it follows a discovery period. The jury does not know that its
verdict will be advisory only. This process allows parties to measure the strengths and weaknesses of
their cases prior to engaging in litigation, which presumably saves both time and money. After the
minitrial, parties are in a better position to negotiate or mediate an outcome that fairly represents
their positions.
KEY TAKEAWAYS
Methods of ADR other than negotiation, mediation, and arbitration are available to disputants. For
example, minitrials, med-arb, private judging, and summary jury trials are common alternatives, as
are in-house programs like ombudsmen, anonymous ethics hotlines, and open-door policies. Benefits
and drawbacks to these methods exist relative to other methods of ADR and to litigation.
EXERCISES
1. Visit Boeing’s Ethics Line Web
page: http://www.boeing.com/companyoffices/aboutus/ethics/hotline.html. Do you think
this program can address all disputes before they get out of hand? Why or why not? What
type of dispute might not be appropriate to bring to an ethics hotline program?
2. Locate two “ethics hotline” programs from an online search. Compare these programs. What
are the benefits and drawbacks to each?
3. Check out Note 4.54 “Hyperlink: Private Judges”. Do you think that people should be
permitted to hire judges to preside over private trials if they can afford to do so? What
benefits to litigants in a private trial have over litigants in a public trial? What ethical issues
exist with respect to private judges?
4. Why would a party choose med-arb over mediation or arbitration alone?
4.5 Public Policy, Legislation, and Alternative Dispute Resolution
LEARNING OBJECTIVES
1. Explore potential restrictions upon ADR.
2. Review points of access to government to change public policy.
3. Examine the Arbitration Fairness Act Bill.
Alternative dispute resolution can be a very useful alternative to litigation. There are many
advantages to disputants, such as expediency, cost savings, and greater privacy than litigation. In
business to business (B2B) disputes, alternative dispute resolution (ADR) often makes sense.
The Federal Arbitration Act (FAA) is a federal statute that the U.S. Supreme Court interpreted as a
national policy favoring arbitration in Southland Corp. v. Keating.Southland Corp. v. Keating, 465
U.S. 1 (1984). According to the Southland Corp Court, state power to create judicial forums to
resolve claims when contracting parties enter into a mandatory arbitration agreement has been
preempted by the FAA. However, not all disputes are well suited for ADR. This is an area in which
Congress could make substantial changes in public policy through the creation of new law, to ensure
fairness between unequal parties and to ensure the protection of civil rights. Congress could do this
by making ADR optional, rather than mandatory, for some types of disputes. It could exclude certain
types of disputes from being bound to arbitration through mandatory arbitration clauses.
For example, the proposed Arbitration Fairness Act of 2009 (AFA) would invalidate mandatory
arbitration clauses in employment and consumer disputes, as well as in disputes arising from civil
rights violations. See Note 4.63 “Hyperlink: Arbitration Fairness Act Bill”. The AFA is a proposed bill
to amend the FAA. Under the Commerce Clause, Congress has the power to limit the use of
mandatory arbitration, just as it has the power to enforce mandatory arbitration clauses under the
Commerce Clause through the existing FAA. By passing a new law that excludes certain types of
disputes from being subjected to mandatory arbitration, Congress could set new policy regarding
fairness in dispute resolution. Likewise, if it fails to act, Congress is also acceding to the U.S.
Supreme Court’s broad interpretation of the FAA as a national policy favoring arbitration. Either
way, policy regarding mandatory arbitration exists, and Congress has a central role in defining that
policy.
Hyperlink: Arbitration Fairness Act Bill
http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.1020
Review the Arbitration Fairness Act Bill, which would amend the Federal Arbitration Act.
In 1925, when the FAA was originally passed, records indicate that Congress intended that
mandatory arbitration clauses be enforced in contracts between merchants, rather than between
businesses and consumers or between employers and employees. In the latter relationships, the
parties have vastly unequal power. Moreover, despite the existence of mandatory arbitration clauses
in contracts, the FAA was not contemplated as a means to preempt state power to provide judicial
forums for certain types of disputes.Margaret L. Moses, Statutory Misconstruction: How the
Supreme Court Created a Federal Arbitration Law Never Enacted by Congress, 34 Fla. St. U.L. Rev.
99 (2006). However, the U.S. Supreme Court has greatly expanded the FAA’s applicability since
then.
If Congress passed the AFA, this would be an example of one branch of government “checking”
another branch’s power as contemplated by the U.S. Constitution. Specifically, the legislative branch
would be checking the judicial branch’s power by passing a law to counteract the U.S. Supreme
Court’s broad interpretation of the FAA in Southland Corp. v. Keating.
This is how our government is supposed to work. One branch checks another branch’s power. This
“checking” of power maintains relative balance among the branches. Because people have different
points of entry into the lawmaking process, this system ultimately balances the many special
interests of the American people. For example, some businesses and employers that do not wish the
AFA to pass may wonder what recourse they have. After all, the U.S. Supreme Court’s interpretation
of the FAA currently favors their interests. Since the AFA has not yet passed, they could lobby
lawmakers against its passage. Note too that if the AFA becomes law, these interest groups are not
simply shut out of the government’s lawmaking process. They continue to have access to lawmaking.
One point of entry is through the legislative branch. For instance, they could return to Congress and
ask it to pass a new law to counteract the AFA, or to repeal the AFA altogether. They also have a
point of entry to the lawmaking process through the judicial branch. Specifically, once a case or
controversy arose under the AFA in which they had standing, they could ask the courts to interpret
the statute narrowly, or they could ask the courts to strike down the statute altogether.
On the other side of the issue, consumers and employees who do not like the FAA’s current broad
interpretation can work within our government system to change the law. For instance, they can ask
Congress to pass a new law, such as the AFA. They could ask Congress to repeal the FAA. They could
also wait for another case to arise under the FAA to try to get the relevant holding in the Southland
Corp. case overturned. This is perhaps more difficult than the first two options, because any U.S.
Supreme Court case produces many progeny at the circuit court level. Each decision at the circuit
court level also produces binding precedent within that jurisdiction. It is very difficult to get a case
before the U.S. Supreme Court. Even if that happened, there would be no guarantee that the Court
would overturn a prior opinion. In fact, the opposite is usually true. Precedent is most often followed
rather than overturned.
In the United States, the policy process is open for participation, though changes often take much
work and time. People with special interests tend to coalesce and press for changes in the law to
reflect those positions. This appears to be what is happening in the world of ADR now. After many
years of mandatory arbitration requirements that have yielded perhaps unfair processes or results,
groups that believe they should not be forced into ADR by mandatory arbitration clauses are building
momentum for their position in Congress. If the AFA passes, that will not be the end of the story,
however. New interest groups may form to support the previous law, or a new law altogether.
KEY TAKEAWAYS
Public policy regarding arbitration has been codified in the FAA and expanded by the U.S. Supreme
Court. To change public policy, interest groups can access the government lawmaking power through
several points, including through the legislative branch and through the judicial branch. To change
public policy regarding mandatory arbitration clauses, for instance, Congress could amend or repeal
the FAA. Additionally, given another dispute arising under the FAA concerning its scope, the U.S.
Supreme Court could overturn prior decisions that broadly interpret the FAA’s reach. Our
government’s structure allows several points of access for those who would protect the status quo of
public policy and for those who seek to change it. The U.S. government is a dynamic system that
provides opportunities for special interests to coalesce and change the law and public policy.
EXERCISES
1. How many points of entry are there into lawmaking processes? Which point would be the
easiest to access if you wanted to change the law? Why?
2. Check out Note 4.63 “Hyperlink: Arbitration Fairness Act Bill”. Do you think that the AFA will
solve the issue of perceived unfairness in dispute resolution? Why or why not? Are there any
additions that you can make to this bill to make it more likely to achieve the goal of greater
fairness in dispute resolution, if passed?
4.6 Concluding Thoughts
Alternative dispute resolution (ADR) is a popular and common group of methods to resolve disputes
in many different contexts. In business, ADR is commonly used in business to business (B2B),
business to consumer (B2C), and business to employee (B2E) disputes. Several methods of ADR
exist. The most commonly employed methods include negotiation, mediation, and arbitration. Under
federal law, national policy favors arbitration. Sometimes ADR is perceived as unfair, because parties
have unequal power relative to each other or because the subject matter of the dispute is not
considered suitable for ADR. Like other areas of law and public policy, ADR is dynamic and subject
to change, particularly when special interest groups coalesce successfully and create momentum for
change within our legal system. Currently, there is a nascent movement to exclude certain types of
disputes from ADR by amending the federal law that requires mandatory arbitration when parties
have contractually
Case Brief 4: Williams v. Braum Ice Cream Stores,
Inc.
Hi class, below is the court case, Williams v. Braum Ice Cream Stores, Inc., please read the case
carefully and submit a fully completed case brief. Do not forget to read the information on the
previous page on, “How to write a case brief,” if you are not clear on how to write one. Let me
know if you have any further questions. Please use the legal dictionary located in the module of
this course if you are unclear on legal terminology. Also visit oyez.com (Links to an external
site.) for access to the case summary if necessary. Please make sure you write the case brief in
your own words.
Click the link below to access the case
Williams v. Braum Ice Cream Stores, Inc. (Links to an external site.)
Title & Citation
You must write the correct title and citation of the case.
20 pts
Full
Marks
0 pts
No
Mar
20 pts
Full
Marks
0 pts
No
Mar
Issue
What is the key constitutional issue that the judge was looking to answer? You must
write the issue in the form of a question.
20 pts
Full
Marks
0 pts
No
Mar
Holding
How did the judge decide the case? (ie: What was the judge’s answer to the issue,
and did the judge affirm or reverse the lower court’s case?)
20 pts
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Marks
0 pts
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Mar
Facts
You must properly write a brief summary of the key facts of the case.
Reason
Properly summarize the judge’s reasoning behind his or her decision.
Total Points: 100
•
Williams v. Braum Ice Cream Stores
Citations
534 P.2d 700 (Okla. Civ. App. 1975)
1974 OK Civ. App. 63
Opinion
No. 47140.
December 10, 1974. Rehearing Denied April 22, 1975. Certiorari Denied March 14, 1975.
Released for Publication by Order of Court of Appeals April 24, 1975.
Appeal from the District Court of Oklahoma County; Byron McFall, Judge.
Reversed and remanded.
Keller Fernald, by Paul F. Fernald, Oklahoma City, for appellant.
Fenton, Fenton, Smith, Reneau Moon, by Ronald L. Day, Oklahoma City, for appellee.
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more.
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REYNOLDS, Judge:
20 pts
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No
Mar
Plaintiff-appellant brought this action against defendant-appellee for breach of implied warranty
of merchantability. Defendant’s Motion for Summary Judgment was granted. Plaintiff appeals
from that ruling.
The trial court held that a cherry seed or pit found in ice cream made of natural red cherry halves
was a substance natural to such ice cream, and as a matter of law defendant was not liable for
injuries resulting from such a natural substance.
The uncontroverted facts in the case show that plaintiff purchased a “cherry pecan” ice cream
cone from defendant’s retail store in Oklahoma City, Oklahoma, on November 5, 1972. Plaintiff
ate a portion of the ice cream, and broke a tooth on a cherry pit contained in the ice cream.
Plaintiff notified defendant of her injury and subsequently filed this action.
There is a division of authority as to the test to be applied where injury is suffered from an object
in food or drink sold to be consumed on or off the premises. Some courts hold there is no breach
of implied warranty on the part of a restaurant if the object in the food was “natural” to the food
served. These jurisdictions recognize that the vendor is held to impliedly warrant the fitness of
food, or that he may be liable in negligence in failing to use ordinary care in its preparation, but
deny recovery as a matter of law when the substance found in the food is natural to the
ingredients of the type of food served. This rule labeled the “Foreign-natural test” by many
jurists, is predicated on the view that the practical difficulties of separation of ingredients in the
course of food preparation (bones from meat or fish, seeds from fruit, and nutshell from the nut
meat) is a matter of common knowledge. Under this natural theory, there may be a recovery only
if the object is “foreign” to the food served. Mix v. Ingersoll Candy Co., 6 Cal.2d 674, 59 P.2d
144 (1936); Adams v. Great Atlantic and Pacific Tea Co., 251 N.C. 565, 112 S.E.2d 92 (1960);
See also annotations in 77 A.L.R.2d 7 (1961); Silva v. F.W. Woolworth Co., 28 Cal.App.2d
649, 83 P.2d 76 (1938); Goodwin v. Country Club of Peoria, 323 Ill. App. 1, 54 N.E.2d
612 (1944); Musso v. Picadilly Cafeterias, Inc., 178 So.2d 421 (La. App. 1965). How far can the
“Foreign-natural test” be expanded? How many bones from meat or fish, seeds from fruit, nut
shells from the nut meats or other natural indigestible substances are unacceptable under the
“Foreign-natural test”?
The other line of authorities hold that the test to be applied is what should “reasonably be
expected” by a customer in the food sold to him. Betehia v. Cape Cod Corp., 10 Wis.2d 323, 103
N.W.2d 64 (1960); Ray v. Deas, 112 Ga. App. 191, 144 S.E.2d 468 (1965); Zabner v. Howard
Johnson’s Incorp., 201 So.2d 824 (Fla.App. 1967); Hochberg v. O’Donnell’s Restaurant, Inc., 272
A.2d 846 (D.C.App. 1971); Bryer v. Rath Packing Co., 221 Md. 105, 156 A.2d 442 (1959);
Bonenberger v. Pittsburgh Mercantile Co., 345 Pa. 559, 28 A.2d 913 (1942).
12A O.S. 1971 § 2-314[ 12A-2-314] provides in pertinent part as follows:
“(1) . . . a warranty that the goods shall be merchantable is implied in a contract for their sale if
the seller is a merchant with respect to goods of that kind. Under this section the serving for
value of food or drink to be consumed either on the premises or elsewhere is a sale.
“(2) Goods to be merchantable must be at least such as
……
“(c) are fit for the ordinary purposes for which such goods are used;. . . .”
The defendant is an admitted “merchant.” 12A O.S. 1971 § 2-104[ 12A-2-104](1).
In Zabner v. Howard Johnson’s Incorp., 201 So.2d 824 at 826, the Court held:
“The `Foreign-natural’ test as applied as a matter of law by the trial court does not recommend
itself to us as being logical or desirable. The reasoning applied in this test is fallacious because it
assumes that all substances which are natural to the food in one stage or another of
preparation are, in fact, anticipated by the average consumer in the final product served. . . .
“Categorizing a substance as foreign or natural may have some importance in determining the
degree of negligence of the processor of food, but it is not determinative of what is unfit or
harmful in fact for human consumption. A nutshell natural to nut meat can cause as much harm
as a foreign substance, such as a pebble, piece of wire or glass. All are indigestible and likely to
cause injury. Naturalness of the substance to any ingredients in the food served is important
only in determining whether the consumer may reasonably expect to find such substance in the
particular type of dish or style of food served.”
The “reasonable expectation” test as applied to an action for breach of implied warranty is keyed
to what is “reasonably” fit. If it is found that the pit of a cherry should be anticipated in cherry
pecan ice cream and guarded against by the consumer, then the ice cream was reasonably fit
under the implied warranty.
In some instances, objects which are “natural” to the type of food but which are generally not
found in the style of the food as prepared, are held to be the equivalent of a foreign substance.
We are not aware of any appellate decision in Oklahoma dealing with this precise issue.
We hold that the better legal theory to be applied in such cases is the “reasonable expectation”
theory, rather than the “naturalness” theory as applied by the trial court. What should be
reasonably expected by the consumer is a jury question, and the question of whether plaintiff
acted in a reasonable manner in eating the ice cream cone is also a fact question to be decided by
the jury.
We reverse the granting of summary judgment in this case and remand the same to the District
Court for proceedings not inconsistent with this opinion.
Reversed and remanded.
BOX, P.J., and ROMANG, J., concur.
