ABA Section of Business Law
Business Law Today
January/February 1999
It's a new day for ADR
From boilerplate to professional responsibility
By DONALD LEE ROMERome is senior counsel at Robinson & Cole in Hartford, Conn.
Your client, a prospective licensee in a business transaction, asks you to review a proposed license agreement prepared by the licensor. The parties have equal bargaining power. The draft has an arbitration clause — one sentence, to the effect that any and all disputes will be resolved by binding arbitration according to XYZ rules. The client wants to know how arbitration works and what the rules provide.
ADR ISSUE COMING SOON The client asks other questions on matters that could affect the outcome in an arbitration. Can you give competent advice to enable her to decide whether to agree to such a clause at all, and what modifications should be negotiated if it is to remain in the contract? What are your duties of consultation in this situation to enable the client to make informed decisions?
The development of professional obligations to clients, as applied to dispute resolution in transactional work and when disputes arise, is new for most business lawyers. The focus of this article is to encourage business lawyers to develop Alternative Dispute Resolution (ADR) expertise, not only to avoid professional liability problems, but also as a real opportunity to provide value-added advice and analysis in client representation and consultation relating to business disputes.
Malpractice, professional negligence, ethical violations and client claims of poor quality service relating to ADR generally have not been on the radar screens of business lawyers when structuring business transactions or even when inserting ADR clauses into agreements to provide for one or more ADR mechanisms. ADR generally has appeared as an untested idea with respect to mediation, mini-trials and other newer ADR techniques. A kind of experiment. Binding arbitration, on the other hand, has been known as an established structure, activated by a time-honored universally accepted one-sentence boilerplate contract clause, handled by litigators.
In its remarkable brevity, this one-size-fits-all clause provides for nonappealable, binding arbitration following rules incorporated by reference, but largely unknown to business lawyer and client alike in how they work.
Binding arbitration, as many lawyers and business people view it, carries significant negative images (poor quality arbitrators, "split-the-baby" results, unexplained awards, unanticipated remedies, to mention a few) based on actual client experience, anecdotal evidence, surveys taken of lawyers and clients, and frequent critical writings about the subject. Yet there has been little pressure — until recently — on business lawyers to become activists in drafting arbitration clauses designed to reduce and eliminate known problems in the arbitral process, as well as provide clients with more control over the arbitration, both process and outcome. But it can be done.
Thus, ADR, whether in the form of arbitration, mediation or any of the other mechanisms, has not generally been viewed by business lawyers as requiring special expertise to satisfy professional-responsibility obligations. ADR has not presented the business lawyer with a package of client-related challenges to worry about. Why now?
SOME READING MATTER You might be thinking: What's the big deal?
There may be some who need a little prodding to recognize the danger. Not a problem. Much has been written about existing professional obligations relating to ADR. One excellent source is, "Should an Attorney be Required to Advise a Client of ADR Options?: Some Observations," by Marshall J. Breger, Columbus School of Law, Catholic University of America, was prepared June 16, 1998 as a discussion paper for the ABA Dispute Resolution Section August 1998 meeting in Toronto. It was part of materials entitled "New Standards and Ethics for ADR Lawyering? The Challenge of Representing Clients in Negotiation, Mediation and Other Less Adversarial Settings."
The paper is comprehensive, with numerous citations to the ABA Model Rules of Professional Conduct, Rules of Professional Conduct of many states, opinions of state committees on professional and judicial ethics, court cases in numerous jurisdictions, state statutes and numerous articles dealing specifically with these issues.
A critical issue regarding business-lawyer awareness of professional responsibility with respect to ADR appears to be that, within the full spectrum of options offered by ADR, business lawyers have not perceived mediation, mini-trials and other nonarbitration ADR mechanisms as the practice of law, and, therefore, not subject to professional-responsibility obligations. As to binding arbitration, it appears to have been treated by business lawyers (but never articulated as such) as professional safe-harbor territory, not in the mainstream of law practice.
A reasonable basis for this attitude is probably the widespread and accepted use of the traditional one-size-fits-all American Arbitration Association (AAA) arbitration clause with its incorporation of standard rules promulgated nationally by a well-known, responsible and respected independent organization. The clause and the rules were the norm.
Litigators, on the other hand, have seen arbitration as simply another form of litigation. For the trial lawyers, the well-established process of binding arbitration has been in the legal mainstream for many years, with its large body of case law and a federal and state statutory base. Further, it is generally the trial lawyer who actually represents clients in arbitration, not often the business lawyer.
The result? Business lawyers over the decades have generally had little to do with ADR. Beware. The ADR climate has changed for business lawyers. Read on.
Business lawyers normally deal with transactions, provide advice and counsel on legal issues, negotiate for clients and prepare documents. When business disputes arise, the business lawyer frequently will review documents, provide analysis and advice, become involved in negotiations, and may prepare settlement documents, unless the dispute goes into a litigation or arbitration mode.
A combination of factors recently has created the possibility that the business lawyer may be seen by clients, colleagues, courts, grievance authorities and ethics committees as failing to meet professional obligations to the client in rendering legal services when dispute resolution is involved. What has happened to bring business lawyers from the freedom and safety provided by simple, standardized, universally accepted professional behavior patterns based on well-known and established practices relating to binding arbitration, to the potential for client dissatisfaction, censure or liability in the current world of ADR — a world with a wide range of dispute resolution options that also includes the traditional option of binding arbitration?
In answering this question, it's helpful to review current business and legal ADR realities generally, as well as problems and issues arising specifically out of binding arbitration. This review is of particular importance to business lawyers in the context of current business and professional ADR trends and norms, giving rise, as they will, to duties, obligations and opportunities.
In analyzing the ADR landscape and professional responsibility for business lawyers regarding its use, we'll look at current ADR realities for lawyers and clients with two perspectives. Let's call the first one, "Full-Spectrum ADR Current Realities." This approach lists current realities of ADR in the context of a wide spectrum of options and mechanisms available for conflict management and dispute resolution as alternatives to classic litigation.
The second, and narrower, perspective we'll call, "Binding Arbitration Current Realities." This approach will treat of only one of the full spectrum of ADR methods — binding arbitration — the proceeding where arbitrators provide final and binding nonappealable decisions, enforceable by courts.
Both the "Full-Spectrum ADR Current Realities" and "Binding Arbitration Current Realities" perspectives reflect ADR as currently observed and experienced by the business and legal communities, with an eye for how these current realities can affect the professional obligations of business lawyers in consulting with their clients — when contract drafting and when advising clients once a dispute arises — whether or not a pre-dispute ADR agreement exists in the relevant contracts.
Full-Spectrum ADR Current Realities Perspective —
Binding Arbitration Current Realities Perspective —
What do these two perspectives on ADR suggest to business lawyers, regarding professional obligations?
THE SECTION'S COMMITTEE It is the hope of the leadership of the Business Law Section Dispute Resolution Committee that all other Section committees will see our committee as a resource to assist in all aspects of ADR education for the Section. We would like every other BLS committee to have at least one liaison as a member of the Dispute Resolution Committee.
Please communicate with Donald Lee Rome, co-chair of the Dispute Resolution Committee by e-mail at drome@rc.com, to join the committee and talk about suggestions and ideas. We are especially interested in corporate counsel members to further our goal of formulating programs that will be of particular interest to corporate law departments as well as to the firms working with them in ADR matters.
It seems clear that the client seeking or presented with a binding-arbitration provision in a draft contract should be advised by counsel that many drafting options are available and enforceable. Such options can:
It is obvious that there is now a higher level of professional responsibility for the lawyer asked to draft a binding arbitration clause or review the draft of another than existed in decades gone. The short-form boilerplate arbitration clause should no longer be considered an acceptable professional-responsibility safe harbor. If used, its operation and ramifications must be fully explained to the client in the context of the client's business needs.
It is reasonable to expect that if a client is considering an arbitration clause in a transaction, or is obliged to do so because of other parties, counsel should explore with the client the types of disputes likely to occur, what will happen if the clause is invoked as to various types of disputes, whose rules should be incorporated, and other business and legally oriented items.
Such a discussion should lead to the conclusion either that the client does not want arbitration at all, or will have it only if a tailor-made arbitration clause is drafted that fits the client's needs. In that case, a neutral service provider with acceptable rules should be selected who will produce a qualified arbitrator.
Thus, business lawyers should at the very least know as much about binding arbitration and its workings as they do about contract clauses dealing with potential environmental liability, indemnification, insurance, taxes, Y2K compliance, noncompetition restrictions, financial reporting, opinion letter requirements, and all the other specialized but widely used clauses in business-transaction documentation.
The "Full-Spectrum ADR Current Realities" perspective raises broader issues than the "Binding Arbitration Current Realities" perspective regarding professional responsibility for the business lawyer. Here are some questions and issues for the business lawyer advising a client in a transaction or at a time when a dispute arises:
Perhaps the most practical reaction to the questions and issues raised is to say that a failure on the part of business lawyers to see their role in providing competent advice to clients with respect to dispute resolution options would be as though the lawyers decided when environmental laws came into the legal mainstream at both the federal and state level that they did not have the obligation to advise clients of potential liability and to draft appropriate environmental protective provisions in contracts. Business lawyers never questioned the need to learn about environmental issues, as they are now learning about Y2K, and so it should be with ADR. It is good lawyering, and it is also good business.
Business lawyers know their client's business transactions, operations and problems. They are in the best position to work with the client to evaluate the pros and cons of various ADR options. That is frequently required, even when the client would rather not consider an ADR clause, because other parties are seeking ADR clauses in the deal documentation.
Thus, one could say it is unnecessary to split hairs to determine whether one section or another of the applicable Rules of Professional Conduct, or of court rules, or state statutes, or ethics committee opinions creates specific ADR-oriented professional obligations. It is simply common sense to add ADR expertise to the list of subject matter areas that competent business lawyers must know about to advise clients in a manner sufficient to meet ethical obligations. It is an opportunity to demonstrate expertise, bring value to a client, and specifically in the case of binding arbitration — still very much used — to avoid client disappointments through informed consultation and custom drafting.
It should be obvious that existing professional obligations of lawyers to their clients apply to ADR consultation. ADR options, practices, techniques, mechanisms and procedures are now in the mainstream of law practice for business lawyers. ABA, AAA, CPR, the federal government, state laws, corporate America, state bar associations, trade associations, judges, and, yes, law firms themselves, have pushed ADR into the mainstream of law practice and client awareness.
What to do now? Learn all you can about ADR options and how they work. You don't have to like it — just learn about it. You don't have to sell it — just understand it. You may have to answer questions about ADR that clients will ask, draft ADR provisions, negotiate an ADR clause, explain the incorporated rules, and know when to discuss the whole matter with a litigator in your firm or company. Most important, you may have the professional obligation to discuss ADR options with your client whenever a dispute arises and you are consulted about the dispute. Your client may reject all ADR options, but it should be a knowing rejection.
There is something else. Develop credible techniques to discuss ADR options and issues with your client — not defensively, or purely out of a sense of obligation, but on a business-decision level. See the client as a partner in the discussion, in strategy analysis, in the entire decision-making process. Clients will be receptive to active involvement in the process once they know that real business-related legal issues are to be discussed.
In a group of articles coming in the March-April issue of Business Law Today, you will have the opportunity to learn much more about ADR. In the meantime, write to AAA and CPR, both located in New York City, for their respective publications lists. Go to their Web sites and to the ABA Dispute Resolution Section Web site. Also write or e-mail the ABA in Chicago to join the Business Law Section Dispute Resolution Committee, and watch for ADR programs at the Business Law Spring Meeting in San Francisco.
