Alternative Dispute Resolution: An Overview

Background

As the number of civil cases filed each year has increased and court resources are stretched further and further, parties are turning to solutions outside the traditional judicial system as a faster, simpler solution to resolving a dispute.  Alternative Dispute Resolution (ADR) is a series of processes that seek to solve disputes among individuals without resorting to complex, time consuming, and expensive litigation.  While various forms of non-judicial dispute resolution practices have existed for centuries, ADR has become drastically more popular in the United States and internationally over the last seventy years.

Since the 1950s, the United States and various international organizations have drafted laws and treaties that provide a framework for dispute resolution proceedings.  These statutory enactments and treaties allow for various ADR processes, but most proceedings fall into one of three main categories:  negotiation, mediation/nonbinding arbitration, and binding arbitration.

ADR has special significance for numerous agricultural law issues.  For example, many contracts concerning agricultural products or issues contain clauses requiring the parties to seek redress of grievances through a stipulated mediation or arbitration process as a means to avoid litigation and quicken the resolution process.

Statutory and Regulatory Framework

While the vast majority of ADR proceedings are simpler than those found in traditional litigation, procedures are still in place to ensure a fair and orderly format to resolve the dispute.  Laws to ensure consistency and applicability have been passed at the state, national and international level.

While almost every state has enacted procedures in its courts for ADR, those procedures vary state to state.  Many have adopted a version of the Uniform Arbitration Act, while some have also adopted the Uniform Mediation Act.  Many states and industry representatives have gone further and adopted various ADR provisions specifically tailored for agricultural disputes.  It is not uncommon to find requirements that individuals or creditors must seek mediation before commencing any formal legal action against agricultural operations based on environmental concerns, payment on mortgages concerning agricultural property, or in nuisance actions.

In 1925, the United States Arbitration Act, also known as the Federal Arbitration Act, was enacted, ushering in the modern era of ADR in the United States.  Since then, the federal government has adopted ADR procedures to handle an array of disputes in agriculture, involving everything from government agencies such as FSA to private entities such as crop insurance companies and national agricultural groups.

ADR also provides a clear and understandable approach to resolving disputes in the international arena.  In an international context, jurisdiction is often disputed.  Because of this and the increasing role globalization plays in the marketplace, many parties have begun relying almost exclusively on some variety of formalized ADR to solve conflicts.  Several treaties and agreements have been put into place to facilitate this growing need.  In 1958, New York City hosted the U.N. Conference on International Commercial Arbitration that led to the passage of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and later to the Inter-American Convention on International Commercial Arbitration.  These Conventions established standards and mores of international arbitration that are still in use today.  More recently, the North American Free Trade Agreement (“NAFTA”) was established.  The protocols established under these three agreements have facilitated a great deal of international mediation and arbitration, increasing its prominence as a viable method of problem-solving on all levels.

Forms of ADR

While ADR can take many forms, it generally takes one of three basic types of approaches.  It might be easier and more accurate to consider them not as separate and distinct forums but as different areas along a continuum, with significant overlap between the three.  From one end of the spectrum, with negotiation as the most informal method of dispute resolution, to the other end, with binding arbitration as the most formal, there are a wide variety of potential ADR processes.  Generally, costs tend to increase as one moves from the more informal approaches to the more complicated ones.  The approach chosen is left to the discretion of the parties, who must not only voluntarily consent to the use of ADR, but, in everything except binding arbitration, must further consent to the result that is reached. It has become a common practice among businesses to include arbitration agreements in its contracts. These contract provisions provide for a method of ADR to be used should a dispute arise and sometimes have a predetermined forum.

As a result, choosing the correct approach is often a matter of strategy that should be carefully considered before a decision is reached.

Negotiation

The simplest and often the cheapest means of solving disputes are found through negotiations.  While negotiations may become complex and time-consuming, they are often concluded quickly by thousands of people every day who do not even realize that they are participating in an ADR process.  Often, there is no involvement by a third party, and no formal written agreement results from the interaction.  All parties must agree to participate in the process, and all resulting agreements reached through the negotiation are voluntary and generally unenforceable through the court system.  Parties typically participate in a negotiation because they believe that they will be able to obtain more through agreement than they would have received by acting independently.

Mediation and Non-Binding Arbitration

At the center of the spectrum are mediation and non-binding arbitration.  These two methods are similar in structure, and, in many cases, there are no differences.  Both involve a process in which a third-party neutral assists in resolving a dispute between two or more other parties.  The overall outcome is then dependent on the willingness of the parties to reach a voluntary agreement.  The third-party neutral does not have the authority to make binding decisions on the facts or issues in the dispute. Instead, it helps to direct the parties towards an agreement by asking questions, setting the agenda, or providing a way for the parties to air grievances.  The basic goal is to provide a neutral forum with a disinterested mediator in which each party can explain its situation.  These explanations provide an opportunity to resolve the dispute without litigation.  In certain cases, depending on whether a confidentiality agreement is in effect, it may also provide information useful for future litigation if the mediation fails.  Because mediation is non-binding by nature, this form of ADR is one of the more popular approaches for international disputes, including agricultural trade disputes.

Binding Arbitration

On the other end of the spectrum stands arbitration.  Arbitration is a quasi-judicial forum through which conflicts can be resolved without resorting to traditional litigation.  While the forum itself may be similar to a judicial setting, the procedures and powers wielded by the arbitrator are quite different.  In a traditional legal setting, the powers of the judge are defined by law, while in arbitration, the powers of the arbitrators are heavily dependent upon the authority conveyed to them by the parties. For example, a traditional legal setting provides an extensive framework for how parties may present evidence to the judge or jury at trial; in arbitration, such rules of evidence do not apply and allow the parties to bring evidence freely. The parties have the option of selecting professional arbitrators and standard arbitration procedures, and for the sake of speed and efficiency, the majority of arbitration proceedings are conducted under those existing structures.  However, parties may also tailor the procedures to fit their unique situation and grant the arbitrator as much or as little authority as they deem necessary. Unlike a judge, who may or may not possess sufficient background knowledge of the dispute, arbitration allows the parties to seek out an arbitrator with industry knowledge of the disputed subject matter.

Arbitration differs from mediation in that the arbitrator does not facilitate an agreement but rather renders a legally enforceable decision on the outcome of the dispute.  This decision is binding unless one party successfully challenges the award by claiming that the arbitrators exceeded their power or were biased.  Enforcement of an award between two United States residents for arbitration that occurs in the United States may be enforced just like a judicial judgment after a judge certifies it. However, on the international level, it becomes much more difficult to enforce these decisions if the home country of the losing party refuses to honor the decision. As a result, binding arbitration has become more prevalent among commercial parties which include arbitration provisions in every contract.

Alternative Dispute Resolution in Agriculture

Agriculture has significantly increased in complexity over the past few decades.  Because of the vast array of potential problems that confront agriculture, there has arisen a need to settle disputes as quickly and fairly as possible.  ADR presents a flexible framework in which parties can work out difficult issues without waiting for the judicial system to decide.  Contracts for the sale of seed, environmental disputes, production contracts for raising livestock, loan agreements, crop insurance, and global trade troubles are only a few of the complex issues confronting the agricultural industry.  Those same issues are also well suited for alternative dispute resolution.  For example, consider crop insurance disputes.  Crop insurance is heavily regulated by the federal government and includes a mandatory arbitration provision in virtually every contract.  As a result, it is rare that a crop insurance dispute makes its way into a courtroom.  Undoubtedly, as the problems surrounding agriculture become more complex and court systems become further backed up under an increasing amount of litigation, ADR will become more and more prevalent as a method of resolving disputes.

For further information on these issues, see the Crop Insurance, Production Contracts, Environmental Law, Finance & Credit, and International Trade Reading Rooms.