Chapter 7Chapter 7

Impasse and Impasse and Alternative Dispute Alternative Dispute Resolution (ADR)Resolution (ADR)

Possible Negotiation Possible Negotiation OutcomesOutcomes

In general, negotiations will likely In general, negotiations will likely result in:result in: Agreement Agreement – both parties achieve gains– both parties achieve gains No AgreementNo Agreement – one party walks away – one party walks away

exercising its BATNAexercising its BATNA ImpasseImpasse – both parties continue to desire – both parties continue to desire

an agreement but reach impassean agreement but reach impasse Alternative Dispute ResolutionAlternative Dispute Resolution – at – at

impasse parties seek a third party to move impasse parties seek a third party to move discussions forwarddiscussions forward

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Negotiation Process Negotiation Process ContinuumContinuum

Impasse should not be viewed as the Impasse should not be viewed as the endpoint of discussion, but as a point endpoint of discussion, but as a point that leads to a method of ADR, and that leads to a method of ADR, and then settlement:then settlement:

Preparation Opening Offer Preparation Opening Offer

BargainingBargaining Impasse ADRImpasse ADR

SettlemenSettlementt

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Negotiation SkillsNegotiation Skills

Skill 7.1: View an Skill 7.1: View an impasseimpasse as a temporary as a temporary situationsituation

Skill 7.2: Anticipate Skill 7.2: Anticipate settlement pressuresettlement pressure, , but follow your BATNAbut follow your BATNA

Skill 7.3: If an impasse occurs, consider Skill 7.3: If an impasse occurs, consider mediationmediation

Skill 7.4: If negotiation and/or impasse fail, Skill 7.4: If negotiation and/or impasse fail, consider consider arbitrationarbitration

Skill 7.5: If appropriate consider Skill 7.5: If appropriate consider hybrid hybrid forms of ADRforms of ADR

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Chapter Case: Hunt Manufacturing Chapter Case: Hunt Manufacturing CompanyCompany

Douglas Hunt at age 70 decided to sell Douglas Hunt at age 70 decided to sell his company, Hunt Mfg. Co. his company, Hunt Mfg. Co.

Rick Thomas, a Hunt board member Rick Thomas, a Hunt board member sought to acquire HMC, but his “due sought to acquire HMC, but his “due diligence” process uncovered a sexual diligence” process uncovered a sexual harassment suitharassment suit

Lynn Stephen, former HMC sales director, Lynn Stephen, former HMC sales director, claimed a “hostile work environment”claimed a “hostile work environment”

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Chapter Case: Hunt Chapter Case: Hunt Manufacturing Company Manufacturing Company

(cont.)(cont.) Investigation by HMC’s, HR director Investigation by HMC’s, HR director

confirmed the incidentsconfirmed the incidents Insurance company agreed to pay a claim Insurance company agreed to pay a claim

up to $250,000 if Stephan and HMC agree up to $250,000 if Stephan and HMC agree to mediationto mediation

Douglas Hunt suffered a massive heart Douglas Hunt suffered a massive heart attack and HMC board contacted Thomas – attack and HMC board contacted Thomas – who agreed to an acquisition if the lawsuit who agreed to an acquisition if the lawsuit was settledwas settled

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ADR: OverviewADR: Overview Increasingly negotiators when at an impasse Increasingly negotiators when at an impasse

turn to a third party (ADR)turn to a third party (ADR) ADR = an ADR = an alternativealternative to litigation, in which a to litigation, in which a

neutral third party utilizes mediation, neutral third party utilizes mediation, arbitration, or a hybrid form of the twoarbitration, or a hybrid form of the two

ADR – now commonly used in a variety of fields:ADR – now commonly used in a variety of fields: Labor-management Labor-management Commercial disputesCommercial disputes Landlord-tenantLandlord-tenant Small claimsSmall claims Employment issuesEmployment issues Family disputesFamily disputes Neighbor vs. neighborNeighbor vs. neighbor International businessInternational business

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What Are Common Causes of What Are Common Causes of Negotiation Impasse?Negotiation Impasse?

1.1. No real ZOPANo real ZOPA – thus no possible – thus no possible settlement pointsettlement point

2.2. EntrenchmentEntrenchment – by one or both parties in – by one or both parties in their position(s) (“heat of the battle”)their position(s) (“heat of the battle”)

3.3. Unskilled negotiatorsUnskilled negotiators – fail to discover a – fail to discover a proposal with mutual gainsproposal with mutual gains

4.4. One or more parties had One or more parties had no real intentionno real intention to settleto settle

5.5. Settlement pressureSettlement pressure – as a negotiation – as a negotiation approaches a party’s resistance point and approaches a party’s resistance point and possible deal they feel pressure and walk possible deal they feel pressure and walk away away

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Why Has ADR Increased in Why Has ADR Increased in Use?Use?

To achieve a settlement, compared to To achieve a settlement, compared to litigation, ADR:litigation, ADR: CostCost: often less than litigation: often less than litigation Complexity of issuesComplexity of issues: parties can choose : parties can choose

a knowledgeable third partya knowledgeable third party TimeTime: often is faster: often is faster ConfidentialityConfidentiality: mediation, in particular, is : mediation, in particular, is

a private process (courts are public)a private process (courts are public) Avoid disastrous decisionAvoid disastrous decision: mediation, in : mediation, in

particular, can keep a party from “losing” particular, can keep a party from “losing” a decision because the parties develop a decision because the parties develop the final decision the final decision

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Contract Clause Specifying the Use of Mediation and Arbitration to Settle International Disputes

Any dispute, controversy, or claim arising out of or in connection with this contract, or the breach, termination, or invalidity thereof, shall first be referred to mediation in accordance with the Rules of the Mediation Institute of the Stockholm Chamber of Commerce, unless one of the parties objects. If one of the parties objects to mediation, or if the mediation is terminated, the dispute shall be finally resolved by arbitration in accordance with the Rules for Expedited Arbitration of the Arbitration Institute of the Stockholm Chamber of Commerce. The place of arbitration will be Indianapolis, Indiana, the language to be used in the arbitral proceedings shall be English, and the arbitral tribunal shall be composed of a single arbitrator.

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MediationMediation Evolved over the past 30 years as the Evolved over the past 30 years as the

preferred method of conflict resolutionpreferred method of conflict resolution Alternative Dispute Resolution Act of 1998 Alternative Dispute Resolution Act of 1998

requires local rulesrequires local rules Defined: Mediation includes three Defined: Mediation includes three

elements: elements: 1. A private, confidential process1. A private, confidential process 2. Third party (neutral)2. Third party (neutral) 3. Facilitation of a mutually acceptable 3. Facilitation of a mutually acceptable

resolutionresolution Mediator does not usually offer proposals Mediator does not usually offer proposals

or have any authority to force agreementor have any authority to force agreement

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Mediator SourcesMediator Sources

Federal Mediation and Conciliation Federal Mediation and Conciliation Services (FMCS)Services (FMCS)

American Arbitration Association American Arbitration Association (AAA)(AAA)

Local governmentsLocal governments University-based centersUniversity-based centers Non-profit associationsNon-profit associations

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Steps in the Mediation Steps in the Mediation ProcessProcess

1.1. RequestRequest by the parties of mediator by the parties of mediator servicesservices

2.2. Initial conferenceInitial conference to explain role of to explain role of mediator, rights of partiesmediator, rights of parties

3.3. Schedule of session(s)Schedule of session(s) of private of private meeting(s)meeting(s)

4. Formal retainer is set by an 4. Formal retainer is set by an Agreement Agreement to Mediateto Mediate; fee shared, ground rules; fee shared, ground rules

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Steps in the Mediation Steps in the Mediation ProcessProcess

5.5. InformationInformation gathered by the partiesgathered by the parties

6.6. Facilitation by the mediatorFacilitation by the mediator; OSLO- ; OSLO- orientation; story telling by two parties; orientation; story telling by two parties; listing of issues; outline resolutions of issueslisting of issues; outline resolutions of issues

7.7. SettlementSettlement is reached, mutual agreements is reached, mutual agreements determined by the partiesdetermined by the parties

8.8. AgreementAgreement may/may not be signed by the may/may not be signed by the parties and submitted to their attorneys, parties and submitted to their attorneys, court court

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Approaches to MediationApproaches to Mediation(in ascending order of intervention by the (in ascending order of intervention by the

mediator)mediator) Collaborative mediationCollaborative mediation: Mediator in : Mediator in

joint sessions strives to get the parties joint sessions strives to get the parties to understand the other side’s issuesto understand the other side’s issues

Evaluative mediationEvaluative mediation: Mediator in : Mediator in separate sessions outlines to each separate sessions outlines to each party the strengths and weaknesses of party the strengths and weaknesses of their positionstheir positions

Directive mediationDirective mediation: Mediator allows : Mediator allows parties to only speak to him/her, feels parties to only speak to him/her, feels their passion. Mediator may suggest their passion. Mediator may suggest settlementsettlement

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Benefits of MediationBenefits of Mediation1.1. PsychologicalPsychological – avoid stress, trauma of – avoid stress, trauma of

arbitration, court; a third party has arbitration, court; a third party has provided a hearingprovided a hearing

2.2. Savings in time and moneySavings in time and money – generally – generally greater than arbitration, courtgreater than arbitration, court

3.3. Focus on issuesFocus on issues – parties reevaluate their – parties reevaluate their own and others needsown and others needs

4.4. Mediation works!Mediation works!5.5. ControlControl – of any settlement remains – of any settlement remains

totally with the partiestotally with the parties6.6. ConfidentialityConfidentiality – all discussions are – all discussions are

private, occur only between the parties private, occur only between the parties and mediatorand mediator

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Tactics for Success:Tactics for Success:Rules for MediatorsRules for Mediators

1.1. Create a positive atmosphereCreate a positive atmosphere – sit parties – sit parties together; caucus; identify mutual goals and together; caucus; identify mutual goals and successessuccesses

2.2. Maintain neutralityMaintain neutrality – which is not always easy – which is not always easy3.3. Absorb conflictAbsorb conflict – remain calm, – remain calm,

expressionless; make reflective statementsexpressionless; make reflective statements4.4. Provide reality checksProvide reality checks – do not give advice or – do not give advice or

suggest solutions but ask if one is realisticsuggest solutions but ask if one is realistic5.5. No conscienceNo conscience – don’t evaluate a solution as – don’t evaluate a solution as

“fair” or “good” or “best”; only job is to move “fair” or “good” or “best”; only job is to move discussion forwarddiscussion forward

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ArbitrationArbitration Distinctly different from mediationDistinctly different from mediation Defined: three critical elementsDefined: three critical elements

The parties signed a contract requiring The parties signed a contract requiring arbitration to resolve conflictsarbitration to resolve conflicts

A neutral third partyA neutral third party Decision is final and bindingDecision is final and binding

Federal Arbitration Act (1925) “Congress Federal Arbitration Act (1925) “Congress declared a national policy favoring declared a national policy favoring arbitration over the…litigation process”arbitration over the…litigation process”

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Two-Party, Single-Issue Negotiation

Steps in ArbitrationSteps in Arbitration

1.1. Preliminary Preliminary hearinghearing

2.2. Opening Opening statementsstatements

3.3. Rules of evidenceRules of evidence

4.4. WitnessesWitnesses

5.5. SummationSummation

6.6. Arbitrator’s award Arbitrator’s award and opinionand opinion

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Advantages of Advantages of Arbitration:Arbitration:

1.1. Parties get a decision – the “over Parties get a decision – the “over factor” can be great (the conflict is factor” can be great (the conflict is over)over)

2.2. Less costly in time/money than Less costly in time/money than litigationlitigation

3.3. Neutral, third party decision makerNeutral, third party decision maker

4.4. Parties have input in selection of Parties have input in selection of arbitratorarbitrator

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Potential Disadvantages of Potential Disadvantages of ArbitrationArbitration

““Playing God”:Playing God”: Arbitrators are Arbitrators are generally fact-oriented, impersonal generally fact-oriented, impersonal decision-makersdecision-makers

The The “chilling effect”:“chilling effect”: Negotiators that Negotiators that expect arbitration may “cool” their expect arbitration may “cool” their effortsefforts

Surface bargainingSurface bargaining: Negotiators from : Negotiators from the start may not engage in serious the start may not engage in serious bargaining and seek an impasse and bargaining and seek an impasse and arbitrationarbitration

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Potential Disadvantages of Potential Disadvantages of Arbitration (cont.)Arbitration (cont.)

Final-Offer ArbitrationFinal-Offer Arbitration: : Both sides submit their last offer and the Both sides submit their last offer and the

arbitrator must choose one of the twoarbitrator must choose one of the two Can eliminate the “chilling effect”Can eliminate the “chilling effect”

Combined Method (traditional and final Combined Method (traditional and final offer)offer) Arbitration may choose the settlement Arbitration may choose the settlement

point they believe is the best OR a final point they believe is the best OR a final offeroffer

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Illustration of Three Arbitration Decision Methods: Conventional, Final-Offer, and

Combined

Two parties are disputing the value of a half-acre housing lot in a new subdivision. Other half-acre lots have sold in the past year in the range of $45,000 to $65,000 depending on exact size, location, flatness, existing mature trees, proximity to a proposed park or power lines, and other factors which affect desirability. The lot in question has no decided advantage or disadvantage in comparison to other lots. To achieve a quick resolution, the parties submitted the issue to arbitration. The last positions of the parties as revealed to the arbitrator were Party A: $25,000, and Party B: $80,000. The arbitrator then suggested a final-offer process, which the parties accepted, and their final offers were Party A: $45,000 and Party B: $68,000. The arbitrator, still not satisfied that he could render a fair decision, suggested the combined process, which the parties accepted. The arbitrator then carefully reviewed the distinct attributes of the other lots that had recently sold in comparison to the lot in question, and decided that $55,000 was the fair value.

Illustration of Three Arbitration Decision Methods: Conventional, Final-Offer, and

Combined (cont.)If conventional arbitration had been utilized, the arbitrator would have had a more difficult time deciding a fair value since the last positions, $25,000 and $80,000, were so far apart. Even if the decision was the same, $55,000 would have represented a $30,000 “loss” to party A, and a $25,000 “gain” to party B. If final-offer had been utilized the arbitrator would have been required to choose either $45,000 or $68,000 as the value—a substantial variation from what he believed to be the fair value of $55,000. By utilizing the combined method, the arbitrator is able to select a value that he, as an impartial third party, believes is fair, and is within a reasonable range of the two final offers made by the parties. A: Last A: Final Arbitrator’s B: Final B: Last Position Offer Settlement Offer Position__________________________X____________________________$0 $25,000 $45,000 $55,000 $68,000 $80,000

Hybrid Forms of ADRHybrid Forms of ADR Mediation-Arbitration (Med-Arb)Mediation-Arbitration (Med-Arb)

Best known hybridBest known hybrid Two steps:Two steps:

(1) mediation with deadline,(1) mediation with deadline,(2) followed by arb if needed(2) followed by arb if needed

Arbitration-Mediation (Arb-Med)Arbitration-Mediation (Arb-Med) Newer hybridNewer hybrid Two steps:Two steps:

(1) arbitrator makes a decision and keeps it in a sealed (1) arbitrator makes a decision and keeps it in a sealed envelope envelope

(2) uses mediation (use arb decision if fails)(2) uses mediation (use arb decision if fails)

Both hybrids can offer the advantages Both hybrids can offer the advantages of both methodsof both methods

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