Updated 2014 by Katherine Greenberg
Some form of alternative dispute resolution (ADR) is likely to be offered, or may be required, before or after filing a federal lawsuit. Before an action is filed in court, some federal agencies make use of either voluntary or mandatory, nonbinding ADR procedures as part of their investigative or adjudicative operations./1/ Federal courts are mandated to provide nonbinding ADR procedures, although the courts have discretion to determine which cases are appropriate for ADR referral./2/ Settlement offers made during the litigation of a claim, either as part of an ADR process or informal negotiations, may present challenging ethical, strategic, and legal issues for the practitioner. This section examines the ADR issues that are most likely to come up in cases handled by legal aid attorneys.
6.4.A. Forms of Judicial ADR
The Alternative Dispute Resolution Act of 1998 requires that “[e]ach United States district court shall authorize, by local rule . . . , the use of alternative dispute resolution processes in all civil actions, including adversary proceedings in bankruptcy . . . .”/3/ The ADR process “includes any process or procedure, other than an adjudication by a presiding judge, in which a neutral third party participates to assist in the resolution of issues in controversy, through processes such as early neutral evaluation, mediation, minitrial, and arbitration . . . .”/4/ Many variations in ADR processes are used in the federal court system, but the most common is mediation. The use of mediation is frequently first raised at the initial Rule 16 pretrial conference, and the parties may be ordered to participate in a settlement conference held before or after completion of discovery./5/
6.4.B. Early Use of ADR
Early use of mediation can help plaintiffs in several ways. First, a well-prepared plaintiff will have a greater command of the factual and legal basis for her claims at an early stage of the litigation, which may result in the mediator perceiving plaintiff to be in the stronger litigation position and thus putting pressure on defendant to settle. Second, an early settlement can be helpful to a legal services program with limited resources to pay for deposition transcripts and other discovery expenses. Third, even if the case is not fully settled through mediation, defendant may be pressured to stipulate to key facts, thus avoiding the need for expensive discovery. Fourth, where there is statutory authority for an award of attorney fees, the settlement conference is an opportunity for the mediator to discuss with defendant and its counsel the costs potentially involved in further litigation.
For all of these reasons, plaintiff should consider pursuing settlement before filing a case and through use of the federal court’s ADR procedures shortly after filing. Sending a settlement offer or a demand letter to defendant or to defendant’s counsel shortly before filing the action permits plaintiff to say that an attempt was made to resolve the matter, and thus to reduce costs, prior to filing. Plaintiff’s counsel may want to present a written settlement offer again to defense counsel before the first pretrial conference to ensure that defendant is aware of plaintiff's settlement position. Plaintiff can request that the court refer the case for mediation at the Rule 16 conference, thereby forcing defendant to articulate specific objections to participating in mediation. A plaintiff with good command of the facts may want to set the mediation for a date after service of the written discovery, but before answers are due or depositions are held, to give an incentive for defendant to settle without having to complete time-consuming and expensive discovery.
6.4.C. Developing a Demand
Having a clear sense of objectives and the prospects for settlement early on is important because the Rule 26(f) conference requires the parties to discuss and assess the prospects for settlement. However, developing a settlement offer requires you to consider carefully the objectives of the lawsuit and to ensure that your client fully understands her interests and priorities as well as the costs and benefits of settlement. You should discuss not only what your client hopes to achieve out of settlement, but also what it would mean for her if a settlement is not reached (for example, she will have to prepare for and attend her deposition, or she will have to wait a longer time before obtaining relief).
One way to start this conversation is by discussing the various forms of relief available and which ones are most important to her. This conversation is particularly relevant where both monetary and injunctive relief are available—many legal services organizations prefer to push for stronger injunctive remedies in lieu of monetary remedies, but this cannot be done without the consent of the client. It is also important to ensure your client’s expectations are properly adjusted. A client should understand that her first demand will almost certainly be rejected and that she must be willing to engage in some amount of negotiation, particularly where there are facts or legal principles in dispute. In developing an initial settlement demand, attorneys should consider and discuss any issues that may arise later on in settlement, such as the tax treatment of any settlement monies, whether the settlement will have any impact on the client’s receipt of public benefits, and the particulars of any injunctive remedy.
An issue that may arise in preparing a settlement demand is calculating monetary damages when plaintiff is seeking future wages or private disability benefits for an unknown duration. The amount of such prospective income can be discounted to present-day value, and there are various formulas to calculate this, depending upon assumptions about inflation and other factors./6/ Plaintiff’s counsel should be familiar with the proper formulas to be used in computing interest, inflation, and present value, and may wish to consult with a professional expert in making these calculations.
6.4.D. Successful Use of ADR
If the local ADR process uses third-party neutrals (rather than court officers or court staff), there might be an issue regarding the expense of compensating the neutral. If the court previously granted permission to proceed in forma pauperis, the indigent party may not be required to pay anything. The local ADR rule may provide a procedure to substitute a magistrate or court officer for the third-party neutral when the expense of ADR is an issue. The other party may agree to cover the full cost to utilize a third-party neutral. Perhaps a volunteer mediator would be available through your local pro bono referral program. If ADR cost is a concern, the problem should be raised before the court issues a referral order requiring participation in the ADR process. The referral order addresses compensation of the neutral when there is a cost to the parties. Whether the court uses a standard form referral order or modifies one for particular cases, asking to see the court’s form well before a referral may be made is a good idea.
The referral order will probably require the parties to submit at least one settlement conference statement. There is no commonly employed format for settlement conference statements; they may not even be uniform within the same district. The local procedure may call for exchanging these statements, followed by filing a confidential letter or supplementary statement given only to the mediator, or it may call for submission of confidential statements to the mediator only. The instructions for preparing the settlement statements may emphasize that they should be concise or may set a short page limit. A page limit on the written statements is a significant advantage for the plaintiff who filed a detailed complaint. Settlement statements should typically include a brief statement of the facts; an outline of the legal arguments, including citations to persuasive authority; a summary of the procedural posture, including any pending motions; and a history of settlement discussions between the parties. Attaching copies of the favorable cases to the statements and including the citations in the written statements may be helpful./7/
On the date of the settlement conference, counsel and the parties are expected to appear (in person or by telephone) and orally summarize their litigation positions. The mediator typically meets separately with counsel and the parties to discuss the case and facilitate reaching a partial or full settlement of the action. Mediators differ significantly with respect to style. Where a plaintiff has well-grounded claims, a mediator who is familiar with the relevant area of law and willing to give her opinion of the strength of the parties’ positions is preferable to a mediator who strictly focuses on the numbers. Regardless of substantive knowledge, however, most mediators will use techniques such as bracketing—where the mediator suggests a numerical range and asks both parties to agree to negotiate within it—or a mediator’s proposal—where the mediator proposes a figure at which she thinks the case should settle—to encourage recalcitrant parties to resolve their differences. While it is advisable to know your client’s bottom line before entering mediation, it is not advisable to share that information with the mediator, as she will likely take your bottom line as a starting point to try and push your client beyond where she is willing to settle her claims.
If an agreement is reached during the course of mediation, it is desirable to stay with the mediator and get the basic tenets of the agreement in writing before adjourning for the day. This decreases the likelihood that defendant will later attempt to back out of or rewrite the terms of the agreement. At the same time, it is advisable to allow your client time to consider the terms reached at the settlement conference before signing a full release of her claims.
3. Alternative Dispute Resolution Act of 1998, 28 U.S.C.§ 651(b).
4. Id. § 651(a).
5. See Fed. R. Civ. P. 16(c)(2)(I). The Federal Judicial Center, www.fjc.gov., issues useful publications on federal court procedure, including Robert J. Niemic et al., Guide to Judicial Management of Cases in ADR (2001), and Robert J. Niemic, Mediation and Conference Programs in the Federal Court of Appeals: A Sourcebook for Judges and Lawyers (2d ed. 2006). The Civil Litigation Management Manual (2d ed. 2010), issued jointly by the Federal Judicial Center and the Judicial Conference of the United States, the Committee on Court Administration and Case Management, includes sections on ADR and judicial settlement guidelines and offers insight into many other aspects of federal practice.
7. Another drafting practice with particular benefit for later use in ADR is annexing key documents as exhibits to the complaint. Reading the correspondence and notices preceding the filing of the action gives the mediator a more objective impression of the history of the dispute (and the lack of responsiveness of defendant in resolving the dispute without need for litigation).
Updated 2014 by Katherine Greenberg