Policy Statement on the Use of Alternative Dispute Resolution and Case Selection Criteria for Alternative Dispute Resolution

SMALL BUSINESS ADMINISTRATION

Policy Statement on the Use of Alternative Dispute Resolution and

Case Selection Criteria for Alternative Dispute Resolution

AGENCY: Small Business Administration.

ACTION: Notice.

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SUMMARY: This notice publishes the Alternative Dispute Resolution

Policy Statement of the U.S. Small Business Administration and sets

forth criteria for identifying cases as potentially suitable for

dispute resolution. SBA is publishing this notice to make clear its

firm commitment to the greater use of alternative dispute resolution

techniques. Nothing in this notice or these guidelines, however,

creates any right or benefit by a party against the United States. No

person or entity should construe this notice as requiring or suggesting

that any employee act in a manner contrary to law.

ADDRESSES: Submit Comments to Eric S. Benderson, Associate General

Counsel for Litigation, Office of General Counsel, U.S. Small Business

Administration, 409 3rd St., SW, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Eric S. Benderson, (202) 205-6643.

Throughout the past decade, the litigation caseload, both in the

courts and before administrative tribunals, which the Small Business

Administration (``SBA'') and its participant lenders have carried has

placed an increasing strain on SBA's resources, both in terms of

personnel and expense. Other federal agencies have also faced this

growing problem. To address these problems, the 101st Congress enacted

the Administrative Dispute Resolution Act of 1990, Pub. L. 101-552, 104

Stat. 2736-37. This legislation with some modifications was permanently

reenacted as the Administrative Dispute Act and Negotiated Rulemaking

Act of 1996, Pub. L. 104-320, 110 Stat. 3870 (1996). This Act, as

amended, codified at 5 U.S.C. 571 et seq., authorizes federal agencies

to use various dispute resolution techniques outside of litigation to

resolve controversies related to administrative programs if the

disputing parties agree to such a proceeding. 5 U.S.C. 572. Under the

Act, a dispute resolution proceeding can include any process involving

the disputants in which a neutral party participates. See 5 U.S.C. 571.

The National Performance Review, chaired by Vice President Gore,

recommended in 1993 that all federal agencies establish methods for

Alternative Dispute Resolution (``ADR'') and encourage the use of ADR

when enforcing regulations. More recently, in 1996, President Clinton

issued Executive Order 12988 dealing with Civil Justice Reform. This

Order directed federal agencies to consider whether alternate methods

might resolve a civil dispute both before suit is filed and again after

litigation is instituted. The Order further authorized the Department

of Justice to issue model guidelines for the use of ADR. The Justice

Department published these guidelines at 61 FR. 36906 (July 15, 1996).

The SBA recognizes the inherent value of using various formal and

informal dispute resolution techniques. ADR techniques may be

appropriate to resolve a variety of disputes which regularly involve

SBA. Several programmatic areas and activities at SBA afford fertile

ground for the adoption of ADR techniques. These include proceedings

before the Office of Hearings and Appeals, EEO proceedings, personnel

actions, government contract disputes, and disputes with participating

lenders and surety companies.

SBA routinely undertakes informal negotiations to settle delinquent

loan accounts and other types of disputes before and after suit is

initiated. At the same time, however, the Agency recognizes the need to

do still more to promote the fair and efficient resolution of disputes

arising in all areas of operations. Often, the use of ADR will be a

more cost effective and efficient means of achieving a satisfactory

resolution of a dispute than litigation or administrative procedures.

To that end, SBA has adopted the guidelines outlined below.

The ADR Coordinator, the Associate General Counsel for Litigation,

will work with program heads in implementing these ADR policies to

develop specific procedures with respect to their particular programs

to the greatest extent possible. This notice identifies factors which

increase the value of ADR and other factors which diminish its benefit.

The criteria below, however, are by no means exclusive, and are not

intended to remove discretion from the employees of SBA. The

determination of whether a particular case, claim or issue is

appropriate for an ADR proceeding is often very fact specific. ADR will

not be an appropriate means of resolving every dispute, but in this era

of reduced resources, a commitment to the use of ADR procedures will

allow SBA to maximize the resources devoted to dispute resolution.

Definitions

Alternative Dispute Resolution--An umbrella term that encompasses

many different processes and procedures for dispute resolution. Those

processes and procedures include, but are not limited to, arbitration,

early neutral evaluation, facilitation, mediation, mini-trials and

summary jury trials.

Arbitration--A non-judicial proceeding in which the disputants

select a neutral person or panel of persons to act as arbiters of a

dispute. The arbitrator hears evidence and, in many respects, acts like

a judge. The

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arbitrator's decision may be binding or non-binding, depending on the

agreement of the parties. The use of binding arbitration by SBA must

comply with the requirements of 5 U.S.C. 575.

Early Neutral Evaluation--A method of dispute resolution using a

forum in which attorneys present the core of the dispute to a neutral

evaluator in the presence of the parties. Disputants typically use this

method after a lawsuit commences but before conducting discovery. The

evaluator gives the parties a candid assessment of the strengths and

weaknesses of their positions. If the parties do not reach a

settlement, the evaluator helps the parties narrow the dispute and

suggests guidelines for managing discovery.

Facilitation--A voluntary arrangement (or process) agreed to by

disputants to seek more immediate resolution of the issues (conflict).

This process is similar to counseling by agency employees of Equal

Employment Opportunity complainants, but involves senior level agency

managers as neutrals.

Mediation--A non-judicial process in which a neutral party

facilitates an interest-based negotiation between the disputants, who

then fashion their own resolution of the dispute. The resolution may be

binding or non-binding, depending upon the agreement of the parties.

Mini-trial--A truncated form of litigation which assists in the

structuring of a case for settlement. This procedure generally involves

a non-binding information exchange conducted before one or more neutral

parties who, in many cases, are experts in the field in controversy.

There is no testimony from witnesses. Instead, each party's counsel is

given an allotted period of time to state what the testimony would be

and argue the legal consequences flowing from the facts. Those with

settlement authority then meet to negotiate a resolution. If the

parties fail to reach such a resolution, the neutral party or parties

can render a decision. The decision may be binding or non-binding,

depending upon the agreement of the parties.

Summary jury trial--This process is similar to a mini-trial, except

that counsel presents the case to a jury instead of a neutral third

party. A judge charges the jury as in ordinary litigation. After

deliberation, the jurors return a non-binding ``advisory'' verdict. The

parties then meet to resume settlement negotiations.

Guidelines for Reviewing Disputes for Resolution by ADR

SBA officials with delegated authority to resolve disputes within

their program areas, other than the Office of Hearings and Appeals, in

consultation with the Associate General Counsel, shall review each

dispute which arises and determine whether, in light of the factors set

forth below, use of ADR would be appropriate. These officials should

consult with SBA counsel in determining whether to use ADR in a

particular matter and which method of ADR to use.

If SBA determines that the matter is appropriate for ADR, an SBA

official should send a letter to the opposing party or parties to

determine their willingness to use ADR. If counsel represents the

opposing party or parties, SBA counsel should prepare this letter and

deal with opposing counsel in close consultation with program

officials. If the other party or parties agree to use ADR, SBA and the

other parties must enter a written agreement. This agreement, at a

minimum, should include the following terms:

1. Agreement on the method of ADR and whether the procedure will be

binding or non-binding (use of binding arbitration requires concurrence

of AGC for litigation and must conform to the requirements for the

Administrative Dispute Resolution Act. 5 U.S.C. 551, et. seq.);

2. Agreement on the potential neutrals likely available to resolve

the dispute and how the final decision of which neutral to use will be

made;

3. Agreement as to the allocation of the costs of ADR among the

parties;

4. Agreement as to the time limits and scope of discovery;

5. Agreement on any necessary confidentiality provisions to govern

the exchange of information in accordance with the Administrative

Dispute Resolution Act and various privileges; and

6. Agreement on a tentative schedule for the resolution of the

dispute through ADR.

When SBA officials determine that the use of ADR is inappropriate

to resolve a particular case, issue or dispute, SBA officials should

continue to review unresolved matters deemed inappropriate for ADR to

determine if ADR would be beneficial at some subsequent time.

General Factors To Consider in Determining Whether a Matter Is

Appropriate for ADR

In order to operate successfully, the chosen ADR technique must be

specifically tailored to the particular dispute. Alternative Dispute

Resolution is often appropriate in cases where litigation will produce

an unsatisfactory result regardless of outcome or where litigation is

too slow or cumbersome. Alternative Dispute Resolution also permits the

parties to exercise more direct control over the dispute resolution

remedy. ADR techniques have proven successful in many categories of

cases where the cases are routine (not precedent setting), such as

routine automobile torts, slip and fall, and employment rights cases,

or where confidential communication with a neutral third party will

help to clarify issues. Alternative Dispute Resolution techniques also

allow the parties to craft individualized, nontraditional remedies. The

following are some general suggestions to consider when determining

whether to undertake ADR in a given case.

The criteria listed below are by no means exclusive, and are not

intended to remove discretion from the employees of SBA. The

determination of whether a particular case, claim or issue is

appropriate for ADR is often very fact dependent.

Alternative Dispute Resolution is not meant to replace traditional

negotiation in every case. Rather, it may serve to provide agency

employees with additional tools to facilitate negotiation where

traditional two-party negotiation has not produced an acceptable

resolution or where the presence of a neutral may cause negotiations to

proceed more efficiently.

The following, by way of example but not limitation, are factors

you may consider when determining whether to use ADR and when

determining which ADR technique will be most suitable in a given case:

These factors are neutral in that whether they weigh in favor of or

against the use of ADR depends upon the specific facts and

circumstances of the case at issue.

1. Does the dispute indicate that the parties have an agenda

separate and apart from the specific issues of the case?

2. What is the history of the dispute?

3. What is the anticipated outcome of the dispute, and is either

party likely to appeal?

4. Have all the facts necessary to settle the case been discovered?

5. Has settlement authority been obtained or is more information

needed to obtain settlement authority?

6. Who is in charge of handling the dispute for each of the

parties?

7. Are there significant factual or legal disputes or do the

parties generally

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agree upon the most relevant facts or applicable legal precedent?

8. Is the opposing party an individual, a corporation or another

governmental entity? How does that effect the ability of the opposing

party to participate in the ADR process?

9. How credible are the witnesses for each party? How credible

would such witnesses appear to a court? How would the credibility of

the witnesses affect the outcome of the dispute?

10. Are there non-party individuals or entities with interests in

the outcome of the dispute?

11. If applicable, what is the position of the case on the court's

docket?

12. What are the likely expenses of litigation as opposed to the

likely expenses of ADR?

13. Does the dispute involve policy implications?

14. What is the anticipated time-frame for resolving the dispute by

means of litigation and by means of ADR?

Factors Counseling in Favor of ADR

A. Factors regarding the parties involved in the dispute:

1. There is now or is likely to be a continuing relationship

between the parties.

2. There may be benefits to either party hearing directly from the

opposing side.

3. Either party likely would be influenced by the opinion of a

neutral third party.

4. The opposing party does not have a realistic view of the case.

5. The parties have indicated a desire to settle.

6. Either party needs a swift resolution of the dispute.

B. Factors regarding the nature of the case or dispute:

1. The facts of the dispute are complex or of a complicated

technical nature not well-suited to litigation.

2. If the case proceeds to court, it is likely that SBA would face

a hostile forum or decisionmaker.

3. The parties desire to maintain flexibility in the relief they

seek.

4. Trial preparation will be difficult, costly and/or time-

consuming, and these costs would outweigh any benefit which SBA is

likely to receive if the matter proceeds to trial.

5. There is no need for a legal precedent in the matter.

6. There is a need to avoid an adverse legal precedent in the

matter.

7. The Agency is a defendant and, if found liable, would face a

great deal of legal exposure.

8. Serious questions exist as to whether SBA could actually recover

significant sums in executing on a judgment.

9. There is a reasonable probability of an unfavorable

determination of factual issues.

10. ADR could significantly narrow the issues in controversy even

if it is unlikely to lead to a complete resolution of the matter.

Factors Counseling Against the Use of ADR

1. There is a need for precedent on the issue in dispute.

2. A need exists for a public proceeding to resolve the issue or

case.

3. There is a need for a public sanction.

4. The matter is likely to settle soon without assistance.

5. The matter is likely to be resolved by motion in SBA's favor.

6. Either the opposing party or counsel representing the opposing

party is not trustworthy.

7. A settlement would likely establish a precedent which would

trigger additional claims and/or litigation.

8. An individual is sued in his or her personal capacity as a

Government employee.

9. There is reason to believe that the opposing party is engaging

in fraudulent or criminal activity or will not act in good faith.

10. One or more of the parties is unable to negotiate effectively,

with or without the assistance of counsel.

11. Injunctive relief is sought and no compromise or other relief

is available or acceptable.

12. The only relief sought is foreclosure on real property.

Factors To Be Considered in Deciding What Type of ADR Method(s)

Should Be Used

When choosing an ADR method, SBA officials should consider how

swiftly a particular method of ADR is likely to resolve the dispute.

For example, proceedings under mediation or early neutral evaluation

may take much less time than proceedings under other methods, such as

arbitration.

A. Factors Favoring Mediation

1. There is a continuing relationship among the parties.

2. The disputed or key facts are not so technical as to require

subject matter expertise.

3. There are multiple defendants and the United States has the

greatest exposure.

4. There exists a risk of unfavorable precedent.

5. There is likely to be an excessive delay from the time a suit is

filed until the time that recovery is actually achieved.

6. Either side is likely to benefit from hearing directly from the

other party.

7. The opposing party needs to obtain a realistic view of the case.

8. The parties desire to maintain flexibility in the relief they

seek.

B. Factors Favoring Early Neutral Case Evaluator/Expert

1. The parties know from the start that the case can be settled.

2. The parties disagree on the amount of damages.

3. Factual issues requiring expert testimony may be dispositive of

liability or damage issues and the use of a neutral expert is cost

effective.

4. A resolution of the factual issue(s) will assist in settlement.

5. One or more of the parties to the dispute needs to obtain a

realistic view of the case, including a prediction of the likely

outcome.

C. Factors Favoring Arbitration

1. The parties disagree on the amount of damages.

2. Arbitrators in the area are well-respected.

3. There are no complex factual issues involving areas of expertise

and the parties disagree on the facts.

D. Factors Favoring Mini-Trials or Summary Jury Trials

1. There is likely to be an excessive delay from the time a suit is

filed until the time there is any recovery.

2. Simple factual issues exist which while not necessarily

requiring expert testimony would take an excessive amount of time to

present in a traditional forum.

3. There are complex factual issues which are generally explained

with expert testimony.

4. The attorneys can fairly summarize the facts to the fact-finder

without the necessity of lengthy cross-examination.

Factors To Consider in Selecting ADR Providers

1. Does the provider meet the requirements of the relevant federal

or state court rules for neutrals?

2. Is the ADR provider unbiased and not seeking to advance his or

her own interests?

3. Will the ADR provider deal fairly with the parties and be

reasonably available to the parties?

4. Does the ADR provider know any of the parties or counsel

involved in the matter? If so, what is the nature and context of the

provider's relationship with the parties or counsel and would this

present a conflict of interest?

5. What kind and extent of training has the ADR provider received

for the particular ADR process to be used?

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6. Has the ADR provider received such training from a well-reputed

program?

7. What kind of experience does the ADR provider have with the

particular ADR process to be used in terms of the years of experience

with the process, the number of disputes resolved, the amount in

controversy and the complexity of the issues involved?

8. Is the ADR provider an attorney? If so, what kind of experience

does the provider have in terms of type of practice, years of

experience, complexity of cases and issues and litigation involving

governmental entities?

9. Does the ADR provider have expertise in the issues or facts in

controversy?

10. When the parties are paying for the services of an ADR

provider, are the rates fair and reasonable for resolving a

governmental dispute?

Training

SBA is committed to educating its personnel regarding the benefits

and potential uses of ADR. To that end, SBA has begun ADR training. It

expects to add ADR training to existing Agency training programs and to

develop additional training devoted primarily to ADR. SBA also intends

to work in partnership with other federal agencies to take full and

efficient advantage of training which these agencies already have

developed. SBA has already trained a number of its personnel throughout

the United States to serve as mediators in disputes involving federal

agencies. For example, the administrative judges in the Office of

Hearings and Appeals have completed mediation training. SBA will

explore additional training in this area.

Michael D. Schattman,

General Counsel.

[FR Doc. 99-12875 Filed 5-20-99; 8:45 am]

BILLING CODE 8025-01-P