Encourage Alternative Dispute Resolution

Encourage Alternative Dispute Resolution When Enforcing Regulations

BACKGROUND

Disputes constantly arise when agencies enforce regulations. Enforcing
regulations and encouraging compliance with regulatory requirements in
the least costly, least adversarial, and most effective way are crucial
to ensuring that the policies underlying regulations are implemented.

Enforcement of regulations often requires substantial litigation.
Adjudication--the resolution of disputes before agency administrative
law judges or in federal court--is often lengthy, expensive, and highly
contentious.[Endnote 1] Ultimate outcomes are frequently unsatisfactory
and may undercut future efforts to ensure effective compliance by
creating an atmosphere of antagonism and distrust. In the long run,
encouraging compliance is likely to be more effective than litigating
over enforcement.

Current enforcement dispute resolution systems tend to emphasize
litigation, and there are times when this emphasis is proper. Regulated
entities must understand that they must comply with regulations or face
sanctions. Successful litigation by the government may serve as a
deterrent to future wrongdoing. Ensuring regulatory compliance is, after
all, a federal law enforcement role.

However, the fact is that a high percentage of enforcement disputes are
ultimately resolved not through litigation but through settlement
negotiations.[Endnote 2] There are a variety of reasons for this,
including inadequate resources to pursue all cases through the full
litigation process, and insufficient or questionable evidence in
particular cases. Moreover, in some situations, the remedies available
through the adjudicatory process (be it at the administrative level or
in court) may not provide the optimal practical solutions. Negotiated
settlements often occur, however, only after substantial adversarial
maneuvering, or at the proverbial "courthouse steps."

NEED FOR CHANGE

Various alternatives to litigation and administrative adjudication can
be useful in resolving a significant number of enforcement disputes
earlier, with fewer resources, and with better results than might
otherwise occur. Alternative means of dispute resolution (ADR) can be an
alternative to litigation, and it can also serve as an improved way to
handle negotiated resolutions. Because ADR processes are designed to
develop consensual solutions to disputes, they should reduce
contentiousness and may result in relationships between the regulators
and the regulated that are more cooperative and more conducive to future
voluntary compliance.

These alternatives encompass a collection of techniques designed to help
disputing parties resolve their conflicts in mutually acceptable
ways.[Endnote 3] Although the scope of what constitutes ADR varies
depending on who is using the term, it is generally considered to
include dispute resolution systems where a neutral third party, or
"neutral," helps parties resolve their dispute.

ADR has become increasingly popular as a way to help resolve the wide
variety of disputes involving individuals, businesses, and governments.
Although some variations of ADR have been around for centuries, in
recent time, court backlogs have served as an impetus for wider
consideration of ADR techniques. Courts (both federal and state) provide
ADR programs to litigants.[Endnote 4] For decades, labor and management
have used ADR to resolve disputes. Private industry has begun to look to
ADR as a way to prevent disputes from escalating and absorbing large
amounts of resources.[Endnote 5] Community-based programs and family
mediation programs have used ADR processes to address interpersonal
disputes. An increasing number of states have incorporated the use of
ADR into courts and agencies. As President Clinton said (while Governor
of Arkansas), "[One] thing we need, in every state, is an alternative
dispute resolution mechanism that would encourage people to look for a
way, short of litigation, to resolve their disputes."6

ADR comes in a variety of forms. Some, like mediation, are fairly
well-known. Others, such as minitrials, are less familiar. The more
common types of ADR include:

--mediation,

--early neutral evaluation,

--factfinding,

--settlement judges,

--minitrials, and

--arbitration.[Endnote 7]

ADR is generally an appropriate dispute resolution mechanism when the
dispute is one in which the parties might be willing to accept a
negotiated settlement.[Endnote 8] Because ADR processes are inherently
flexible, and can be designed to meet the needs of the disputing
parties, they should be considered in a wide variety of cases.

THE ADMINISTRATIVE DISPUTE RESOLUTION ACT. The Administrative Dispute
Resolution Act of 1990 (ADR Act) governs agency use of ADR in
non-rulemaking disputes.[Endnote 9] It reflects Congress' interest in
and recognition of the potential benefits of ADR, and it authorizes and
encourages the innovative use of ADR by providing a flexible framework
that agencies can adapt to their own needs.

The Act requires relatively little, but authorizes much.  It requires
each federal agency to develop a policy for using ADR. It directs
agencies to review their types of disputes, how they are currently
resolved, and whether ADR might be useful. The Act also requires that
each agency appoint a senior official as a "dispute resolution
specialist" to serve as the coordinator and point person for agency ADR
activities. These requirements are aimed at ensuring that agencies make
educated and thoughtful decisions about ADR.

The Act amended the Administrative Procedure Act to provide express
authority to use ADR where the disputants agree to use it. It provides
new authority for federal agencies to enter into binding arbitration,
with some limitations. It provides statutory protection for
confidentiality of ADR processes, and contains provisions relating to
the acquisition of dispute resolution "neutrals."

Unfortunately, however, agency compliance with the ADR Act has been
inconsistent. Despite clear success stories (see below), some agencies
have vacancies in the dispute resolution specialist positions mandated
by the Act or have not appointed to the post an official with sufficient
rank.[Endnote 10]

FEDERAL AGENCY USE OF ADR. Over the last decade, some federal agencies
have begun to give serious attention to the use of ADR. ADR has been
used by several agencies in enforcement cases and other regulatory
proceedings. Agencies have also used ADR in resolving contract,
personnel and Equal Employment Opportunity disputes. A wide range of
agencies--from the Environmental Protection Agency (EPA) and the
Departments of Labor and Health and Human Services to the Federal
Deposit Insurance Corporation (FDIC) and the Resolution Trust
Corporation--have used ADR.  Others--like the U.S. Air Force and the
Internal Revenue Service--are in the planning stages for significant ADR
programs.[Endnote 11]

Some of the results of the use of ADR to date have been impressive. The
Department of Labor last year ran a pilot program in one of its regional
offices using mediation to resolve enforcement cases involving the
workplace, including cases involving the Occupational Safety and Health
Administration (OSHA) and wage and hour regulations. The Department's
evaluation of the program demonstrated that both agency and industry
parties were quite satisfied with the use of ADR, and that in many
cases, the mediated resolution was quicker and better than either
face-to-face negotiation or litigation.[Endnote 12] The Department has
recently decided to expand the program to all of its regions.[Endnote
13] The Farmers Home Administration found that it saved millions of
dollars using mediation to avoid foreclosures in farmer-lender
disputes.[Endnote 14] The FDIC saved over $400,000 in litigation costs
from a small pilot mediation program involving creditor claims arising
from failed banks.[Endnote 15] EPA has had significant successes using
mediation to resolve Superfund hazardous waste cleanup
proceedings.[Endnote 16]

To maintain momentum, a new Presidential directive on ADR is needed. The
only existing executive order on ADR, Executive Order 12778, is not
specific enough to provide useful guidance to the agencies.[Endnote 17]
The directive should not only be linked to the ADR Act's provisions, but
it also should address other approaches to encouraging agency use of
ADR, including increased budgetary incentives, personnel appraisal
incentives, and streamlined procurement of outside neutrals.

BUDGETARY INCENTIVES. Although the goals of ADR include the conservation
of resources in the long run, it is important that the Office of
Management and Budget (OMB) provide agencies with budgetary incentives
to use ADR. This has at least two aspects:  ensuring that the resources
necessary to develop ADR systems are available, and ensuring that budget
incentives over the long term do not undercut ADR use, but rather reward
the consensual resolution of disputes and discourage the creation of
large adjudicatory backlogs.

First, some resources are necessary to develop and implement an ADR
program. While over the long run, ADR should provide savings to both the
government and the private sector, seed money and personnel resources
are often needed to get agency systems up and running. Thus, at least in
the early implementation stages, some specific budget for ADR
implementation may be necessary.

Second, the criteria for increasing agency budgets often provide skewed
incentives. For example, providing additional resources to an agency
with a large adjudicatory backlog might remove the incentive to reduce
that backlog. Moreover, the savings from using ADR may not be felt by
the same component of the agency to which the costs accrue.

PERSONNEL INCENTIVES. The ADR Act requires that the dispute resolution
specialist and other agency personnel be provided training in
ADR.[Endnote 18] This is crucial. Although ADR concepts are not
extremely complicated, those who would use ADR, as well as those
deciding whether and when to use it, need to understand how to
participate effectively in these processes, understand their benefits,
and know when it is appropriate to use them.

Performance evaluation criteria also must provide the appropriate
incentives to encourage agency personnel to use ADR and resolve disputes
consensually. For example, some agencies give credit in individual
performance appraisals for the number of cases opened, but not for the
number of cases resolved or the efficiency and effectiveness of
resolution. This should be altered so that both types of numbers are
important.

HIRING OF NEUTRALS. Current contracting processes for obtaining a
neutral can be extremely cumbersome.  Neutrals are potentially available
from a variety of sources. ACUS, for example, has a roster of neutrals
from which agencies can select.[Endnote 19]

However, getting a candidate from the roster does not obviate the need
for a system to hire and arrange to pay (if necessary) for the neutral's
services.  Depending on the amount of money involved, a more or less
complicated competitive bidding system may be required. This process is
frequently incompatible with the short time frames that may be necessary
to use ADR effectively.

It is important that agency personnel interested in using ADR have
access to neutrals in a timely fashion. Depending on whether the neutral
is someone from the same agency, a different agency, or outside the
government, mechanisms (including ones for sharing of neutrals among
agencies) should be established to ensure ready availability. Agencies
also have been and should be encouraged to continue training their
personnel in mediation and related ADR techniques, so that they can make
use of neutrals from their own and other agencies to help resolve
disputes more quickly and less expensively.

Cross-References To Other Npr Accompanying Reports

Department of Labor, DOL04: Expand the Use of Alternative Dispute
Resolution by the Department of Labor.

Reinventing Human Resource Management, HRM08: Improve Processes and
Procedures Established to Provide Workplace Due Process for Employees.


Endnotes

1. Agencies have varying enforcement authorities.  Many enforcement
statutes permit agencies to bring enforcement proceedings before agency
"administrative law judges" (with judicial review on the administrative
record in federal court). Other agencies must seek enforcement (with the
aid of the Department of Justice) in federal district court. In either
case, litigation costs and delays can be a concern.

2. See, for example, Edles and Nelson, Federal Regulatory Process:
Agency Practices and Procedures, 2d ed. (Prentice Hall Law and Business
looseleaf), p.  119. "The administrative process at most agencies could
not operate if all cases had to be pursued to final, formal decisions."

3. See Administrative Conference of the U.S., Recommendation 86-3,
"Agency Use of Alternative Means of Dispute Resolution," 1 C.F.R.
305.86-3 (1993); Harter, Philip J., "Points on a Continuum: Dispute
Resolution Procedures and the Administrative Process," Administrative
Law Journal, Vol. 1, No. 1 (1986) p. 141.

4. For example, the United States District Court for the District of
Columbia has an alternative means of dispute resolution (ADR) program at
both the trial and appellate levels. Finkelstein and Stanley, "The
Federal Angle," Washington Lawyer (May/June 1992) p.  33. State and
local courts in many states, including California, New Jersey, and
Florida have set up ADR programs. Telephone interview with Diana
Farthing- Capowich, Program Manager, State Justice Institute, August 12,
1993.

5. Companies in the insurance, automotive, and electronics industries
are among those using ADR processes to resolve disputes. See Center for
Public Resources, Mainstreaming: Corporate Strategies For Systematic ADR
Use, Practical Guide Series, looseleaf (New York, undated), Section E.

6. "Bush vs. Clinton: The Candidates Debate," Reader's Digest (October
1992), p. 61.

7. In mediation, a trained neutral third party helps disputants
negotiate a mutually agreeable settlement.  A mediator, by talking with
each side, together and separately, can often help parties come to
agreement by helping them develop options and explore acceptable
settlements. The mediator does not have the power to decide a dispute;
rather, the parties must agree to any resolution themselves. Mediation
is often a component of other ADR processes.  In early neutral
evaluation, a neutral factfinder, often one with substantive expertise,
evaluates the relative merits of the parties' cases. After hearing an
informal presentation of the highlights of parties' cases or positions,
the neutral provides a nonbinding evaluation. This should give parties a
more objective perspective on the strengths and weaknesses of their
cases, thereby making further negotiations more likely to be productive.
In factfinding, neutrals determine disputed facts.  This can be
particularly useful where disagreements about the need for or meaning of
data are impeding resolution of a dispute, or where the disputed facts
are highly technical and would be better resolved by experts.
Factfinding usually involves an informal presentation by each side of
its case, whereupon the neutral provides an advisory opinion on the
disputed facts, which can be used by the parties as a basis for further
negotiation.  A settlement judge serves essentially as a mediator or
neutral evaluator in cases pending before a tribunal. The settlement
judge is usually a second judge from the same body as the presiding
judge. In some cases, a settlement judge may give an informal advisory
opinion. See Administrative Conference of the United States,
Recommendation 88-5, "Agency Use of Settlement Judges," 1 C.F.R.
305.88-5; Joseph, Daniel and Michelle Gilbert, "Breaking the Settlement
Ice: The Use of Settlement Judges in Administrative Proceedings,"
Administrative Law Journal, vol. 3, no.  3 (1989), p. 571.  A minitrial
is not really a trial, but a structured settlement process in which the
disputants agree on a procedure for presenting their cases in a highly
abbreviated form (usually no more than a few hours or a few days) to
senior officials for each side who possess settlement authority. This
process allows those officials to see first hand how their case, and
that of the other parties, play out; this can serve as a basis for more
fruitful negotiations. Often a neutral presides over the hearing, and
may subsequently mediate the dispute or help parties evaluate their
cases.  Arbitration is a relatively formal process, in which parties
jointly select the decisionmaker(s), to whom they turn over the
decisionmaking. The arbitrator(s), after hearing each side's case using
procedures agreed on in advance by the parties, issues a decision. The
standards for decision may also have been agreed on in advance by the
parties. The arbitrator's decision may be nonbinding (in which case the
process resembles neutral evaluation), or if the parties agree, it may
be binding. See ACUS Recommendation 87-5, "Arbitration in Federal
Programs," 1 C.F.R.   305.87-5 (1993); Administrative Conference of the
United States, Agency Arbitration, Studies in Administrative Law and
Procedure 88-1 (1988) (discussing constitutional and statutory issues).
Current law contains limitations on the use of binding arbitration by
federal agencies. See section 4 of ADR Act, codified at 5 U.S.C.A.
571- 583 (1993 Supp.).

8. For example, litigation is necessary if a party needs to establish a
judicial precedent. If there is a fundamental principle at stake that a
party is absolutely unwilling to negotiate, ADR is likely to be
unsuccessful. However, since most cases do settle eventually, it is
important for parties to assess carefully whether an issue really is
non-negotiable.  If the costs of ADR would exceed the costs of
resolution through other means, then other means should generally be
used. Where a public record of the proceeding is needed, ADR may be
inappropriate (although this concern may be accommodated by agreement of
the parties). If a program requires complete uniformity of outcome, then
individualized resolutions by the parties might not satisfy that need.
9. 5 U.S.C.A.    571-583 (1993 Supp.).

10. Conversations with staff of the Administrative Conference of the
United States. See also, letter from Leonard L. Riskin, Professor of
Law, University of Missouri-Columbia, to Senator Christopher Bond, July
5, 1993, commenting that "notwithstanding the passage of the [ADR Act]
in 1990, some agencies have show[n] great reluctance to employ
alternative methods of dispute resolution," p. 2.

11. See U.S. Air Force, Secretarial Memorandum re Implementation of the
Administrative Dispute Resolution Act of 1990, January 12, 1993; letter
to Brian C. Griffin, Chairman of ACUS, from David A.  Mader, Assistant
Commissioner, Internal Revenue Service, July 15, 1993.

12. U.S. Department of Labor, Report to the Secretary of Labor on the
Philadelphia ADR Pilot Project (October 14, 1992), p. 52.

13. Conversation with Department of Labor officials.

14. Riskin, Leonard L., The Farmer-Lender Mediation Program:
Implementation by the Farmers Home Administration, Report to ACUS
(November 1991), p.

18. (FmHA reports net savings to states in fiscal year 1989 as between
$18 and $37 million and net savings to the federal government as between
$6.6 and $14.8 million.)

15. Federal Deposit Insurance Corporation (FDIC) staff paper, "Summary
of FDIC ADR Creditor Claims Pilot Project," April 1993. ("$410,475 in
legal fees and expenses avoided.")

16. Environmental Protection Agency, Superfund Enforcement Mediation,
Regional Pilot Project Results (October 1991); and EPA, "Superfund
Enforcement Mediation Case Studies" (April 1992).

17. Executive Order No. 12778, Civil Justice Reform (October 23, 1991),
Federal Register 55195 (October 25, 1991). Although the Order supports
ADR training and notes that ADR can be appropriate in litigation
involving the United States and its agencies, it lacks guidance or
specifics on how ADR techniques can and should be employed. Moreover, EO
12778's provisions relating to ADR primarily address ADR use in court
litigation. The Order's mention of administrative proceedings (section
3) is limited to a citation to an Administrative Conference of the
United States (ACUS) Recommendation on case management that includes a
short section encouraging ADR use. ACUS, Recommendation 86-7, "Case
Management as a Tool for Improving Agency Adjudication," 1 C.F.R.
305.86-7. This is especially weak given the opportunities presented by
the Administrative Dispute Resolution Act, which is designed to
facilitate ADR use at the agency level.

18. Pub. L. 101-552, 3(c); codified at 5 U.S.C.A.  571 (1993 Supp.).

19. 5 U.S.C.A.   573(c) (1993 Supp.).