MEDIATION CLAUSES

I. INTRODUCTION

It can be said that every lawyer-drafted contract must have some form of a dispute
resolution clause. Failing to include this type of clause arguably brings one perilously close
to committing malpractice. While most will concur on the importance of these clauses, we
as practitioners often spend little time on them when drafting a contract. We forget to
consider such questions as: does our standard venue/jurisdiction language suffice? Is the
usual arbitration clause really the best approach? Put another way, are we sacrificing our
client's business opportunity by relying on our boilerplate [FN1] contract language? This
article proposes that the drafter *162 should exercise her creativity by crafting a tailored
clause that serves her client's objectives, such as a "layered" dispute resolution clause
("Layered Clause").

In the following pages, this article will explore the language and use of a Layered Clause.
The philosophical foundation behind the Layered Clause is to preserve business
relationships while pursuing appropriate conflict resolution. The Layered Clause provides
process stages that will guide the contracting parties through their inevitable future
conflict. This article dissects the segments of the Layered Clause one layer at a time;
discusses policy considerations; and, where appropriate, refers to case law influences on
the drafter. Timing and party-principal participation contribute to the effectiveness of the
process and will be seen as common themes in each layer. The clause in its entirety is
appended at the end of the article.

Although the Layered Clause only includes "traditional" ADR processes, one of many
hybrid processes known as med-arb/arb-med will be briefly discussed. These hybrid
processes are growing in popularity. They can be very effective in the right circumstances
and can offer clients another alternative to conventional dispute resolution approaches.

The proposed clause is offered not as the answer to the drafter's quest for stellar
language. Rather, the clause and relevant discussion with clients should be a starting
point. It should lead to a deeper examination of the often far too habitual prose we as
practitioners use to document our clients' business relationships. [FN2]

II. THE CONTEXT: WHY THE FANCY CLAUSE?

The first step is to set the context. The Layered Clause is intended for use in a
commercial milieu, from the simple two-party contract to the complex multi-party
(frequently voluminous) contract. Similarly, the subject matter runs the gamut of
transactions involving the basic widget to real property development and intellectual
property. [FN3] Though we often feel trapped by tradition, contract drafting affords the
chance to exercise some *163 creativity ab initio, laying the foundation for the later
exploration of creative solutions when conflict arises.

On another contextual level, the Layered Clause channels the parties into first non-
adjudicatory and ultimately non-judicial dispute resolution processes [FN4]. We know that
use of alternative dispute resolution ("ADR") processes, especially arbitration and more
recently mediation, has become accepted in the court system and the business
environment over time. [FN5] Recognizing the budgetary strain, business executives have
been motivated to find a better way than litigation. They seek to disembark from the
runaway litigation train, opting instead for a path that leads to preserved business
relationships. As the American Arbitration Association ("AAA") study explains,

The growth of ADR has been spurred by the rising burden of U.S. civil litigation, a

bill that now

approaches $200 to

$300 billion annually. A stream of evidence has

long suggested that there is

real business value to the rapid,

comparatively

inexpensive, and easily-accessed alternative to the

judicial system .... [FN6]

The Layered Clause specifically addresses the concerns for relationship preservation and
the need for process economy by maximizing collaborative efforts as the primary tool. The
Clause has the added benefit of providing a schematic for well-defined ADR process
features. Inherently, these features promote what the AAA study calls a "portfolio
approach" to dispute resolution. [FN7] Certainly, settlement achieved by party-principle
negotiations lessens relationship risks and dispute expense, particularly when compared
with the contentious, expensive, and laborious *164 court system. The layered approach
at least provides the opportunity to maintain if not enhance customer, supplier, and
employee relationships, which can be costly to establish, difficult to keep, and deadly to
lose. [FN8]

The goal of the Layered Clause is to maximize the opportunities to continue party-
controlled and party-determinative resolution processes. It sets out distinct, time-
triggered phases, with regular reminders that the contracting parties truly want to
maintain their business relationship. The parties approach the precipice of the adjudicatory
side of the dispute resolution continuum only after exhausting all other efforts to find
their own solution; they cross the divide into quasi-judicial process only as a last resort.
[FN9]

III. THE LAYERED CLAUSE EXPLAINED

Having discussed the underlying principles for revising our approach to drafting dispute
resolution clauses, the article examines the Layered Clause section by section, with
particular attention given to mediation and arbitration. As will be discussed, with
increasing frequency, courts find a way to enforce the mediation selection clause.

The arbitration section will explore the scope of the arbitrator's authority, particularly the
power to issue interim measures of protection. The arbitration section will also discuss the
question of whether arbitration has become so much like litigation as to dilute its value as
an alternative. The wording in the Layered Clause is designed to return the process to its
origins as a faster, less expensive and more efficient process. We will talk as well about
drafting considerations dictated in part by the context and jurisdiction in which the drafter
finds herself.

      A. LAYER ONE: THE NEGOTIATION STAGE

The Parties agree that, before resorting to any formal dispute resolution process
concerning any dispute arising from or in any way relating to this Agreement (a
"Dispute"), they will first attempt to engage in good faith negotiations in an effort to find
a solution that serves their respective and mutual interests, including their continuing
*165 business/professional relationship. Party-principals agree to participate directly in the
negotiations. Unless otherwise agreed in writing, the Parties shall have five (5) business
days from the date the questioning party gives Notice (defined below) of the particular
issue to begin these negotiations and 15 business days from the Notice date to complete
these negotiations concerning the Dispute.

The first layer places the contracting/disputing parties into the negotiation arena. It
specifically addresses the parties' guiding philosophy: to maximize their individual and
mutual interests, and to preserve their business relationship. Among the redrafting
considerations is tailoring the definition of "Dispute," which will govern the subsequent
process layers and dictate the scope of subject-matter and equitable jurisdiction in later
proceedings. [FN10] Similarly, the phrase "good faith negotiations" is a potential minefield:
is it ambiguous; who will have jurisdiction (the arbitrator or a judge) to determine the
good faith or its absence? [FN11]

As noted, part of the frustration with the court-supervised processes is they take far too
long. [FN12] The Layered Clause confronts this problem in this opening paragraph by
setting short deadlines for giving notice of the dispute, commencing and concluding the
negotiations. [FN13] The Clause builds in continued party autonomy. It gives the parties
sole power to extend the deadlines as may be dictated by the complexity of the Dispute,
logistics, or other circumstances that the parties might face.

Party-principal participation in the negotiation furthers the goals of party control and the
commitment to preserving the relationship. Thus, by design, the process places the
parties in an environment of collaboration, *166 rather than sending them spinning into
positional entrenchment by resorting to the adjudicative side of the resolution continuum.
[FN14]

      B. LAYER TWO: THE MEDIATION STAGE

If the negotiations do not take place within the time provided in "a" above, or if the
negotiations do not conclude with a mutually agreed upon solution within that time frame
(or its agreed upon extension), the Parties agree to mediate any Dispute. If the Parties
cannot agree upon a mediator, each shall select one name from a list of mediators
maintained by any bona fide dispute resolution provider or other private mediator; the
two selected shall then choose a third person who will serve as mediator. The Parties
agree to have the principals participate in the mediation process, including being present
throughout the mediation session(s). The Parties shall have 45 days within which to
commence the first mediation session following the conclusion of their good faith
negotiations or expiration of the time within which to negotiate (as stated in "a" above).
The Parties agree that any mediated settlement agreement may be converted to an
arbitration award or judgment (or both) and enforced according to the governing rules of
civil procedure. [FN15] The Parties further confirm their motivating purpose in selecting
mediation is to find a solution that serves their respective and mutual interests, including
their continuing business/professional relationship. [FN16]

                  1. Foundational Question: Enforceability

The advantages of the mediation clause are not derived from the likelihood of court
enforcement. Rather, the benefits flow from the expectation of higher rates of settlement
in mediation since the parties' *167 voluntary implementation of the mediation clause
suggests a willingness to work together to find a solution to their dispute. [FN17]

The analysis of this section of the Layered Clause must begin with the question of
enforceability. Mediation contract clauses were once viewed skeptically by most courts as
providing nothing more than an unenforceable agreement to agree. More recently, in a
growing number of jurisdictions, courts have affixed their imprimatur by enforcing
mediation contract clauses. [FN18] Although on the international level, case law authority
enforcing these clauses is not abundant. [FN19]

In a Pennsylvania case, the state court rejected a request to enforce the mediation clause
because the requesting party could not establish that it was the beneficiary of the
contractor's and subcontractor's mediation contract clause. [FN20] A Maryland court
based its denial of the enforcement request on its view that the requesting party failed to
show that there were contractual issues in need of mediation. [FN21] Neither court,
however, rejected the notion that the mandatory mediation clause should be enforceable.

What the Layered Clause tries to create is unambiguous language which mandates, as
conditions precedent, that the parties participate in each stage. In two cases involving
disputes between auto manufacturers and *168 franchisees, two different courts showed
us that the mediation-first approach can determine the outcome of the case.

In the first case, the Seventh Circuit upheld a summary judgment motion against the
franchisee. [FN22] The franchisee had argued that it had complied with the mediation
provision because it had given Ford Motors, the manufacturer, an opportunity to settle,
though it did not follow the compulsory mediation provision in the contract. [FN23] The
court flatly rejected the franchisee's "substantial compliance argument," holding that the
contract unambiguously established that mediation was "a condition precedent to
litigation" and since the time limits in the contract had long passed, the failure to follow
the contract's procedural path was the death knell for the franchisee's claim. [FN24]

A federal district court in Ohio reached a similar result in the second case involving the
same Ford-franchisee contract language. [FN25] The court granted Ford summary
judgment because the mandatory mediation clause was unambiguous and enforceable
under basic rules of contract interpretation, and the dealer acknowledged its failure to
comply. [FN26]

Courts have also found refuge for mediation clauses in the Federal Arbitration Act ("FAA")
and similar state laws. For example, in FAA cases, courts typically begin with a careful
analysis of whether the contract meets the FAA interstate commerce requirements, and
from there the court and the parties treat mediation as but another form of arbitration
that would be subject to the FAA. [FN27] The same approach is found in cases governed
by state laws. [FN28]

*169 Although perhaps disturbing to a mediation "purist," a district court's view in one
FAA case is also instructive. In Fisher v. GE Medical Systems, the court endorsed the
concept gleaned from a line of cases that endorse the notion that mediation is akin to
arbitration as a process "that falls under the preference for non-judicial dispute
resolution." [FN29] Expressing federal policy favoring arbitration in its broadest sense and
applying it to mediation, the court found that, under the FAA, the plaintiff was bound by
her agreement to mediate her claim before pursuing that claim in court. [FN30]

What can be surmised from these authorities is that state and federal courts are willing to
recognize the strong public policy favoring alternative dispute resolution proceedings.
Though sometimes via curious means, it appears the courts are willing to enforce properly
crafted mandatory mediation clauses.

                  2. Mediator Selection

The subjects of how to select a mediator and mediator qualifications must be left to
another discussion. For our purposes now, we look to the mechanisms contained in the
Layered Clause by which the parties select their mediator.

Given that party autonomy is a fundamental principle of mediation, the contract should
allow the parties to select their mediator. A mediator's effectiveness often begins with the
parties' trust and confidence in her skills. [FN31] The Layered Clause recognizes, however,
that when the parties invoke the clause they will be in the thick of their dispute, making
agreement on a mediator an elusive target at best and perhaps impractical at the very
least.

Thus the Layered Clause sets in motion a simple process by which the parties make the
front line decision: if they cannot agree on a mediator, each selects someone and the
selected two pick the actual mediator. This circumvents the disabling problem of being
unable to agree on a mediator and avoids often-seen complicated formulae for selection of
a mediator. [FN32]

                  *170 3. The Importance of Timing

Getting stalled by protracted dispute resolution processes often brings about deadly
short- and long-term economic consequences. Studies show that the business
community bemoans the snail's pace of the over-crowded court proceedings. [FN33]

The longer the problem festers without progress toward solution, the more entrenched
the parties become. The more entrenched the parties become, the more hurdles appear
and the more difficult finding solutions becomes. Thus, by design, the mediation stage
quickly moves the parties from recognition of the dispute directly to the mediation table.

In many contracts, time may truly be of the essence. The drafter should consider adding a
carve-out provision under which the parties can avail themselves of injunctive and other
expedited relief (writs of attachment and possession, specific performance, appointment
of a receiver). Acting under a properly crafted carve-out, the party would thus not be
faced with a Hobson's choice between seeking interim relief and sacrificing that important
remedy to avoid waiving the right to mediate.

                  4. Reaffirming the Goal

As discussed regarding the negotiation phase, the parties again reaffirm their goal: to find
a solution that meets their individual and joint interests, guided by the desire to maintain
their business relationship. [FN34] Naturally, resolution of some disputes will require
terminating the relationship; yet even relationship-ending disputes can be effectively
managed in the creative environment of mediation. [FN35] The Layered Clause eliminates
the stigma of asking for mediation when the dispute arises - the fear of appearing weak in
one's position - by providing for the process at the inception of the contractual
relationship.

We must anticipate that not every negotiation and mediation will successfully conclude
with an agreement. The Layered Clause thus moves *171 the parties forward and into the
adjudicative side of the continuum. It moves them "promptly and efficiently," so that the
parties can "avail themselves of their rights and remedies." [FN36]

      C. LAYER THREE: THE ARBITRATION STAGE [FN37]

If the mediation provided for in "b" above does not conclude with an agreement between
the Parties resolving the Dispute, the Parties agree to submit the Dispute to binding
arbitration. If the Parties cannot agree on an arbitrator, the person who served as
mediator shall select the person to serve as arbitrator from a list compiled by the Parties
or, where the Parties do not compile a list, from a list maintained by a bona fide dispute
resolution service provider or private arbitrator. The arbitrator's award prepared by the
arbitrator shall be final, binding and may be converted to a judgment by a court of
competent jurisdiction upon application by either party. The arbitrator's award shall be a
written, reasoned opinion (unless the reasoned opinion is waived by the Parties). The
Parties shall have ten (10) days from the termination of the mediation to appoint the
Arbitrator and shall complete the arbitration hearing within six (6) months from the
termination of the mediation. The arbitrator shall have the authority to control and limit
discovery sought by either party. The arbitrator shall have the same authority as a court
of competent jurisdiction to grant equitable relief, and to issue interim measures of
protection, including granting an injunction, upon the written request with notice to the
other party and after opposition and opportunity to be heard. The arbitrator shall take
into consideration the Parties' intent to limit the cost of and the time it takes to complete
dispute resolution processes by agreeing to arbitrate any Dispute.

Our analysis of the arbitration phase will focus first on the foundational question of the
arbitrator's authority. We will discuss the extent to which the arbitrator has jurisdiction to
walk in the halls of equity and to issue interim measures of protection. As we will see,
courts look to the contract for guidance when determining the extent of the arbitrator's
authority. Also, because of a growing skepticism about arbitration, we must discuss *172
some of the concerns about arbitration and balance those concerns against the
advantages of the arbitration process. Then, we will highlight the hybrid processes of med-
arb/arb-med.

What we will not revisit in any detail in this section are the provisions in the Layered
Clause regarding the timing for setting and completing the arbitration nor the selection of
the arbitrator. Our earlier analysis of these two important parts of the Layered Clause is
equally applicable here.

                  1. The Arbitrator's Authority

There are almost as many different ways of describing the scope of the arbitrator's
authority as there are courts that have written on the subject. Stated simply, the
arbitrator derives her authority from the arbitration agreement. [FN38] According to at
least one court, "[t]he broader the wording of the arbitration clause in a contract [is], the
greater the scope of the arbitrator's powers." [FN39]

Determining the scope of the arbitrator's authority under our Layered Clause begins with
the word "Dispute." Defined in the first paragraph of the Clause, the substantive issues
over which the arbitrator has decisional authority are intentionally quite broad, covering
any matter "arising from or in any way relating to this Agreement." The careful drafter
may expand or limit the arbitrator's substantive authority through appropriate wording
tailored to the context of the parties' contract. [FN40]

The discretion conferred on the arbitrator, however, is not unlimited in some jurisdictions
and "must be exercised for purposes reasonably within the contemplation of the
contracting parties." [FN41] While the result is intended *173 to be binding upon the
parties, thus hastening finality, a party can ask a reviewing court to examine whether the
arbitrator exceeded the scope of her authority. [FN42]

The Layered Clause grants power to the arbitrator beyond substantive issues, including
discovery matters and interim measures. Since one of the advantages of ADR is
purported to be enhanced efficiency, the Clause is designed to provide essentially a "one
stop shop" for the parties' adjudicative dispute resolution needs. The question then
becomes, can the parties confer on the arbitrator equitable powers, including the
authority to grant interim protection?

According to Professor Williston, the answer is an unequivocal yes. [FN43] For the
purposes of our discussion, a contract containing the Layered Clause embodies the
submission that would be made to the arbitrator. The Clause gives the arbitrator equitable
powers and under these circumstances the arbitrator may issue an injunction. [FN44] "In
fact," the Williston treatise states, "whether a court of equity could issue [these orders] is
beside the point." [FN45] At the same time, an arbitrator can exceed her powers by
issuing an award that includes relief that the parties never specified. [FN46] Thus the
guidepost for the drafter is: if it is intended that the arbitrator shall have the authority,
the contract should include languages that specifically confer the authority upon the
arbitration.

                  *174 2. Arbitration - The Good

First, to give some perspective, we will review the claimed benefits of arbitration. As we will
see, it is a process that, like the color change in a chameleon, has become more like the
court system to which it was touted as a rescuing alternative. The Layered Clause is
designed to restore confidence in this embattled ADR process by returning it to its roots
as a process that is faster, cheaper and final.

Commentaries informing the reader of our court system's inadequacies are legion. The
overburdened system is not designed for accurate, efficient dispute resolution, particularly
involving major disputes. Former Chief Justice Warren E. Burger, who helped spawn the
burgeoning rise in ADR, explained in 1984 that we needed to correct our erroneous
dependence on adversarial processes as the primary means of resolving disputes. [FN47]
"[T]rials by the adversarial contest," the Chief Justice commented, "must in time go the
way of the ancient trial by battle and blood. Our system is too costly, too painful, too
destructive, too inefficient for a truly civilized people." [FN48] With the proverbial word
from on high, came the almost meteoric rise in arbitration as the alternative to the courts.

In its infancy and until recently, arbitration was touted as having superior attributes
compared with litigation. It was supposed to be faster and more economical. It had (and
largely still has) the advantage of being held in a private setting. Arbitration was billed as
being more convenient for the parties, less formal, and less harmful to continuing
business relationships. Procedural rules were intended to be simpler, evidentiary rules less
restrictive, and both were (and are today) somewhat within the control of the parties to
create. The party-chosen arbitrator can be an expert familiar with the substantive dispute.
[FN49]

The arbitrator's award is final and binding upon the parties. It can be modified or vacated
only in limited circumstances: [FN50] where the award was procured by fraud, corruption
or undue means; in cases of arbitrator partiality, corruption, or misconduct; where the
award exceeded the *175 arbitrator's powers; or, the catchall, based upon other public
policy concerns. The arbitrator's substantive findings are beyond appellate scrutiny. [FN51]

                  3. Arbitration's Shortcomings

Many commentators - scholars, jurists, practitioners - have written on the shortcomings
of the arbitral process. Their focus has been on problems arising from potential bias of
the arbitrator; a lack of due process, either perceived, real or both; limited or no
discovery, impeding and complicating the parties' ability to know the basis of the claims
against them; the lack of judicial review; the relaxing of evidentiary rules; and, among
others, the arbitrator's power to go outside the law in reaching a decision. [FN52] Yet,
these are among the features that first attracted us to the arbitration process as an
alternative to litigation. An interesting and troubling extension of these criticisms is that
the alternative has begun to look, smell and feel like the litigation process it was designed
to remedy.

That being said, for our purposes here we will look at two of arbitration's practical
shortcomings - efficiency and finality. Our discussion here derives from anecdotal rather
than published authority. [FN53] It begins with the identified problems and ends with how
our Layered Clause attempts to deal with the problems.

Litigators frequently bemoan the increased complexity, cost and uncertainty in today's
arbitration world. Forgetting how they complained about the litigation process when
arbitration began its rise, they long for the proverbial good old days when the process
offered a simpler, faster and cheaper alternative to the courthouse. Reality, however, can
often be ugly.

*176 The fact is arbitration has become as, if not more, expensive as its adjudicative
cousin - court-supervised litigation. Practitioners and their clients tell us that attorneys'
fees in arbitration frequently equal and often exceed the cost to litigate through to trial. It
takes nearly as long, sometimes longer to get through the arbitration hearing to award,
especially now with the "rocket docket" court rules adopted in many jurisdictions.
Processing the arbitral claim has become just as complex as litigation with discovery,
discovery battles, and frequent visits to the court. The decision-maker, who is the
arbitrator, can be very expensive, especially compared with the judge who is "free."
Furthermore, court review of arbitral awards has become more frequent, diluting the
virtue of finality to have been found in arbitration. Understandably, the creative litigator
must find a means to satisfy the disgruntled client who has fallen victim to an unreasoned
arbitral award. Reviewing courts, however, sometimes provide little solace. A recent Rhode
Island Supreme Court decision illustrates this point. [FN54]

The award might be founded on a manifest disregard, the Rhode Island Court opines,
where the arbitrator understands the law (because she correctly states it) but apparently
chooses to disregard the law. Not to worry; the court will find finality: "[A]s long as the
award draws its essence from the contract and is based upon a passably plausible
interpretation of the contract, it is within the arbitrator's authority and our review must
end." [FN55] This approach would seemingly add to one's uncertainty-borne discomfort
with the arbitration process.

Additionally, having to resort to judicial review of the arbitrator's award seems to defeat
the purpose of arbitration as an alternative forum. Speed and finality are lost as the
customarily unsatisfied losing party partakes of both the arbitral and litigation processes.
[FN56]

                  4. The Layered Clause Approach: A Return to Time/Cost Efficiency

The Layered Clause attempts to remedy the litigator's and client's concerns about the
current arbitration process. First, by design, the clause accelerates the process. From the
end of the unsuccessful mediation to award is six months (plus ten days), unless
extended by mutual agreement. Secondly, while allowing discovery, the Clause vests
control in the *177 arbitrator, with specific power to limit discovery. Thirdly, our Layered
Clause helps to alleviate the parties' concern about the basis of the award by requiring a
reasoned award. While one may not be happy with the result, comfort may be found in
knowing that it was not distilled from some mystical concoction. The Layered Clause alerts
the arbitrator to the parties' concern about efficiency and cost, and instructs the
arbitrator to take this into consideration throughout the process. [FN57]

The drafter must be sensitive to the client-specific nature of anticipated disputes. It may
be difficult to predict the type and complexity of prospective disputes. Some are well-
suited to the fast track [FN58] approach taken in our Layered Clause. Trying to create a
carve-out that exempts certain disputes from the expedited process could lead to
protracted skirmishes concerning the interpretation about whether a dispute is eligible for
or exempt from expedited treatment. [FN59]

                  5. The Hybrid Process - Med-Arb/Arb-Med

There are many other ADR processes that the drafter may wish to include in her client-
specific dispute resolution clause. None has been included in the Layered Clause. We have
nonetheless chosen to discuss two of these other processes because of their hybrid
nature. What follows is a brief discussion of the two processes and a glance at some
potential process landmines.

As their nicknames imply, we speak here "explicitly and unabashedly" of combining
mediation and arbitration. [FN60] Though the subject of these hybrid processes differ
quite widely, here we categorize them generally based upon the sequence in which these
intertwined procedures unfold. *178 For the purposes of this article, we accept the
opinion of many that these hybrids are best suited for complex, multi-issue conflicts.

With apologies for stating the obvious, "med-arb" suggests that the quest for resolution
begins with mediation and is conducted in the shadow of arbitration. The process
contemplates the appointment of both a mediator and arbitrator, the latter being brought
in only after the parties and the mediator agree that further mediation will not bring an
agreement. [FN61]

"Arb-med" on the other hand, reverses the process. One accepted view of this process
allows the arbitration to conclude but seals the award. The parties then mediate, equally
uncertain about the outcome risk looming in the arbitrator's envelope. The parties benefit
from having seen how the dispute plays out in an adjudicatory process. The approach
gives yet another tool to the mediator by which she can help the parties consider the risks
of relinquishing final outcome control to the arbitrator. The drafter should consider
providing for whether the arbitrator's award will be revealed at the end of the successful
mediation. Keep in mind when making this drafting decision that the specter of frustration
lurks within the sealed envelope. Another process decision lies in whether the mediator is
present throughout the arbitration. While having her there may increase the cost, it
reduces the time required to educate the mediator about the underlying dispute. The
parties and the mediator will thus have participatory knowledge of what went on in the
arbitration.

For both hybrids, issues arise for the drafter's consideration concerning the arbitrator and
mediator, including whether the same person can don both hats. Candid, confidential
communication is a pillar of mediation. It facilitates the free and open discussion of factual,
legal, emotional and other matters designed to foster the creative search for resolution.
Often these communications involve matters that are inadmissible in the adjudicative
arena. Many times, honest disclosures reveal admitted weaknesses in a party's case.
These considerations make it risky, perhaps impossible, and potentially dangerous for one
person to serve as both mediator and arbitrator.

A good portion of that risk is eliminated when the process design adopts the arb-med
approach. Disputants do battle in the arbitration first. *179 The decision is entered and
not subject to change. Then, leaving their sabers at the door, the parties are off to
mediate.

The party willing to talk freely in a straight mediation is likely to act similarly in the arb-
med. For the reluctant party, the arb-med process provides greater motivation for candor
as disclosure poses little threat and greater potential for gain through settlement. [FN62]
The discussions will not influence the arbitral award or the arbitrator who becomes
mediator, affording a possible economic benefit by not needing to retain two people to
serve their respective roles. Of lesser concern, though not to be ignored, is the extent to
which testimony in an arbitration hearing may impact the mediator's view of a party or his
position.

      D. THE REMAINING LAYERS: NOTICE, COSTS, ATTORNEYS' FEES CLAUSES

These provisions are important parts of the process design, though given less
prominence in this piece. Costs of ADR processes, while comparatively little when laid next
to litigation, can be considerable. Our Layered Clause has each party bearing its own costs
initially and ultimately gives the arbitrator the discretion to award costs. The Clause
similarly treats allocation of attorneys' fees, vesting that determination within the
arbitrator's discretion.

The Notice provisions are intended to cure many ills. Many complain that ADR processes
do not afford the party receiving the notice with much information about the claim upon
which the dispute is based. In our Layered Clause, the party giving notice is expected to
provide details sufficient to apprise the receiving party of the nature of the claim. Our
provision also specifies the effective date, a factor critical to the time deadlines which are
an integral part of the process created by the Layered Clause.

*180 IV. CLOSING THOUGHTS

In today's business world, we are often painfully aware that conflict has become so
commonplace as to be viewed as a natural component of commercial relationships. [FN63]
Claims, disputes, and disagreements appear in the transnational, comprehensive
infrastructure project, extensive development project and multiparty trading relationship.
They occur with equal frequency in the single issue, "mom-and-pop" transaction. Parties
seek to vindicate rights, allocate responsibilities, determine power structures, and ask for
monetary awards.

Conflict "is" and so it will "be" always; but, it is not inherently a bad thing. Conflict can
provide the catalyst for creativity. Trouble looms when conflict is not managed and
systems are not in place for resolution, bringing potentially serious consequences to the
disputants.

The Layered Clause provides one alternative. It takes into consideration the concerns
raised by those who find themselves in the clutches of the unsatisfying and unsatisfactory
adjudicatory litigation system. It expedites the journey from dispute to resolution. Its
scheme seeks to control costs. While keeping the parties focused on the business
relationship that first brought them together, the Clause keeps the parties moving
forward through the various layers towards resolution. Party control provides a common
thread, continuing its presence even in the adjudicative arena, especially where the
Layered Clause includes the hybrid processes.

The underlying reasoning to the Layered Clause is similar to the logic supporting
Congress's enactment of the "Alternative Dispute Resolution Act." [FN64] Parties who
commence the search for resolution through processes that allow them to control
outcome and avoid huge litigation costs are more likely to reach an agreement than the
battle-weary, "ego-bruised litigants." [FN65]

[FNa1]. Robert N. Dobbins is a mediator, arbitrator, discovery referee, and
facilitator of disputes ranging from domestic and trans-national commercial and
business, employment, real estate, insurance, "Lemon law", to major injury/death
matters. Mr. Dobbins holds an LL.M. in Dispute Resolution from Straus Institute
for Dispute Resolution at Pepperdine University Law School and a J.D. from
Southwestern University School of Law (SCALE Program). He dedicates this
article to Linda, without whose inspiration he would not have pursued his LL.M.,
and to Professor Jack Coe for his intellect, guidance, and friendship.

*181 APPENDIX

LAYERED DISPUTE RESOLUTION CLAUSE
(a) Good Faith Negotiation. The Parties agree that, before resorting to any formal dispute
resolution process concerning any dispute arising from or in any way relating to this Agreement
(a "Dispute"), they will first attempt to engage in good faith negotiations in an effort to find a
solution that serves their respective and mutual interests, including their continuing
business/professional relationship. Party-principals agree to participate directly in the
negotiations. Unless otherwise agreed in writing, the Parties shall have five (5) business days
from the date the questioning party gives Notice (defined below) of the particular issue to begin
these negotiations and 15 business days from the Notice date to complete these negotiations
concerning the Dispute

(b) Mediation. If the negotiations do not take place within the time provided in "a" above, or if
the negotiations do not conclude with a mutually agreed upon solution within that time frame (or
its agreed upon extension), the Parties agree to mediate any Dispute. If the Parties cannot agree
upon a mediator, each shall select one name from a list of mediators maintained by any bona fide
dispute resolution provider or other private mediator; the two selected shall then choose a third
person who will serve as mediator. The Parties agree to have the principals participate in the
mediation process, including being present throughout the mediation session(s). The Parties
shall have 45 calendar days within which to commence the first mediation session following the
conclusion of their good faith negotiations or expiration of the time within which to negotiate (as
stated in "a" above). The Parties agree that any mediated settlement agreement may be
converted to an arbitration award or judgment (or both) and enforced according to the
governing rules of civil procedure. The Parties further confirm their motivating purpose in
selecting mediation is to find a solution that serves their respective and mutual interests,
including their continuing business/professional relationship.

(c) Arbitration. If the mediation provided for in "b" above does not conclude with an agreement
between the Parties resolving the Dispute, the Parties agree to submit the Dispute to binding
arbitration. If the Parties cannot agree on an arbitrator, the person who served as mediator shall
select the person to serve as arbitrator from a list compiled by the Parties or, where the Parties
do not compile a list, from a list maintained by a bona *182 fide dispute resolution service
provider or private arbitrator. The arbitrator's award prepared by the arbitrator shall be final,
binding and may be converted to a judgment by a court of competent jurisdiction upon
application by either party. The arbitrator's award shall be a written, reasoned opinion (unless
the reasoned opinion is waived by the Parties). The Parties shall have ten (10) business days
from the termination of the mediation to appoint the Arbitrator and shall complete the arbitration
hearing within six (6) months from the termination of the mediation. The arbitrator shall have
the authority to control and limit discovery sought by either party. The arbitrator shall have the
same authority as a court of competent jurisdiction to grant equitable relief, and to issue interim
measures of protection, including granting an injunction, upon the written request with notice to
the other party and after opposition and opportunity to be heard. The arbitrator shall take into
consideration the Parties' intent to limit the cost of and the time it takes to complete dispute
resolution processes by agreeing to arbitrate any Dispute.

(d) Costs. The Parties agree to share the mediator's and arbitrator's fees equally. If the Dispute
is arbitrated, the arbitrator may include in any award the right to recover mediator and
arbitrator fees, along with any other recoverable costs.

(e) Attorney's Fees. The prevailing party in any arbitration may, in the arbitrator's discretion, be
entitled to an award of attorney's fees incurred in arbitrating the Dispute.

(f) Notice of Dispute: The Notice required under this section shall be in writing. It shall provide
sufficient details of the Dispute to apprise the other party of the basis of the disputant's claims.
The Notice should include the invitation to begin negotiation, and where unsuccessful, mediation.
The date of delivery of the Notice shall be the triggering date upon which the time deadlines in
this section will be calculated.