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

[Federal Register Volume 64, Number 98 (Friday, May 21, 1999)]
[Notices]
[Pages 27843-27846]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12875]


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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

[[Page 27844]]

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