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Amy J. Schmitz AALS Presentation Outline May 9, 2005
ADR Agreements: Caught in the Contract/No-Contract Conundrum
AALS Panel Presentation –
“Revisiting a Classic: Charles Knapp’s Enforcing the Contract to Bargain”
†
Amy J. Schmitz
My presentation on the panel “Revisiting a Classic: Charles Knapp’s Enforcing
the Contract to Bargain” will discuss the enforcement of agreements to participate in
private non-binding alternative dispute resolution processes, which I will refer to as
“ADR agreements” (to be distinguished from agreements requiring binding arbitration). 1
These ADR agreements can be characterized as a subclass, or at least a relative, of
Professor Charles Knapp’s “contracts to bargain.”2 This is especially true because their
enforcement involves many of the same tensions and remedial complications as those
raised by other contracts to bargain. Indeed, ADR agreements fall prey to a bipolar legal
regime that resembles the contract/no-contract conundrum that has plagued other
contracts to bargain.
Professor Knapp describes contracts to bargain as situations where the parties
have begun negotiations, reached agreement on some terms of a deal, have delayed
agreement on other important terms, “but have nevertheless mutually signified their
willingness to be regarded as “committed” to the entire proposed exchange.”3 Parties to
an ADR agreement similarly manifest willingness to engage in further discussions
through negotiation, mediation, or another non-binding dispute resolution process, in
hopes of concluding a final contract -- a settlement contract. An ADR agreement alone,
however, does not obligate the parties to reach a final settlement. Similarly, other
contracts to bargain generally do not require parties to conclude final agreements. In
both cases, however, the parties’ manifest commitments to contract duties should not be
meaningless merely because the duties’ parameters appear indefinite or ambiguous.
Applying fairly classical law, many courts have adopted a bipolar, contract/no-
contract, approach to enforcing ADR agreements. This means that some courts
automatically place ADR agreements in the contract column by applying the Federal
†
Associate Professor, University of Colorado School of Law.
1
“ADR,” or Alternative Dispute Resolution, generally refers to any non–litigation dispute resolution
process, which theoretically would include court–annexed programs and binding arbitration under the
Federal Arbitration Act (“FAA”) and Uniform Arbitration Act (“UAA”). See e.g., Jean R. Sternlight, Is
Binding Arbitration a Form of ADR?: An Argument That the Term “ADR” Has Begun to Outlive Its
Usefulness, 2000 J. OF DISP. RESOL. 97 (discussing terminology confusion). I use the term “ADR
agreements” here, however, merely to concisely refer to executory, or unperformed, contracts requiring
parties to submit disputes to non-binding alternative dispute resolution processes outside the scope of the
FAA and UAA. This includes agreements calling for negotiation, mediation, mini–trial, non–binding
arbitration and evaluative processes. I discuss the related debate regarding what processes are sufficiently
final to be governed by the FAA in a previous article. See Amy J. Schmitz, Ending a Mud Bowl: Defining
Arbitration’s Finality Through Functional Analysis, 37 GA. L. REV. 123, 124–132 (2002) (discussing the
meaning of finality under the FAA).
2
Charles L. Knapp, Enforcing the Contract to Bargain, 44 N.Y.U. L. Rev. 673, 680-86 (1969).
3
Id. at 685.
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Amy J. Schmitz AALS Presentation Outline May 9, 2005
Arbitration Act (FAA)4 or the Uniform Arbitration Act (UAA)5 to ADR in order to
mandate that the parties participate in an ADR process. At the same time, other courts
assume ADR agreements fall in the no-contract column under antiquated “ouster” or
“revocability” doctrines and traditionally narrow perceptions of so-called “agreements-to-
agree.”
Application of arbitration statutes to ADR agreements may produce acceptable
results in some situations. It becomes problematic, however, when courts use these
statutes to force parties to participate in counterproductive ADR. In addition, some
courts use arbitration laws to gloss over contract language calling for non-binding ADR,
and effectively force the parties to reach settlement contracts.6 Furthermore, although a
presumed no-contract regime may appear to preserve freedom from contract, it often
thwarts contractual liberty and eschews modern contract and remedy principles. When a
court assumes that ADR agreements are in the no-contract column, the court undermines
the parties’ contractual commitment and rewards the breaching parties’ refusal to honor
their promises to submit disputes to ADR.7
Moreover, this bipolar analysis of ADR agreements has left parties without
adequate contracting guidance, thereby hindering productive and efficient use of ADR
provisions. Meanwhile, legislatures have not clarified enforcement or remedy rules
applicable to ADR agreements because they have falsely assumed that courts use contract
and remedy principles to properly assess their enforcement. ADR agreements have
therefore fallen into a contract/no-contract conundrum that is becoming particularly
problematic as these agreements gain popularity and importance in the contracting
marketplace.
In a previous article, I invited courts to abandon this bipolar analysis of ADR
agreements. Instead, I proposed that courts should use common law tools, including
specific enforcement remedies, condition and exhaustion principles, and inherent judicial
powers to control court dockets, to specifically enforce these agreements in proper
4
9 U.S.C. § 1 et seq. (2002). The FAA governs only written agreements to submit disputes to final and
binding arbitration. See Dluhos v. Strasberg, 321 F.3d 365, 366–368 (3d Cir. 2003) (holding private
resolution procedure under the Internet Corporation for Assigned Names and Numbers’ (“ICANN”)
Uniform Domain Name Dispute Resolution Policy (“UDRP”) is not arbitration governed by the FAA
because the procedure does not provide a binding third party determination and “unlike methods of dispute
resolution covered by the FAA, UDRP proceedings were never intended to replace formal litigation”).
5
Uniform Arbitration Act (UAA), 7 U.L.A. § 1 et seq. (1997). The UAA is the FAA’s state law twin, and
it has been adopted or is substantially similar to the law in fifty jurisdictions.
6
Some courts go further than simply ordering participation in an ADR process, and may effectively force
the parties to conclude final settlement contracts by treating an ostensibly non-binding process as binding
arbitration. See Inland Group of Cos., Inc. v. Providence Washington Ins. Co., 985 P.2d 674, 678-80 & n.1
(Idaho 1999) (assuming in a footnote without discussion that the state’s UAA applied to an insurance
policy requiring appraisal of losses covered by the policy, and therefore determining enforcement and
waiver issues under the Act’s pro-arbitration law and procedures). But see Ohio Council 8 v. Ohio Dep’t of
Mental Retardation & Development Disabilities, 459 N.E.2d 220, 223 (Ohio 1984) (emphasizing that
“‘mediation’ and ‘arbitration’ are not functionally equivalent” in refusing to enforce mediator’s non-
binding settlement recommendation).
7
Id. at 673-88 (critiquing common law’s rigid all-or-nothing approach to obligation enforcement in the
contracts to bargain context).
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Amy J. Schmitz AALS Presentation Outline May 9, 2005
contexts.8 I suggested that courts should use these tools to order parties to comply with
ADR agreements where parties’ participation in an ADR process will foster fair
settlement, or provide other collateral benefits that outweigh burdens of compelled
participation in the process.9 I further explained that courts should consider relational
contexts in making this determination, and refrain from automatically coercing
participation in ADR. For example, it may be appropriate for a court to use common law
enforcement tools to order corporate sellers and buyers to negotiate price adjustments
under an ADR agreement in an installment sales contract. In contrast, a court may be
wise to refuse to order an employee to mediate sexual harassment claims against an
intimidating or abusive employer.
The equitable and flexible enforcement I proposed raises many of the same
questions and tensions as those involved with enforcement of other contracts to bargain.
I now seek to further explore these questions and tensions. It seems these tensions have
led to courts bipolar attitude toward enforcement of ADR agreements. On the one hand,
courts are reluctant to enforce these agreements because they often prescribe ambiguous
duties of “participation” and “good faith,” and preserve parties’ freedom from contract by
reserving their rights to litigate disputes they fail to resolve through ADR. On the other
hand, courts remain reticent to condone parties’ defiance of their manifest commitments
to engage in ADR. This is especially true in this pro-contract enforcement and pro-ADR
era.
Instead of facing these tensions, and delineating an approach for determining
proper enforcement of ADR agreements, most courts have continued to hide behind
arbitration statutes or old doctrines and perceptions. This has left contracting parties to
rely on ambiguous and arbitrary enforcement of ADR agreements, which, in turn, stymies
productive use of ADR. Moreover, it ironically defies the popular embrace of ADR as
means not only for amicably and efficiently resolving disputes, but also for easing court
congestion.
This need for legal clarity may seem to suggest that courts should adopt a “one-
size-fits-all” enforcement rule. Applying such a rule, a court would use all remedial tools
to enforce an ADR agreement based solely on a finding that the contractual ingredients
were present at the time of contract: sufficiently definite offer, acceptance and
consideration. Likewise, the court would narrowly apply contract defenses based only on
the circumstances present at the time of contract. Most economists would argue that such
an approach would promote efficiency by providing clear contracting guidance and
stifling litigation. This also would comport with the current popularity of more classical
and economics-focused law.10
8
Amy J. Schmitz, Refreshing Contractual Analysis of ADR Agreements By Curing Bipolar Avoidance of
Modern Common Law, 9 HARV. NEG. L. REV. 1 (2004).
9
Id. at 62-74.
10
See Charles L. Knapp, Rescuing Reliance: The Perils of Promissory Estoppel, 49 HASTINGS L.J. 1191,
1201-1203 (1998) (describing the “postmodern” post-Reagan period as “nudg[ing] contract back toward a
kind of formalism that had seemed obsolescent only a decade or so ago”). But see, Charles L. Knapp,
Reliance in the Revised Restatement: The Proliferation of Promissory Estoppel, 81 COLUM. L REV. 52, 78-
79 (1981) (highlighting contextualized contract analysis and increased “willingness to subordinate form to
substance, where justice requires” under the “modern” law encapsulated in the Restatement and U.C.C.).
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Amy J. Schmitz AALS Presentation Outline May 9, 2005
Overly rigid contract rules, however, become inefficient if they lose legitimacy
because they create arbitrary or unfair outcomes. This likely would be true of a rigid
regime governing ADR agreements because it would ignore “relational realities”11 of
ADR and unduly focus only on the time of the original, pre-dispute, contract.12 Such a
rigid rule, for example, would treat the above-referenced installment sales and
harassment claimants the same, regardless of how the parties’ relations evolved after they
agreed to their original contracts. These rules, therefore, may coerce parties to use and
comply with ADR agreements, even where it would exacerbate tensions or cause
emotional harm. This means that courts would use nuclear weaponry to enforce all ADR
agreements, even where less deadly force would be appropriate.
I therefore propose a bifurcated contextual approach to enforcement of ADR
agreements. The approach is bifurcated in that a court must separately decide (1)
whether there is a valid and enforceable ADR agreement that a party has breached and
(2) what remedy or enforcement tool is most appropriate for the case. In other words, the
court may not simply resort to all remedial weaponry based on a finding of breach.
Furthermore, courts may not hide behind a no-contract assumption in order to avoid
difficulties of crafting an appropriate remedy. In addition, the approach is more
relational and contextual than classical law in that it allows courts to determine ADR
agreements’ validity, breach and enforcement remedies based on parties’ contractual
intent and relations at the time of original contract formation and as it evolved during
contract performance.
Admittedly, this contextualized approach appears to augment the ambiguity
problems that plague courts’ current bipolar analysis. My proposed approach, however,
would help clarify the law by requiring that courts “come clean” about their consideration
of context, and the real difficulties with crafting remedies to enforce ADR agreements.
In addition, standards allowing courts to consider relational realities are more legitimate
and less arbitrary than the current contract/no-contract regime. At the least, this
contextualized approach has more grounding in contract law than faulty application of
arbitration statutes and baseless ouster and revocability doctrines built on judicial
jealousies of private dispute resolution.
Furthermore, the analytical method I propose does not advocate tyrannical
“[e]quity without law.”13 Instead, it fosters certainty and compliance with ADR
agreements by clarifying that courts will at least order nominal damages to acknowledge
and enforce ADR agreements that are valid under contract law. Accordingly, even if
post-contract relational realities warrant against specific enforcement of an otherwise
valid ADR agreement, the court should at least order nominal damages in order to signal
11
This is not a technical term, but is instead my convenient way of referring to broad contextual
considerations that often defy definition or labeling. “Relational realities” therefore take into account not
only course of performance, course of dealing, and usage of trade, but also emotional, reputational, and
practical factors of a given relationship.
12
In Professor Ian Macneil’s terms, classical doctrine embraces a confined “presentiation,” meaning that it
perceives exchange as bound by present events, namely offer and acceptance at the time of contract. See
Ian R. Macneil, Restatement (Second) of Contracts and Presentiation, 60 VA. L. REV. 589, 589–93 (1974)
(critiquing “presentiation” in classical law as “recognition that the course of the future is bound by present
events, and by those events the future has for many purposes been brought effectively into the present”).
13
See Knapp, supra note 2, at 1334 (emphasizing the importance of protecting equitable contract analysis
in the wake of the return to classical contract law).
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Amy J. Schmitz AALS Presentation Outline May 9, 2005
to contracting parties that their ADR agreements have legal significance. This would
clarify that courts will not condone parties’ defiance of contract promises that survive
contract defenses. Nonetheless, courts should not “add insult to injury” by coercing
parties to participate in ADR that will likely be counterproductive in light of relational
realities that have evolved during the parties’ dealings. Instead, courts should seriously
consider the equities in determining the proper remedy for enforcing ADR agreements in
order to prevent tyranny that results from application of law without equity.14
Moreover, even an ostensibly rigid regime for enforcing ADR agreements comes
with ambiguities, and invites litigation regarding its applications and enforcement. It
may be relatively easy for a court to find that an ADR agreement has all the ingredients
of an enforceable contract (offer, acceptance and consideration), but it generally is very
difficult for the court to decipher what duties the contract requires and whether parties
breached those duties. Arguably, the rule that would best minimize ambiguities would
require that courts never enforce any ADR agreements. Such blanket rejection of ADR
agreements, however, would ignore contract intent, stymie use of beneficial ADR, and
condone bad faith contracting.
Courts assessing enforcement of ADR agreements therefore must navigate a
formidable remedial obstacle course. Most ADR agreements leave it for the court to
delineate what parties must do to “participate” in ADR, and to do so in “good faith.”
Accordingly, courts often reserve findings of breach for the most egregious or clear
defiance of ADR duties. In addition, finding breach is a difficult task due to high
evidentiary hurdles. These hurdles include ambiguous privileges and exclusions that may
preclude courts from considering mediator testimony or other evidence pertaining to
negotiations that transpire during an ADR process.15 Furthermore, many states have
enacted additional privileges and evidentiary exclusions aimed to protect the
confidentiality of mediation.16 Nonetheless, these exclusions generally do not preclude a
court from considering objective conduct and bad faith behavior.17
In addition, once a court finds that a party has breached an ADR agreement, it still
must face the daunting task of determining a proper remedy for the breach. Courts
struggle to quantify damages caused by a party’s breach of a duty to participate in ADR
because the court may not measure the damages with regard to any settlement the parties
could have reached if they engaged in the ADR. At most, a court could assess nominal
damages or costs the injured party incurred in preparing for the ADR process.
Furthermore, it is tough for a court to specifically enforce an ADR agreement because it
requires the court to craft and enforce an order coercing parties to “participate” in ADR,
and then monitor and enforce that participation. This administratively burdens the courts,
14
Id.
15
See Fed. R. Evid. §408 (protecting against admission of negotiations aimed toward settlement of the
case); Jerry P. Roscoe, What Did I Promise? The Path from Confidentiality to Conspiracy, JUST
RESOLUTIONS 6, 6-7 (April 2005) (explaining the ambiguous confidentiality rules applicable to mediation
discussions and conduct).
16
See UNIFORM MEDIATION ACT (UMA) §§ 1–16 (2001), reprinted in 22 N. ILL. UNIV. L. REV. 165 (2002)
(stating rules for confidentiality, mediator privileges and disclosures); Elizabeth Strong, The Uniform
Mediation Act, An Opportunity to Enhance Confidentiality in Business Mediation, 7 ADR CURRENTS 5, 6
(June–Aug. 2002) (discussing confidentiality focus of UMA).
17
UMA §§1-16 (2001); Roscoe, supra note 15, at 6-7.
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Amy J. Schmitz AALS Presentation Outline May 9, 2005
and puts them in the front lines of tensions raised by desires to promote both good faith
participation and personal autonomy in ADR. Courts should protect the voluntary nature
of ADR, but should not condone blatant breach or bad behavior in ADR (conceptually
deemed a “kinder and gentler process”).
As is true of other contracts to bargain, ADR agreements manifest clear intent to
be bound to something – but the ambiguities and indefiniteness of that something make
enforcement daunting. Parties to ADR agreements have promised to participate in some
process – but what is that process? What does “good faith participation” in that process
mean? How should a court enforce the duty to participate in good faith? Moreover, how
do parties prove breach of this duty in light of ADR confidentiality and privilege rules?
The thorniest questions therefore focus on the second step of my proposed approach:
determining remedies.
This presentation seeks to invite discussion of these remedy questions, and related
issues regarding enforcement of contracts to bargain. I plan to introduce this discussion
in Part I by explaining how ADR agreements may be characterized as contracts to
bargain, and are caught in a contract/no-contract conundrum similar to that which has
trapped other such contracts. In part II of the presentation, I will then discuss
distinguishing qualities of ADR agreements that help or hinder their enforcement. In Part
III, I will discuss my proposed analysis of ADR agreements and entertain debate
regarding its possibilities and pitfalls. Finally, I will focus debate on the lingering
remedial questions raised by any regime calling for enforcement of ADR agreements, and
invite further exploration of remedial problems that plague most contracts caught in a
contract/no-contract conundrum.
106
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