The U.S Government has today again raised the estimate of the amount of oil spilling into the Gulf of Mexico.  The estimated rate now stands at 60,000 barrels per day.  As of yet, there are no estimates of the cost of the flood of litigation to follow.

Perhaps in an effort to stave off some claims, BP has declared on its website that:

Appointing an Independent Mediator is a recognized practice to strengthen claims processes and resolve disputes. BP is working to appoint the best possible person to fill this important role.

In those cases in which a claimant and BP cannot agree on resolution of a claim, the claimant can seek review from the Independent Mediator.  The Independent Mediator then will make an advisory decision on the claim.

I was interviewed on a syndicated radio show, Issues Today, about the benefits of mediation.  Here is the link.

GM has announced that it will reinstate 660 of 1100 dealerships that were slated to close.  Last month, Congress passed legislation giving terminated dealers the "right" to appeal their termination through binding arbitration to be overseen by the American Arbitration Association.  Although, as discussed in my book, I'm all in favor of arbitration and I am an arbitrator for the AAA, the special treatment afforded by this law strikes me as both undermining the credibility of arbitration as a contract-based means of resolving disputes agreed upon in advance by the parties and confirming Tip O'Neill's famous admonition that "all politics is local."  The diffuse national interest in restoring the competitiveness of the auto industry is simply no match for the influence that can be asserted by local car dealerships over their congressional representatives.

Although, on the surface, there seems nothing wrong with a business a chance to go on, consider the implications of granting a similar right to all business or to all terminated workers.  The law does not ask the arbitrators to review the propriety of the termination under the contracts entered by the dealers with the automakers, or to decide based upon any discernible principle of law, but instead to decide as follows:

The arbitrator shall balance the economic interest of the covered dealership, the economic interest of the covered manufacturer, and the economic interest of the public at large and shall decide, based on that balancing, whether or not the covered dealership should be added to the dealer network of the covered manufacturer.

The factors considered by the arbitrator shall include (1) the covered dealership’s profitability in 2006, 2007, 2008, and 2009, (2) the covered manufacturer’s overall business plan, (3) the covered dealership’s current economic viability, (4) the covered dealership’s satisfaction of the performance objectives established pursuant to the applicable franchise agreement, (5) the demographic and geographic characteristics of the covered dealership’s market territory, (6) the covered dealership’s performance in relation to the criteria used by the covered manufacturer to terminate, not renew, not assume or not assign the covered dealership’s franchise agreement, and (7) the length of experience of the covered dealership. The arbitrator shall issue a written determination no later than 7 business days after the arbitrator determines that case has been fully submitted. At a minimum, the written determination shall include (1) a description of the covered dealership, (2) a clear statement indicating whether the franchise agreement at issue is to be renewed, continued, assigned or assumed by the covered manufacturer, (3) the key facts relied upon by the arbitrator in making the determination, and (4) an explanation of how the balance of economic interests supports the arbitrator’s determination.

This supposed "balancing" test is pure fantasy:  is the arbitrator supposed to decide whether the close is more important to the dealer, the maker, or the public?  This is like asking whether $1000 is more important to a laid-off worker, a multi-national company, or the public at large.

Perhaps not surprisingly, GM has decided against playing this game.  According to the Washington Times

" GM said it would not have enough time to negotiate with all 1,100 dealerships that appealed the automaker's decision to close them within a four-month window imposed by the federal government.  "By doing this we save a lot of time, energy and dollars," said Jim Bunnell, GM general manager of network support, saying the company wished to avoid a "very large arbitration process."

Don't get me wrong.  Many local dealers have made significant contributions to their local communities and deserve a fair opportunity to continuing doing so.  Special treatment with a law of dubious constitutionality, though, says far more about political influence than justice,  sets a bad precedent, and does nothing to advance arbitration as a fair and cost effective alternative to wasteful litigation.  I suspect that GM has, thus far, opted against challenging the constitutionality of the law in favor of giving in, because it owns political bailout might make is less than ideal challenger.

In his blog, The Frontal Cortex, Jonal Lehrer (author of How We Decide and Proust Was a Neuroscientist) describes the "ultimatum game," which is often used in teaching Negotiations to demonstrate how important a sense of "fairness" may be to reaching an agreement.  The game has two players.  The first player is given $10 and told that he or she must offer part of it to the second player.  The first player can offer any amount, if the second player accepts the offer, both players keep their share, but if the second player rejects the offer, then both players get nothing.  Almost invariably, if the first player offers much less than $5, the second player will reject the offer--even though rejecting the offer makes the second player worse off.  (A purely rational player would accept any offer above zero, because regardless of how much player one keeps, a non-zero propeal would be a gain).    This phenomenon has been shown in a variety of contexts.  For example, given a choice of a job that will pay $80,000 in a company in which everyone else makes $80,000 or less, and a job paying $90,000 in a company in which everyone else is paid $120,000 or more, most people would prefer the first job.

Lehrer describes additional research (using brain scanners) that shows concerns over fairness or equality may not be purely selfish--that people sometimes prefer someone else be given a gift to receiving a gift themself, if it will balance out a unfair starting point.

In a nutshell, when someone says "its the principle, not the money," they may actually mean it, and it would be a mistake for a mediator or negotiator to dismiss the such non-monetary motives.  In litigation, though, the issue is complicated by other psychological tendencies, such as the tendency to underestimate the time and cost of the lawsuit and overestimate the likelihood of success.  Further, even successful litigants often come away from a lawsuit feeling beaten down by the process and without the expected satisfaction derived from vindication.  Consequently, and perhaps counter-intuitively, negotiation or mediation of a settlement may require putting "fairness" aside, because the price of fairness is simply too high.  While I don't think a negotiator or mediator can, or should, discredit or diminish the importance of fairness to the parties, I do think he or she can make a significant contribution by helping them  more accurately assess both the cost of pursuing "fairness" and the potential for disappointment.

Recently, I was interviewed for a Podcast by Startup Nation (a website for entrepeneurs) discussing how small and startup businesses can avoid or reduce litigation costs.  StartUp Nation,   The podcast is now available on iTunes and here.  Check it out!

Republican Senators Graham (R-SC) and Chambliss (R-Ga) issued a press release today about their proposed amendment to the health reform bill that would create a loser pays system for medical malpractice claims.  Under the proposal which, not surprisingly, is supported by the U.S. Chamber of Commerce, malpractice claims would be required to go through non-binding arbitration before litigation.  Although the loser could go to court, it would be required to pay the the other sides costs, including legal fees, if he or she loses again.

Although I'm obviously a fan of ADR (especially mediation) for malpractice claims, I don't think loser pays is the panacea it is cracked up to be.  The main results would be to intimidate plaintiffs and increase medical bankruptcy filings.