THE CPA IN MEDIATION AND ARBITRATION

IN-HOUSE DISPUTE RESOLUTION PROGRAMS

By Philip Zimmerman, CPA

Being knowledgeable about in-house dispute resolution programs is important for CPAs because such programs can result in substantial savings for their firms and additional consulting fees for those in public practice. Corporations have discovered that ADR can be very helpful in resolving disputes as part of in-house dispute resolution programs without the cost, anxiety, and publicity of litigation in matters involving employment, consumer complaints, product liability, and financial services. In fact, a recent General Accounting Office survey of companies found that approximately 80% reported using mediation and 19% using arbitration.

At a December City Bar Association panel discussion on the operation of in-house dispute resolution programs, Joel E. Davidson, Esq., deputy general counsel of Paine Webber, and Joseph G. Williams, Jr., Esq., associate general counsel of the Equitable Life Assurance Society, explained how their firms' in-house dispute resolution programs worked. From the first year on these programs saved their firms substantial sums running annually into millions of dollars in out-of-pocket costs and salaries saved from not losing valuable staff time in protracted litigation.

Moreover, the public who dealt with these firms was found to be more satisfied with the way claims against these firms were handled and finally settled. In many cases, this resulted in the retention of valuable client and other relationships.

As is true for most in-house dispute resolution programs, Paine Webber and Equitable each had a program developed to meet their particular business needs and corporate cultures. However, there were many basic similarities which would also generally apply to other corporations or the clients and internal operations of CPA firms. CPAs in public practice, therefore, are in an excellent position to enhance the profitability of their practices by using it internally for disputes involving their firms and externally as consultants in helping clients set up their own programs. CPAs in private practice may bring the advantages of an in-house dispute resolution program to their companies.

A key benefit of an in-house dispute resolution program is that it enables the customer complainant to be heard promptly and in a more friendly way. Complaints are funneled into one department that is adequately staffed to quickly reply to the claimant and has the authority to gather all the facts concerning the dispute. The first response is a letter acknowledging the complaint and giving a timetable for the sending of a more detailed response to the claim. The detailed response is sent promptly with the company's reply to the complaint after adequate facts have been gathered. It contains an offer to continue communications, if necessary. Many times, a complainant who is angry because of a perceived unnecessary loss becomes incensed by the lack of a prompt acknowledgment and a reasonably current and meaningful response. The centralized complaint department also enables the firm to track the types of problems its customers perceive so that necessary remedial action can be taken. The tracking system will also reveal any employees who are causing numerous and, sometimes, unnecessary problems for customers. These employees can be retrained, reassigned, or, if necessary, terminated.

Customers, many times, are satisfied so soon after the problem arises that they do not even get around to retaining an attorney. This, in turn, enables the firm to settle with the customer, if the customer is partially or entirely correct, at only the cost of the damages without adding on legal expenses and other legal costs such as expert fees. The legal costs often can be as much as almost 50% of the damages if a 30% contingency legal fee and expert fees are added to a net settlement that will satisfy the customer.

If the complaint cannot be settled through negotiation between the firm and the complainant or his or her attorney, these firms suggest mediation. Mediation is an enhanced type of negotiation wherein the parties are helped in their negotiations by a mediator, who is a neutral and whose only interest is to facilitate a settlement between the parties. Mediation is voluntary, confidential, and nonbinding unless the parties agree to a settlement. In addition, it is relatively fast, reduces costs, and retains some relationships. Parties maintain control of the process rather than turning it over to their attorneys and a court.

Both the in-house counsels found that complainants and their attorneys generally were willing to enter into mediation because it is fast, easy to do, and low cost. If there are monetary damages, the complainants and their attorneys receive the money sooner. If the dispute involves other reasons, there is an earlier resolution of the problem. Attorneys also know that litigation can run on over several years only to be ultimately settled, since over 90% of lawsuits do not go to decision at trial.

The Motorola Example

One of the leading companies that uses alternative dispute resolution as part of its in-house dispute resolution program is Motorola. Motorola considers litigation to be a defect in its law department. Just as it does on its production lines, it seeks ways to eliminate any defect that it discovers. One of the major ways Motorola does this is by the use of a standard screen through which all disputes over a certain size must pass in order to determine whether mediation, another form of ADR, or litigation is preferable.

Although not all disputes are best resolved through ADR, most are. Those that are not include claims where resolution through ADR will encourage other claims, the best interests of the company are not to negotiate the major issues involved, either side is seeking a precedent, or the issues can be disposed
of by Summary Judgment or a Motion
to Dismiss.

CPAs, both in private or public practice, can benefit from adopting an in-house dispute resolution program for their companies. Those in public practice can also become consultants in helping client companies establish such a program. The Arbitration and Mediation Committee of the New York State Society of CPAs is available to provide more information or referrals to outside
sources that can help in designing and implementing such programs. Contact chairman Philip Zimmerman by email at pzimmerman@luca.com. *

Editor:
Philip Zimmerman, CPA
Mediator and Arbitrator