March 1999 Issue



By Simeon H. Baum

Accountants, like all professionals, have their share of problems. When the problems generate disputes, and the disputes get very serious, litigation is often the next step. Over the last several years, however, more moderate means for dispute resolution have been gaining acceptance. These alternative dispute resolution mechanisms include not only arbitration--an evaluative process in which one or more arbitrators renders a binding decision--but also less confrontational methods, such as neutral evaluation and mediation. In neutral evaluation, a neutral party shares his or her view on the matter with the parties, to enable the parties to make a realistic assessment and come to a negotiated settlement. In mediation, the mediator's focus is not on telling the parties where the matter will or should come out, but on helping the parties communicate effectively with each other and reach their own assessment and negotiated settlement. Collectively, these alternative dispute resolution mechanisms have been given the acronym ADR, and ADR offers a host of possibilities for accountants.

October 30, 1998, gave further impetus to the ADR movement. On that day, President Clinton signed into law H.R. 3528 as Public Law 105-315, the Alternative Dispute Resolution Act of 1998, extending ADR to all 94 Federal district courts. With the expansion of ADR throughout the Federal court system comes new opportunities for the accounting profession, both by using ADR to resolve their own disputes and by
serving as experts or mediators in the
ADR process.

Purpose of the ADR Act

Legislators introducing H.R. 3528 lauded ADR as offering parties and district court judges options other than the traditional, costly, and adversarial process of litigation. The act was designed to address the problem of high caseloads and provide a quicker, more efficient method of resolving Federal cases when the parties or the courts so choose. Congress recognized that ADR presents "innovations and flexibility in the administration of justice." The legislators considered a recent Northwestern University study of ADR programs in state courts, which found that mediation significantly reduced the duration of lawsuits and produced significant cost savings for litigants. They also heard about the San Diego Mediation Center, which, with an agreement rate of 80% and a compliance rate of 85%, won a Golden Watchdog Award for saving San Diego taxpayers $3.7 million in direct costs to its small claims, municipal, and superior courts.

In section 2(1), the act recognizes that ADR, when properly accepted, practiced, and administered, can not only save time and money and reduce court burdens, but also "provide a variety of benefits, including greater satisfaction of the parties, innovative methods of resolving disputes, and greater efficiency in achieving settlements."

ADR Act Provisions

The following are some of the key provisions of the act:

Broad ADR Definition. Section 651 broadly defines ADR as "any process or procedure, other than an adjudication by a presiding judge, in which a neutral third party participates to assist in the resolution of issues in controversy, through processes such as early neutral evaluation, mediation, minitrial, and arbitration."

Broad ADR Mandate. Section 652(a) issues a broad mandate for each district court to set up its own program, with permanent court administrative personnel, for use of ADR in all civil actions, including bankruptcy adversary proceedings, and to encourage ADR use by, inter alia, requiring litigants in all civil cases to "consider the use of ADR at an appropriate stage of the litigation." All district courts must now provide litigants in all civil cases with at least one ADR process "including, but not limited to, mediation, early neutral evaluation, minitrial, and arbitration." Any court may now decide to require the use, in certain cases, of mediation or early neutral evaluation. Arbitration, however, must always be upon consent of the parties. Each district court remains free to exempt "specific cases or categories of cases in which the use of [ADR] would not be appropriate."

Opportunities for Accountants. While the district court might set up a panel of attorneys, section 651(d) of the act opens the door for making other professionals, e.g., accountants, available as mediators. It requires district courts to adopt "appropriate processes for making neutrals available" for use by the parties for each category of process offered. Nothing in the act requires the neutrals who are made available to be attorneys. The only restriction is that the neutrals must be qualified and trained to serve in the appropriate ADR process. Section 653(b) of the act says the neutrals may include magistrate judges, professional neutrals from the private sector, and other "persons trained to serve as neutrals in [ADR] processes."

Thus, to the extent that any accountant makes serving as a neutral in ADR a part of his or her qualifications, that accountant could be a "professional neutral" under section 653(b). Moreover, accountants might come in as "persons trained to serve as neutrals in [ADR] processes."

Special provisions apply to arbitrators. Courts authorizing arbitration shall set standards for certification of arbitrators in conformity with section 655(b) of the act.

Benefits of the Act to the Public and to Accountants

The act represents one more positive step in offering disputants flexible and creative alternatives to costly and time-consuming litigation--alternatives that empower parties to repair relationships and resolve matters on their own terms. If existing programs are any indication, it should be favorably received and should spread ADR benefits to a wider number of parties.

The act presents at least three benefits for accountants.

First, in making ADR more widely available, it increases possibilities for accountants to resolve matters to which they are parties through use of the court-annexed ADR processes.

Second, it presents the opportunity for accountants to serve as mediators in court-referred mediations. Accountants, with proper mediation training, might bring their facility with numbers to bear as mediators in complex commercial matters where a focus on business accounting issues, or on calculations of damages, is needed.

Third, an accountant might serve as expert in the mediation of matters where another person serves as the mediator. Often parties in mediations are encouraged to arrive at standards they all can accept. An independent accountant can provide an acceptable standard for parties in a number of areas relating to business evaluation and other issues requiring accounting skill. Similarly, accountants might be helpful for parties structuring a settlement and assessing tax effects and options. Accountants might also enter the mediation process to provide an audit, whether of books or inventory, to help parties arrive at a realistic assessment from which they can achieve a fair or workable settlement. Additionally, in accounting malpractice cases the input of an accounting expert might be useful in assessing liability risks in the matter.

It is hoped that the accounting profession will take advantage of the benefits afforded by the ADR Act of 1998 and ADR in general. *

Simeon H. Baum is a litigator in private practice in New York City and president of Resolve Mediation Services, Inc., a provider of neutral services in ADR. He is chair of the New York County Lawyers Association's Committee on Arbitration and ADR and an active member of the New York State Bar Association's ADR Committee.


By Philip Zimmerman, CPA

CPAs are currently serving as mediators in the ADR program of the New York Supreme Court Commercial Division, after receiving their mediation training in a course given by the Foundation for Accounting Education and sponsored by the New York State Society of CPAs' Arbitration and Mediation Committee. CPAs interested in serving in the Federal court system will need similar training. A two-day training program is being planned for June 1999 and will be held in New York City. CPAs who would like to attend should contact Christine Szeluga at (212) 719-8394, (800) 633-6320, or *

Philip Zimmerman, CPA
Mediator and Arbitrator

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