MANAGEMENT

The CPA in Mediation and Arbitration

Benefits and Opportunities in Mediation and Arbitration

By Christine L. Newhall

Disputes are an inevitable reality for any business entity. Unfortunately, litigation can be a lengthy and expensive process, and engender unwanted media attention as well as animosity among those involved. Alternative dispute resolution (ADR) techniques, such as mediation and arbitration, are increasingly popular among accounting professionals to solve not only the initial dispute but also the attendant issues. ADR offers businesses a range of flexible, economical, private, fast, and impartial processes for handling business disputes.

Mediation

In any professional practice, fee collection, performance problems, partnership issues, and breach of contract often arise. Some of these can give rise to charges of professional malpractice. Misunderstandings can often be resolved promptly and economically through mediation, in which a third party, known as a “neutral,” assists the parties in reaching their own settlement, but does not have the authority to make a binding decision.

Benefits of successful mediation vary, depending on the parties’ needs and interests. The following are some common advantages of mediation:

Parties may wish to attempt mediation before submitting their dispute to arbitration or litigation. This can be accomplished by adding a mediation provision in the engagement letter or contractual document:

If a dispute arises out of or relates to this contract or engagement letter, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association (AAA) under its mediation rules before resorting to arbitration, litigation, or some other dispute-resolution procedure.

To submit an existing dispute to mediation, use the following:

The parties hereby submit the following dispute to mediation administered by the American Arbitration Association under its mediation rules. [The clause may also provide for the qualifications of the mediator, the method of payment, the locale of meetings, and any other item of concern to the parties.]

Approximately 85% of mediations administered by the American Arbitration Association result in a settlement. If the parties cannot reach resolution, they may proceed to arbitration.

Arbitration

Arbitration is the submission of a dispute to one or more impartial persons for final and binding determination. Court intervention and review are limited by applicable state or federal arbitration laws; award enforcement is facilitated by those same laws.

Under the AAA rules, the procedure is relatively simple: Legal rules of evidence are not applicable; there is no motion practice or court conference; and there is no transcript requirement, nor one for written opinions of the arbitrators (though arbitrators may choose to submit an opinion, or parties may request that they do so). Although there is no formal discovery process, the AAA’s rules allow the arbitrator to require production of relevant documents, deposition of fact witnesses, and reports by expert witnesses. These rules may be varied by the parties’ mutual agreement.

Stipulations may also be made regarding the confidentiality of proprietary information, evidence, locale, number of arbitrators, and issues subject to arbitration. The parties may also provide for expedited procedures, if hearings must be scheduled on short notice or if awards must be rendered quickly.

Additional benefits of arbitration include the following:

Parties may agree to arbitrate disputes by inserting a future-dispute clause in an engagement letter or contract, such as the following:

Any controversy or claim arising out of or relating to this contract or engagement letter, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Arbitration Rules for Professional Accounting and Related Services Disputes and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

Bringing existing disputes to arbitration may be accomplished by adding this clause:

The parties hereby submit the following dispute to arbitration administered by the American Arbitration Association under its Arbitration Rules for Professional Accounting and Related Services Disputes and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

These clauses have consistently received judicial support. Accounting firms should consult with their professional liability insurers to ensure that policy provisions permit use of mediation or arbitration to resolve disputes; some insurers favor these methods over others.

The CPA as Dispute Resolution Professional

Qualified accounting professionals can utilize their expertise by serving as a mediator or arbitrator. CPAs are uniquely qualified to serve on the AAA Roster of Arbitrators and Mediators, able to handle accounting as well as complex commercial, employment, and construction cases, where issues involve matters such as financial breakdowns, incentive packages, and benefits issues. CPAs serving on the AAA Roster are selected based on their knowledge of the financial aspects of commercial disputes, and are not limited to accounting disputes.

Qualifications for neutrals are extensive, and positions limited. Candidates are screened using an intensive, two-tiered process that evaluates management skills, substantive expertise, commitment, ethics, training, and suitability to the regional caseload. Along with academic achievements and professional honors, neutrals’ qualifications include a minimum of 10 years of senior-level business experience or legal practice, honors and awards indicating leadership in the field, and training and experience in arbitration or other forms of dispute resolution. Once accepted to the panel, there are basic arbitrator training requirements, as well as continuing educational requirements, that neutrals must meet.

A successful neutral is: patient; open-minded; flexible but able to enforce rules, procedures, and policies; and willing to communicate with diverse parties. Ultimately, a neutral is a person who can make sound decisions in often-difficult situations. The arbitration process requires technical expertise, as well as effective and efficient management skills. Proper handling of discovery issues, scheduling orders, and difficult parties is a must, as is an ability to identify issues and address the case in a timely fashion.

The AAA’s profile may match that of a CPA, but neutral selection for a specific case is made by the parties themselves. The AAA prides itself on making available a diverse panel to fit all case circumstances and needs, and the organization values the skilled service that CPAs bring to the AAA Roster. The role of an arbitrator is a difficult but rewarding one in the ADR process; serving on the AAA Roster can enhance one’s professional career.

The Association maintains tailored rules for the industry, Dispute Resolution Rules for Professional Accounting and Related Service Disputes, available from www.adr.org.