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July 1994

Mediation - an alternate dispute resolution methodology whose time has come. (Accountant's Liability)

by Miller, Seymour W.

    Abstract- Mediation is increasingly being used as a strategy for resolving disputes. It is a voluntary proceeding which results in a settlement agreement and perhaps the resumption of business relations between the conflicting parties. This dispute resolution approach is generally viewed as a better alternative to litigation. Aside from being lengthy and expensive, the sheer quantity of litigation tends to undermine the quality of the administration. In contrast, mediation is inexpensive, speedy and involves less contentiousness. This strategy is also considered superior to arbitration because the latter results in an all-or-nothing decision. After a lengthy and costly preparation, only one party leaves the arbitration table satisfied. There are many experts in various fields who can serve as mediators. In New York, for instance, such experts are available from the New York County Lawyers' Assn.'s recently created Large and Complex Commercial Case Mediation Service.

Lawyers are taught to represent their clients zealously. The adversarial system for the presentation of cases was developed under English law and was designed to ascertain the truth and reveal the facts. Lawyers, zealously bound to observe the obligations of such representation, must always carry out that obligation up to the limits of the law. Unfortunately, many lawyers have been looked upon as "hired guns." This concept is a substantial part of what has contributed to the diminution of respect for the legal profession.

Another factor in the increase of litigation is caused by the greater education of our society. With education comes a greater understanding of one's rights. An injured party knows to seek redress.

Alternate Dispute Resolutions

Economic incentives tend to promote litigation rather than discourage it. However, the sheer quantity of litigation tends to threaten the quality of the administration of justice. As a result, thoughtful people such as Federal Judge Clifford Wallace have promoted the idea of alternate means of resolving problems. He suggested neighborhood justice centers, using lay magistrates, as a means of settling minor disputes. As early as 1979, it was recommended that neutral advisors or experts in the application of law be used in resolving complex issues of law (Nilsson, "A Litigation Settling Experiment," Journal of the American Bar Association, 1979). In an article written for the American Bar Association in 1982, Chief Justice Berger asked, "Isn't there a better way, in the use of arbitration as a means of problem resolution?"


Over the years arbitration has grown dramatically and represents an alternative to lengthy litigation. But even arbitration has its shortcomings. A usual format in an arbitration is the selection of two arbitrators by the litigants and the selection of a third by the two pre-selected arbitrators. More often than not, it is an all or nothing result, enforceable by judicial judgment, that causes both parties to walk away from the arbitration table after lengthy and expensive preparation with at least one party totally dissatisfied. In today's world, because of this all-or-nothing approach, the preparation must be detailed as though one were going to trial. The result is that arbitration has gotten to be almost as expensive as litigation in court. (We do not explore here another widespread belief that arbitrators frequently halve the claim and render such an award in claimant's behalf).


The foregoing should be contrasted with mediation. Mediation is a totally voluntary proceeding; the end result of a successful mediation is a settlement agreement and perhaps the resumption of business relations. That would hardly be the case where judgment is rendered; for the defeated rarely deals with the victor again. Further, the proceedings are informal, not burdened by all sorts of discovery demands, arguments, or bills of particular and all the other time- consuming, expensive pre-trial or pre-arbitral maneuvers. Preparation time is thus substantially diminished. Since the agreement to mediate usually contains enforceable confidentiality commitments, a disputant can feel free to leave the proceeding should he or she find they are getting nowhere without fear that what went on during the course of the mediation will be put to adverse use. For inexpensiveness, speed, and diminished contentiousness, mediation would appear to be a dispute- resolver worthy of the most serious consideration prior to litigation or an agreement to arbitrate. An agreement to mediate could even serve as a mechanism for a "cease fire" in the very midst of judicial or arbitral proceedings.

Who Should Resolve The Dispute?

There is another major element involved in the resolution of disputes, whether by the judicial process, arbitration, or mediation--the dispute resolver.

There are many competent and experienced judges, arbitrators, and mediators. But to ask a perhaps surprising question, what sort of competency are we seeking and hope to get? General competency? Competency in procedure? Expertise in the Rules of Evidence? To quote from the Jamison Risk Management Report: Accountants (Summer, 1993 issue):

The biggest part of the accounting industry's problem is the expense of litigating accountants' liability cases. Actions against accountants can be document extensive, often lend themselves to extensive discovery procedures, and require heavy reliance upon expensive expert witnesses. And with all that, one can only hope that the judge or jurors will at least understand the issues.

Without question, the surest cure for the litigation crisis would be to place dramatic curbs on the liability of professionals. Indeed, the accounting community, business leaders, and the U.S. Congress are seeking changes to laws to limit the risk of monetary loss to accounting firms. No one should hold his or her breath, however, waiting for such litigation.

The applicability of this trenchant comment is not limited to accountants' disputes alone. The expense decried can apply equally to complex corporate, securities, and banking disputes, as can the same hope for comprehension of the issues. After all the extensive and expensive "education time," will the dispute resolver, judge, arbitrator, or mediator, fully understand the technicalities--and practicalities--involved?

The Jamison report correctly advises that we not hold our breath waiting for a legislative cap on recovery. (Although, even if this miraculous legislation were to be enacted in all other respects, there would still be the need to cope with the size of the cap.) Is there any realistic hope for the attainment of the necessary comprehension without the time and expense elements decried? The answer is a resounding affirmative-- mediation by experts in the various fields mentioned, certainly fields that include complicated accounting issues.

Many experts in the commercial arena are available, most of them retired at a comparatively early age from executive positions as a result of company policy. These experts have spent decades--even their entire professional lives--in their respective fields. Many have acquired a national or even an international reputation. They are known to, or at least heard of by, the parties. They command immediate respect, speak the parties' "lingo," have been through the "big money mill" themselves, and, most of all, can understand, in a day or even a few hours, that which would take the otherwise most accomplished judge or arbitrator weeks to absorb. And they can suggest solutions based on their practical experience.

Unlike the case in litigation or arbitration, there is no final judgment or award and, thus, no need for appellate proceedings. The parties reach a settlement agreement (preferably drawn by their own attorneys) and, without "loss of face," shake hands and resume their relationships. There are no winners and no losers. The mediation is then over. If there is no settlement of the whole, there can be a settlement of a part. The agreement to mediate provides not only for strictly confidential safeguards of the exchanges during the mediation proper but also usually provides for no testimonial or other subpoenas. This applies not only to those present at the mediation but also to the mediator, who is also bound to the strictest safeguarding of the mediation exchanges.

Where Mediators Can Be Found

These mediators are available in many parts of the country. At least one bar association (the New York County Lawyers' Association, one of the largest local bar associations in the country), has recently established a Large and Complex Commercial Case Mediation Service (referred to as its "Special Mediation Panel"), consisting of a variety of experts in various fields. Not all panel members are members of the Association; indeed, not all of them are lawyers. But all are acknowledged leaders in their areas of expertise with the ability to understand the issues involved without undue "education time" and who can offer practical settlement solutions.

The Rating Game

Mention should be made of an article in the November, 1993, issue of the American Bar Association Journal by Frank E.A. Sander, Bussey Professor of Law at the Harvard Law School, and Stephen B. Goldberg, Professor of Law at Northwestern University Law School. Professors Sander and Goldberg have devised an ingenious scoring system to serve as a guide as to what sort of relief procedure a disputant should seek to obtain. Eight objectives, (e.g., cost, vindication of position, precedent) are listed under two major headings, non-binding procedures and binding procedures. Four non-biding procedures are listed, plus two binding procedures, court litigation and arbitration. Using a rating system for attainment of objectives (from 0, unlikely, to 3, very substantially), the authors have assigned the rating numbers to each objective under each of the six procedures noted. Thus, if the main objective is "precedent," a 3 is assigned to that objective under the heading "court," with mediation getting the zero. If the primary objective is to minimize costs, a "3" is assigned to that objective under the heading "mediation," with a zero under the listing "court." By studying the table one can be well-guided in ascertaining the most appropriate procedure to satisfy a disputant's objectives. The authors sum up what their assigned rating reveal:

Mediation receives top scores on the goals table for low cost, high speed, maintaining or improving the relationship, and assuring privacy-- an interest that is present in many business disputes.

Procedures other than mediation are preferable only when the client's primary interests are in establishing a precedent, being vindicated, or maximizing (or minimizing) recover.

In the case of the latter objectives, one must be prepared to endure the time and expense, and pray for the comprehension depicted in the above- cited Jamison report. If not, I submit that mediation by experts in the field is by far the soundest procedure.

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