New Jersey State Bar Association - The voluntary Bar Association of New Jersey, serving members since 1899.

Report on Arbitration - New Jersey State Bar Association - December 1, 2003

Ad Hoc Committee on Arbitration

Robert A. Baxter, Esq.
Anira Clericuzio, Esq.
Heidi Willis Currier, Esq.
Angela White Dalton, Esq.
John Fiorello, Esq.
Kenneth S. Javerbaum, Esq.
Randolph C. Lafferty, Esq.
Samuel D. Lord, Esq.
Edwin J. McCreedy, Esq.
Jacqueline M. O'Donnell, Esq.
Richard H. Steen, Esq.
Alvin Weiss, Esq.
Lewis Stein, Esq., Chair
D. Todd Sidor, Director of Judicial Administration, Staff


Table of Contents

The NJSBA's Charge

History of Court Annexed Arbitration in New Jersey

The Program Studied - From Within and Without

Federal Experience

Other States

Analysis

Scheduling

Arbitrators

Hearing

Disincentives 

De Novo Preordained

The Process

The Concept

Conclusion

NJSBA Recommendations

Appendix A
Power of Supreme Court to Require Non-Statutory Authorized Arbitration and Fee for De Novo Appeal

Appendix B
Federal Judicial Committee Report to the Judicial Conference Committee, January 24, 1997 (Excerpt)


THE NJSBA'S CHARGE

From its introduction, the New Jersey State Bar Association has been an active participant in the search for effective alternative or complementary dispute resolution as an appropriate adjunct to the litigation system in the service of the citizens of the State of New Jersey. In 1997, its Judicial Administration Committee conducted a forum that, in part, addressed ADR/CDR. The forum group participants advocated that attorneys begin to focus on ADR/CDR through the use of appropriate training and educational stimuli. "There was a consensus on the need to allocate sufficient resources to ADR/CDR in order to maximize the benefits that can be achieved through its effective use." (Judicial Administration Forum Report, p. 6). Again, in June 2001, the Judicial Administration Forum was entitled "Complementary Justice: Dispute Resolution in New Jersey". That program featured presentations by leading jurists and practitioners in the field of ADR/CDR.

Once again, the ever-changing litigation environment has brought to the forefront CDR/ADR and particularly court-annexed arbitration programs. Under the aegis of the "Best Practices" reform of the civil case management system, the Supreme Court in July 2000 mandated an expansion of court annexed arbitration to encompass commercial as well as all automobile and other personal injury cases regardless of the amount in controversy with the exception of certain complex cases. Complex cases were defined by category of case, e.g. professional negligence, environmental torts, or as may be certified by counsel and accepted by the court. This expansion was directed notwithstanding the statistical fact that in the year 2000-2001 the rate of rejection of arbitration awards had reached almost 75% of the 27,285 cases arbitrated. In this context, Richard Badolato, President of the New Jersey State Bar Association, appointed an ad hoc committee on arbitration with a charge to:

  1. Review the full extent to which court annexed arbitration as utilized in New Jersey Civil Justice System serves the purpose of justice? Is arbitration effective in resolving cases?

  2. Review the judicial authority for the program in its expanded form.

  3. Evaluate whether arbitration should continue in its present form, be curtailed or be expanded.

President Badolato also asked for an examination of the mechanics of the process including non-appearance at arbitration, level of expertise of arbitrators and the adequacy of their training, and the process in general.

Since the NJSBA's investigation determined that sufficient reason exists to reconsider the utility of the entire concept of court-annexed arbitration as presently formulated, the NJSBA's assessment of the judicial authority for the expanded program and the attendant fees for de novo appeal can be found in Appendix A. Issues relating to the elements of the current system have been examined only to the extent that they influenced the viability of the entire program.
 
HISTORY OF COURT ANNEXED ARBITRATION
IN NEW JERSEY

Court annexed arbitration had its genesis in New Jersey in 1983 with the creation of the Supreme Court Committee on Complementary Dispute Resolution accompanied by legislation mandating that all automobile negligence cases in which the claim for non-economic losses valued at less than $15,000 be submitted to court managed arbitration. Authority was further provided for the submission of arbitration with non-economic losses valued in excess of $15,000 on a voluntary basis.1 The clearly stated purpose and intent of the legislation is:

    to establish an informal system of settling tort claims arising out of automobile accidents in an expeditious and least costly manner, and to ease the burden and congestion of the state courts. (N.J.S. 39:6A-24; L. 1983, see 353 §1).

The statutory framework for implementing the mandated arbitration system included: tolling of the statute of limitations pending arbitration (39:6A-26); party selection of arbitrators; subpoena power in the arbitrator; an arbitration award accompanied by findings of fact and conclusions of law (39:6A-30); a procedure to reject the findings and conclusions of the arbitrator (de novo; 39:6A-33); a disincentive to reject the award requiring the payment of de novo fees to be fixed by the Supreme Court (originally $150, now $200) and an assessment of limited costs if a trial de novo does not improve the appealing party's arbitration award by more than 20%. The arbitration cost, i.e. administration and arbitrator's fees, are to be borne by the court. Further implementation was to be provided by court rule (4:21A-1 et seq.) and the Administrative Office of the Court was directed to file an annual report with the legislature "on the impact of the implementation of this act on automobile settlement, insurance practices and costs, and court calendars and case load".

In December 1987 the legislature expanded the use of court annexed arbitration mandating "any court actions brought for personal injury valued at less than $20,000 except claims for no fault benefits under auto insurance policies be submitted to arbitration" under essentially the same program as that previously adopted for automobile cases. Automobile claims subjected to mandatory referral were likewise increased to claims valued less than $20,000.

As noted above, notwithstanding the strict language of the statute regarding the limit of the mandatory arbitration program established by the legislature, in July 2000 the Supreme Court under its rulemaking power expanded court annexed arbitration to include commercial cases as well as all automobile and other personal injury cases, except for complex cases as defined by the rules or by judicial consent upon application of the parties.2 The commercial cases to be arbitrated are specifically enumerated as, "all actions on a book account or instrument of obligation, all personal injury protection claims [no fault benefits] against plaintiff's insurer, and all other contract and commercial actions that have been screened and identified as appropriate for arbitration …". R. 4:21A-1(a)(3). In fact, the Rule as originally promulgated in 2000 required amendment in 2002 to clarify its purpose to limit the types of cases to be arbitrated to those specifically enumerated in the Rule and not the general category of case. Screening is effectuated by reference to the manner in which lawyers identify their case when the case information statement is filed along with the complaint. Application is by no means uniform and no guidelines have been provided to identify "other contract and commercial actions" which are to be deemed appropriate for arbitration in the screening process. In some vicinages, only cases designated by counsel on filing the complaint as actions on a book account or a negotiable "instrument of obligation" are referred. In others, all commercial contract cases are subjected to arbitration.3
 
IMPLEMENTATION

SCOPE: Implementation of the legislative program was by R. 4:21A-1, et seq. Except for the expansion of the program, the Rules followed the statutory direction. Removal upon attorney application was allowed upon the filing of an acceptable statement, i.e., "sufficient" to the arbitration administrator certifying that the case "involves novel issues or is unusually complex".

SCHEDULING: Cases are scheduled for arbitration within sixty (60) days following the "discovery end date" as set forth in the Rules for the various tracks in differentiated case management and as may be extended by Court Order but not before, unless requested by counsel.

ARBITRATORS: Selection is by a County Bar Association Committee with the consent of the Assignment Judge and arbitrators are required by the enabling legislation and court rule (R. 4:21-2(b)) to be retired judges or "qualified attorneys in this State with at least seven years negligence experience". (N.J.S. 39:6A-27(b)). However, with the advent of expanded arbitration by Court Rule in 2000 to include commercial cases, the AOC has directed the inclusion of arbitrators with seven years' commercial experience in the arbitration pool. This is accomplished in part through the arbitrator application which asks for arbitrators with seven years' experience in the various areas subject to mandatory arbitration including, for example, negotiable instruments, book accounts, commercial transactions, personal injury and automobile negligence. Also, effort has been made to manage the scheduling of cases so that an arbitrator with a commercial background is available for commercial cases.

HEARINGS: Hearings are held in Court-provided facilities before a single arbitrator and calendared usually at one-half hour intervals.4 Ten days prior to the hearing, an arbitration position statement is to be exchanged by counsel and is presented to the arbitrator at the hearing. The procedure described by Handbook provided through the AOC calls for witnesses to be sworn and give testimony, the Rules of Evidence to be suspended, police reports and medical reports are to be received without foundation. There is an opportunity for cross-examination of witnesses, usually the parties, and the attorneys may sum up. The atmosphere is informal and the parties are present throughout the entire hearing. The decision is to be rendered in writing and reasons given by the arbitrator upon findings of fact and conclusions of law. (N.J.S. 39:6A-30).
 
STATISTICAL MEASURES OF SUCCESS

The statistical picture of court annexed arbitration in New Jersey has been provided through the Annual Reports of the AOC. It's annual report to the legislature (last full year available Jan. 2001-Dec. 2001; a draft for Jan. 2002 to Dec. 2002 has also become available as this report goes to press) lists by county the total cases scheduled, removed, adjourned, settled prior to arbitration, number arbitrated, de novo requests according to actual number, percent by plaintiff, percent by defendant and the actual de novo trials completed. The de novo (rejection) numbers comparing the years 1989 (1990 Report) and 2000-01 (2001 Report) reveal the following:

CASES SCHEDULED FOR ARBITRATION


1990

2000 to 2001*

Automobile

38,547

46,656

Personal Injury

6,005

18,857

Expanded Arbitration (2000)

 

11,131

TOTALS

44,522

76,644

CASES ACTUALLY ARBITRATED


1990

2000 to 2001*

Automobile

11,244

17,497

Personal Injury

1,907

6,981

Expanded Arbitration (2000)

 

2,807

TOTALS

13,151

27,285

DE NOVO REQUESTS


1990

2000 to 2001*

Automobile

5,494 (48.86%)

12,897 (74.3%)

Personal Injury

1,000 (52.44%)

5,020 (71.9%)

Expanded Arbitration (2000)

 

1,857 (66.2%)

TOTALS

6,494

19,774

DE NOVO REQUESTS BY PARTY
(from the Draft Annual Report dated April 2003)


1987

1992

1997

2002

Percent filed by Plaintiffs

45

31

28

17.8

Percent filed byDefendants

55

69

72

82.2


*Note: Statistics from September 2000 to August 2001

DE NOVO TRIALS


2000 to 2001*

Automobile

812 (6.2%)

Personal Injury

333 (6.6%)

Expanded Arbitration (2000)

109 (3.9)

TOTALS

1,254


 
STATISTICAL TRENDS

Clearly, the increased rate of de novo filings is manifest. The current overall rate of almost 75% impels any evaluation of the viability of the program to a cost-benefit analysis. Moreover, the increasing rate in which the defendants are responsible for the percentage of de novo appeals cannot be overlooked. From 1987 to 2002, the percentage of de novo appeals filed by defendants in automobile cases increased consistently on an annual basis from 55% to 82.2% in 2003. This statistic reflects either unremitting and increasing dissatisfaction with the system, or worse, a conscious abuse.
 
COSTS

As mentioned above, the AOC maintains a cost analysis of the civil arbitration program. In a schedule provided for the fiscal years 1998 through 2002 (2001 being the last complete year), we find that revenue collection from de novo fees for the years 1998 through 2001 ranged between $3,500,000 and $3,900,000. However, expenditures for the program exceeded income from de novo fees by $555,220 in 2000, $210,505 in 2001 and for the first nine months of 2002, $953,310. In addition to the hard costs set forth above, the Committee investigated the cost of the program to the litigants in the form of legal fees for the preparation and appearance at the hearing (soft costs). The consensus of the opinions offered was that the minimum time averaged by the legal community for court annexed arbitration was six hours for each party. Although plaintiffs in personal injury actions are essentially operating on a contingency fee schedule, presuming an hourly rate of approximately $150 per hour, the Committee elected to assign a cost of approximately $1,000 per lawyer for engaging in court arbitration. On the basis of only two lawyers per case, it is manifest that the costs of arbitration to the public in the form of legal expenses not including parties' time away from employment in 2001, exceeded $54,000,000 annually. Clearly the inexactitude of this cost figure is obvious since the calculation neither takes into consideration a circumstance where a single attorney may have multiple cases on a single court arbitration calendar thereby to some degree reducing time allocated for travelling back and forth to court, nor the fact that an undetermined percentage of the cases involve multiple parties. Nevertheless, this cost evaluation serves to focus on the enormity of the investment in lawyer time, not to mention the hours away from employment for the litigants.
 
EFFORTS AT ELIMINATING REJECTION RATE

The current rate of de novo appeals gains added significance when considered in light of the efforts of the Supreme Court Advisory Committee on Arbitration to improve the efficiency of the program. The scheduling of arbitration hearings has been delayed to the end of the discovery period as recently directed by the best practice reforms; arbitration committees in each vicinage participate in the selection of arbitrators to try to enhance the quality and make the arbitrators more specialty specific, and policy manuals have been distributed to the arbitrators giving guidance to the process. The professed goal of an "adjudicatory" type proceeding purely "evaluative" in character is urged as opposed to a form of conciliation and facilitation of settlement - a policy which we find to be at odds with the prevailing practice to a significant degree. As noted, the timing of arbitration neither promotes early disposition or reduces the costs of discovery - two of the primary professed goals in court annexed arbitration.
 
THE PROGRAM STUDIED - FROM WITHIN AND WITHOUT

From its very inception in 1983, the "New Jersey Model" for court annexed arbitration has been subject to a number of analysis and reports. Annually, pursuant to the directive of the legislature, the AOC reports on the efficiency of the program. As early as 1989, the Institute for Civil Justice of the Rand Corporation studied court annexed arbitration in five states, including New Jersey. Curiously, on the heels of the Rand study, which was done with the endorsement and cooperation of the AOC, the AOC sponsored its own study engaging ISA Associates, a private research firm in Washington, DC, to study the arbitration system.

THE AOC REPORTS TO THE LEGISLATURE:

Challenged by the mounting de novo rate, as well as the cost of the program, the AOC Annual Reports in recent years are open to differing interpretations. The de novo rate is acknowledged to be "75.6% of the automobile cases arbitrated" in 2001 and 72.7% in 2002, a serious detractor in any cost benefit analysis and is rationalized with:

    … [T]his rate is deceptive since the majority of these cases settle without trial. Thus the fact that in 2001 only 848 of these cases actually went to trial indicates that the trial de novo request rate does not signal any deep seated dissatisfaction with the arbitration program on the part of attorneys and litigants. Rather, it most likely indicates that the trial de novo request is being used to bring about post arbitration settlements. (See Automobile Arbitration Program Report to the Governor, Calendar Year 2001, page 6).

For a comparable report on the personal injury segment of the arbitration program, see Statutory Personal Injury Arbitration Program Report to the Governor and Legislature, Calendar Year 2001, page 5. The validity of these assertions in the reports to the legislature raises certain questions. It cannot be gainsaid that prior to and outside the arbitration program, civil litigation results in a trial rate of approximately 5% of the suits instituted. The statistical data reported above indicates that of the cases arbitrated more than 6% are actually tried.

In addition, with regard to matters of funding, the reports since 1994 have contained the following statement: "Starting in fiscal year 1994, the program became self-supporting, that is, entirely funded by de novo revenues." See 2001 Report, page 8. (Automobile arbitration). Personal Injury 2001 Report, page 6. In our view, the representations clearly do not support the financial data referred to above from the AOC's own data base.

RAND CORPORATION: INSTITUTE FOR CIVIL JUSTICE:

From the inception of the program in 1983 through 1989, the Institute for Civil Justice of the Rand Corporation "collaborated with the AOC ... in designing and analyzing surveys of lawyers and litigants" in arbitration. See Hensler, Reforming the Civil Litigation Process: How Court Arbitration May Help (Santa Monica, CA: The Rand Corporation 1984). The enthusiasm for Court annexed arbitration by the investigators from the Rand Corporation in 1984 is apparent. (See Automobile Arbitration Report to the Governor and Legislature, March 1990, page 14). By 1986, words of caution began to appear. The same Debra R. Hensler, cited by the AOC, then a senior social scientist at the Institute for Civil Justice, and currently Professor of Alternative Dispute Resolution at the Stanford Law School in an article entitled, What We Know and Don't Know About Court Administrated Arbitration, (Judicature Vol. 69, No. 5, Feb-March 1986, page 270), wrote,

    Despite the attention that the dispute resolution movement has drawn, there has been little systematic study of its outcomes. It is difficult to determine how much implementation there is to back up the rhetoric, what type of procedures have been established and what has resulted from different approaches." (p. 270).

    It is an open question whether the costs to courts of disposing of these de novo appeals generally outweigh the savings attributable to arbitration (p. 274).

    The factors that effect the time to disposition generally are so complex and so difficult to measure that there has yet to be an empirical analysis of the connection between expediting arbitration cases and expediting regular jury trial cases. (p. 274).

    The difference between litigant's costs to arbitrate cases and their cost to settle these cases is not yet known. (p. 275).

And finally, Professor Hensler wrote, "As in the case of other "court reform", there has been no comprehensive attention to evaluate court administrated arbitration program's effectiveness in meeting these objectives." (p. 272). The problem was accentuated because, "unfortunately most courts cannot provide reliable data on all three factors, making estimation of savings due to arbitration extremely problematic."

Answers to some of the questions posed by Professor Hensler came in 1991, in a publication of the Rand study of court annexed arbitration in five states including New Jersey (The Justice System Journal, Vol. 14, No. 2 (1991), a publication of the Federal Judicial Center). The report entitled, Unintended Consequences of Court Arbitration: A Cautionary Tale from New Jersey, indicated: (p. 229)

    Arbitration programs are expected to reduce delay and costs by providing a more efficient substitute for trial. But since most disputes are already resolved without adjudication, an arbitration program is likely to divert more cases from settlement than from trial. The net effect can be an increase in delay and congestion in the courts. This pattern is illustrated by a recent study of court-annexed automobile arbitration in New Jersey. Following the introduction of arbitration, there was a significant reduction in the percentage of cases settled without third-party intervention, but no reliable decrease in the trial rate, and a significant increase in filing-to-termination time for auto cases assigned to the program. Arbitration programs appear to meet a demand for fair, adjudicative third-party hearings, but in doing so, they don't always improve court efficiency and can even reduce it.

    The report further explained:

    Our evaluations suggests that the New Jersey Automobile Arbitration Program has indeed provided 'alternative dispute resolutions' but as an alternative to bilateral settlement not to trial. Because disputants apparently postpone settlement while waiting for hearings, the program appears to have added significantly to the amount of time it takes to resolve auto negligence cases in New Jersey. This is not the effect the program creators envisioned. (p. 243)

    Notwithstanding the lack of achievement with respect to the designs and objectives of the program, the reporter advised,

    It would be a serious mistake to conclude that the arbitration program is a failure for two reasons. (1) The increased inefficiencies were by no means inevitable - and are probably correctable and (2) the same behavioral dynamics that helped to undermine the program's efficiency objectives illustrate how well the arbitration fulfills another objective: providing greater access to fair and impartial third party adjudication. (p. 242)

    [The] growing body of evidence suggests that litigants may be willing to accept the price … in order to benefit from third party adjudication that arbitration provides.

Apparently dissatisfied with some of the conclusions of the Rand Corporation evaluators, in 1991 the AOC commissioned a study by ISA Associates, a private research firm in Washington, D.C. which revealed in a 74 page report in July 1991 that "court sponsored arbitration settles few tort and contract disputes, doesn't appreciably cut the length of many personal injury cases, may actually drag out contract cases and doesn't save the court system or litigants much time or money." See 128 N.J.L.J. p. 841 (July 18, 1991). Nevertheless, court sponsored arbitration of non-automobile tort and contract cases "is very well accepted by attorneys and quite satisfactory to litigants as well".

Since its publication in 1991, Rand's Institute for Civil Justice has undertaken no further comprehensive studies of the efficacy of court annexed arbitration in the United States.5 New Jersey did continue to test its own waters.6 In 1997, a survey of lawyers by the AOC revealed continued satisfaction by a segment of the Bar with court-annexed arbitration.

The declining volume of critical analysis of court annexed arbitration may in substantial measure be occasioned by the increased attention being paid to court sponsored mediation programs. "Among ADR procedures used in the contemporary U.S. legal system, it is mediation, with its rejection of neutral fact-finding and assignment of fault, that is most distinguishable from the formal bench or jury trial to which ADR is offered as an alternative. There is a widespread perception that mediation is out pacing arbitration as a popular means of resolving legal disputes."7 To illustrate, Congress has limited adoption of arbitration to 20 federal district courts (10 mandatory, 10 voluntary). No such limitation pertains to court mediation programs. See Papalinger and Stienstra (1996:6). In their study of three ADR demonstration programs, undertaken under the Civil Justice Reform Act of 1990, (CJRA), the Federal Judicial Center found evidence of growth in court connected mediation programs and decline in non-binding court annexed arbitration. See Stienstra, et al. (1997).
 
FEDERAL EXPERIENCE

As in New Jersey, Court annexed arbitration was established in the Federal courts in the mid 1980s by act of Congress. Pilot programs for mandatory court-annexed arbitration in ten federal district courts, New Jersey among them, were initiated. The stated goals of the program were:

  1. Increasing options for case resolution by providing litigants in cases that normally settle with opportunity to accept a known adjudication by a neutral third party at an earlier time than is possible for trial.

  2. Providing litigants with a fair process.

  3. Reducing costs to clients.

  4. Reducing the time from filing to disposition.

  5. Lessening the burden on the court by reducing the number of cases that require judicial attention, or by reducing the amount of attention required.8

Of the pilot courts, six limited arbitrable cases to those involving contracts and torts. Four districts included all civil cases (except agency appeals and prisoner petitions). The dollar ceilings range from $50,000 to $150,000, with six of the pilots having a $100,000 ceiling. In four pilot programs, the parties could select from a list of arbitrators by striking those that displeased and in four of the pilot programs, the clerk's office made the selection. In two of the pilot programs, the parties were given the opportunity to choose from a full list of approved arbitrators. The program also contained a disincentive to de novo appeal by requiring the posting of arbitrators' fees at the time of the filing of the demand for trial. The fee is returned if the party betters his position at trial.

As reported in the 1990 study by the Federal Judicial Center, the proportion of the civil case load in the ten mandatory districts diverted to arbitration varied from 5% to 27%. In eight of the ten pilot courts, over half of the arbitrations resulted in a demand for trial de novo, while the lowest de novo demand rate was 46%. As expected, few of these cases reached trial. The fact that less than half of the arbitration awards were accepted in eight of the ten pilot courts still resulted in attorneys and litigants finding "the experience useful with majorities indicating that the award was useful in a starting point for settlement negotiations and disagreeing when asked if the hearing was a waste of time." With respect to the critical objectives as set forth by the legislation, "costs and time savings were not reported by the majority of attorneys in cases where trial de novo was demanded. Arbitration programs were not found to reduce disposition times, but they also did not appear to delay resolution."

In addition to the ten pilot programs for mandatory court-annexed arbitration, the legislation also directed the establishment of ten voluntary non-binding court-annexed arbitration programs. An evaluation of that program was a report by Rauma & Krafka (Federal Judicial Center, 1994): Voluntary Arbitration in Eight Federal District Courts An Evaluation. Those evaluation findings were of interest, disclosing with respect to mandatory arbitration, the following:

  1. Most cases in these districts were settled without an arbitration hearing or a trial;

  2. Although a majority of arbitration hearings ended with a demand for trial de novo, most of the parties, when asked, said they found the arbitration award a good starting point for settlement negotiations and that hearing was not a waste of time.

  3. The parties were satisfied with the quality of the process.

  4. Few of the districts saw reductions in disposition times.

  5. Ninety percent of the judges agreed that the court's caseload burden had been reduced as a result of the arbitration program.

Curiously, the study of the voluntary arbitration programs (eight of the ten survived) revealed that the trial de novo demand rates in the two voluntary arbitration programs with the largest number of hearings were comparable to those of the mandatory arbitration programs. Demands for de novo in the voluntary programs were between sixty and seventy percent. (See Rauma & Krafka, supra, at p. 17.)

In 1990, Congress enacted the Civil Justice Reform Act which mandated the creation of five demonstration districts to "experiment with systems of differentiated case management that provide specifically for the assignment of cases to appropriate processing tracks that operate under distinct and explicit rules, procedures and time frames for the completion of discovery and for trial." Three of the five districts created a form of alternative dispute resolution that was evaluated. That evaluation came in a report to the Judicial Conference Committee on Court Administration and Case Management dated January 24, 1997 by the Federal Judicial Center. The report noted that in the three districts that had demonstration programs for ADR, different forms of ADR were utilized: (1) an early assessment program; (2) an institutionalized settlement week; and (3) a multi-option program. A significant lesson for the study of arbitration as an effective means of ADR was revealed in the district that provided multi-options to be selected by the attorney; namely, non-binding arbitration, early neutral mediation, early settlement conference with magistrate judge, or private ADR. This multi-optioned pilot program which allowed the attorneys to choose the modality revealed that only 8% of the attorneys chose court annexed non-binding arbitration. The report said, "when given a choice of ADR processes, few attorneys selected arbitration. Most selected ENE (early neutral evaluation) suggesting that in this district attorneys want an expert evaluation when they use ADR." Report to the Judicial Conference Committee on Court Administration and Civil Case Management, The Federal Judicial Center (January 24, 1997), Stienstra, et al., p. 175.

In a telephonic interview, Donna Sienstra reported that at this time (2003) only three of the original ten pilot districts that initiated mandatory court-annexed arbitration in the mid 80's continued to maintain those programs, New Jersey being one of them.9 In one of the other two districts a multi-option form has been adopted. Ms. Sienstra reports that the high rejection rate has brought into question the efficacy of the mandatory court-annexed arbitration program. No additional district courts have initiated court-annexed arbitration.10
 
OTHER STATES

Since court-annexed arbitration was first introduced in Pennsylvania in 1952, twenty-two states have adopted some form of court-annexed arbitration. Many follow some variation of the New Jersey model. Illinois most closely approximates the volume and manner of court-annexed arbitration to the New Jersey model and has an experiential de novo rate of approximately 50%, as last reported in Summary of Court Annexed ADR in Illinois, Shack & Loevy, Center for Analysis of Alternative Dispute Resolution Systems (a Chicago based center principally involved with the Illinois system (contacted by the Committee)). Florida, often cited for its low de novo rate, has a complementary dispute resolution system that bears no resemblance to the New Jersey model. Florida has a mandatory mediation program for all civil actions. That program involves the use of trained mediators who are paid at the rate of approximately $250 per hour. The mediation sessions can take anywhere from three to ten hours depending on the complexity of the case and the mediation is designed to be facilitative rather than evaluative. The mediator can continue to pursue settlement beyond the initial hearing date and files a report with the court concerning the resolution of the mediation. In cases where both parties acknowledge that there is little or no likelihood of accommodation, a party may seek relief from the court from participation in mediation which is readily granted upon such certification. The "de novo rate" approaches 25%. Likewise, North Carolina which has been cited in the studies that evaluated New Jersey in the early 1990's as an arbitration program in which the average time spent in arbitration was said to be four hours. It would appear that the program differs substantially from New Jersey and has a de novo rate of only 30%.
 
ANALYSIS
 
THE PROCESS
 
SCHEDULING: In an effort to improve the likelihood of success and acceptance of the arbitrator's decision, the scheduling of cases for arbitration has been moved at the behest of Advisory Committee on Arbitration from early in the discovery process (or before) to a stage at which discovery is completed and the trial date imminent. Clearly, such scheduling is counter-productive to one of the basic foundation purposes of the whole program - reducing litigation costs.
 
ARBITRATORS: The party selection of arbitrators is rarely, if ever, done. Retired judges make up but a small percentage of the arbitrator population. The statutory requirement for personal injury experience, an anomaly in the expanded program that includes commercial cases, is likewise honored as much in the breach as followed.11 With personal injury attorneys there is a further anomaly: conflicting interests throughout the process. In most courts the personal injury bar is familiar and the independence that cloaks a judge not present. Additional factors which impair the objectivity of the adjudicatory process are as follows:

  1. The need to protect (a) settlement discussions prior to the hearing; (b) the attorney-client relationship and (c) relationships in other cases in which the arbitrator and the litigant's attorney are involved;

  2. The disparity of objectivity based on an allegiance to the plaintiff side or the defense side; and

  3. The conflict of interest stemming from insurance company connections, representing the same carrier in other cases. (But see AOC manual directing arbitrators to advise of insurance company connections.)

These impediments to objectivity are in large measure self-evident, but a further word about the need perceived by arbitrators and adversaries alike to protect the settlement discussions prior to hearing. One of the most significant adverse consequences attendant upon an arbitration proceeding is the impact that the award may have on settlement negotiations to the extent undertaken both prior to the hearing and thereafter. An arbitration award falling far in excess of the settlement negotiation parameters creates substantial difficulty with respect to obtaining consent of the plaintiff to a lesser amount arrived at in negotiations. Likewise, an award substantially less than the parameters of prior settlement negotiations presents a substantial problem for insurance counsel.
 
HEARING: The submission of arbitration statements as required by the Rules is as often as not overlooked. The arbitrators see the documents when the parties arrive - a time when the lawyers should have the attention to focus on the evidence. The need may be subject to question in a simple personal injury case when the police report and a copy of plaintiff's answers to interrogatories setting forth the medical treatment and the complaints are an adequate frame of reference for the proceedings. While exceptions do exist, the overwhelming estimate of the time devoted to an arbitration proceeding is approximately one-half hour. Communication of the award, while designed to be in the presence of the litigants so as to enable the insights of the arbitrator to influence each party's assessment of their claims and positions, is frequently given solely in the presence of the attorneys. The reasons offered are varied:

  1. Concerns about the security of the arbitrator in the presence of substantially disappointed litigants;

  2. The desire not to create difficulties in the attorney-client relationship where the arbitrator's decision is based either on an inflated assessment of the position taken or the absence of necessary proofs which may reflect adversely upon the quality of the legal representation; or

  3. The interpersonal relationships set forth above.

 
THE CONCEPT

At the root of any analysis of the efficiency of a court mandated program of ADR is an understanding of the nature of the disputes to be resolved and how the program advances the objectives of the disputants - the litigants. Again as noted by Professor Hensler in 1986,

    Where appeal rates from arbitration are low, we tend to assume that most litigants find the arbitration verdicts roughly acceptable; instead, they may simply decide that they have no other option but to "lump it". Institutional litigants presumably assess the costs of appeal somewhat differently; even if these costs outweigh the amount at stake in the individual case, they may take appeals as a matter of policy, in order to "keep the system honest" - that is, operative that is, operating in a fashion that is acceptable to them. Understanding the role of appeals in the arbitration litigation process is important to understanding the equity implications of instituting mandatory arbitration programs.

Hensler, supra, 69 Adjudicature, p. 278.

With this prognostication, it should come as no surprise that our survey has disclosed that at least one major insurer, The Allstate Insurance Company, files a de novo appeal in every single arbitration. This widely known statement of fact is based on a policy never clearly enunciated. However, it is widely accepted that there is dissatisfaction with the arbitration system among the insurance defense industry, ostensibly claiming that it is the high and excessive awards that impair the process. Plaintiffs counter with the suggestion that the arbitration award, while it may begin to form the basis for further discussion, is always the high point of any negotiations with the carrier seeking a substantially lower payout, or in the least, saving some money from what might be considered by many a low evaluation. In fact, to counter defection, recent civil practice reforms instituted draconian measures to compel appearance: forfeiture of right of de novo appeal.
 
DISINCENTIVES: While no statistical analysis has been made, the perception is commonly accepted as fact that the disincentives for the rejection of arbitration awards have little or no impact. The reasons are apparent: the $200 fee while not insignificant, when placed along side the commitment of time and money to pursue litigation, is ineffective, especially when the program is not limited to "small claim cases". It detains few. The assessment of counsel fees and costs if the appellant does not approve the arbitration award becomes a factor only if the case is tried and since only a small percentage of arbitrated cases are tried, it is a little used and an insignificant consideration. Moreover, the party filing the de novo appeal is not necessarily the only party interested in rejecting the award making the assessment of fees against a filing party inequitable - and thus not a part of the litigation culture similar to the non-collection of tax costs in the world of personal injury litigation.
 
DE NOVO PREORDAINED: The rejection rate of arbitration awards, especially by the insurance industry, at a rate three to four times that of the plaintiffs, is hardly surprising - almost predictable to the experienced trial lawyer. The positive responses to the process as reflected in the various surveys generated by Rand, the independent consulting firm hired by the AOC, and almost any survey made among attorneys and litigants is likewise understandable to an experienced and insightful practitioner. The world of litigation begets such seemingly inconsistent responses.12 First and foremost, the presumption which belies the ADR movement and the process, namely, that both sides in an insurance based claim system seek to apply a test of reasonableness to the evaluation process of a case that is merit-based overlooks the real dynamics of the process. Since the ultimate value of a personal injury case is what a jury will award less the cost of getting there , only13 a clairvoyant can claim decisional respect. The variables are numerous and incapable of precise analysis or evaluation. They include the quality of the representation, both from the perspective of skill and industry; the status of the proofs, frequently dependent at any given time in the life of the litigation on extraneous circumstances; the risk aversion of the parties and/or their attorneys which is based in considerable degree on personality and financial circumstances. Few believe that these multi-dimensional factors can be assessed in the time allotted to arbitration under the New Jersey Court annexed system or that the wide disparity in experience of court designated arbitrators can command respect. Clearly, to the experienced, confident, and well financed plaintiff's attorney, arbitration can be at best an opportunity to force the insurance interest to at least pay attention to the factors that will influence the ultimate outcome or at worst be a senseless exercise to be endured while a third party cursorily reviews the evidence to provide the parties with a minimally informed opinion that is long on the imprimatur of authority but short on experience and influence. To the inexperienced or less well financed plaintiff's attorney, it is a real opportunity to be advised as to the perceived value of his claim or its weaknesses - that he otherwise might have obtained by a phone call or a chance meeting in the halls of the courthouse. Clearly, the needs are different and beget recognition of the singular most compelling principle to be gleaned from the historical experience with court annexed arbitration. Different cases and different lawyers require different approaches to the resolution of disputes that underlie litigation in the modern world. This is the realization that underpins the direction in which the federal system appears to be going, which is the touchstone of an insightful treatise that even questions the enthusiasm with mediation that abounds the ADR community. (See: Suppose It's Not True: Challenging Mediation Ideology, Hensler, The Journal of Dispute Resolution, Vol. 2002, No. 1, page 85, 96.)
 
CONCLUSION

Stripped of the cornerstones of its "raison d'etre", reducing costs, accelerating dispositions, eliminating backlog, it appears the only function that court-annexed arbitration serves is as a substitute for conventional features of the attorney-client relationship and the professional responsibilities of the bar, one to another - that can be summed up in one word: communication. This conclusion presumes a court system which is responsive and capable of deciding cases as required within a reasonable time.

One of the principal collateral benefits of mandatory arbitration is to serve as a tickler system for case preparation and compel communication between the lawyers. Similarly, to provide clients (principally plaintiffs) with an opportunity to be assured that their case is receiving some attention from their lawyer. They are given an opportunity to attend a proceeding that is said to facilitate the ultimate conclusion of their case when by and large it is a futile exercise that substitutes for better communication between the lawyers, and indirectly the clients.

From the advent of the adversary system, lawyers were expected to have the skill to evaluate their clients' matters, or seek such advice and counsel as is needed to address their own inadequacies in this area. To maintain a system that demands the time, effort, and costs of arbitration as a substitute for good lawyering is nothing short of bureaucratic waste.

This does not mean that the court system should not provide a vehicle to facilitate the resolution of disputes - where that assistance is required - in the form of well-trained professional (experienced) third party neutrals. Recognizing the validity of the service, a multi-dimensional program seems indicated. The best example appears to be in the form of the multi-option provided by the Northern District of California, rather than a "one size fits all" exercise that best characterizes the New Jersey model of court-annexed arbitration.
 
NJSBA RECOMMENDATIONS

  1. Discontinuance of mandatory court-annexed arbitration except as mandated by existing legislation.

  2. Advocate for the repeal and/or modification of existing statutes mandating court-annexed arbitration.

  3. Establish a program of multi-option ADR in the New Jersey court systems including (a) early neutral evaluation; (b) mediation and (c) non-binding arbitration that includes the power to opt out of ADR if all counsel agree, with leave to compel ADR on the application of any party. The parameters of the multi-option programs currently described in New Jersey Rules of Court at 1:40 should be guided by the experience in the Northern District of California as described in the Federal Judicial Center study of January 1997. (See Appendix B). But a caveat, any comparison with the federally sponsored program must include the recognition that the federal courts include a magistrate system that is invaluable in assisting the implementation of ADR and its efficiency. Thus, there will be cost factors that impact the recommended program. On balance, it appears that, absent the investment, the only alternative will be to eliminate court-annexed arbitration as it currently exists in New Jersey. The authority to pursue such alternatives in other than statutorily mandated arbitration proceedings appears in the current Rules at R. 1:40-10, Relaxation of Court Rules and Program Guidelines, where "injustice or inequity … result" from "the unwillingness of one or more parties to participate in good faith."


 
1 The New Jersey model, among the forerunners in court-annexed arbitration, was following a trend advocated in academia and adopted in other congested court systems. As reported in Goldberg, Green & Sander, Dispute Resolution, Little Brown & Co., (1985) p. 226, "The impetus for court-ordered arbitration has been the perceived sharp increase in court congestion and delay in many urban courts. Thus, court-ordered arbitration is generally intended as a diversion mechanism by which a sizable portion of medium-sized contract and tort cases may be economically sorted out of the adjudicatory process for pre-trial resolution."
 
2 Prior to this rule change, 19 of the 21 vicinages, on application of the assignment judge obtained Orders from the Supreme Court permitting the establishment of pilot programs to expand arbitration to include commercial cases. This ad seriatim expansion of the arbitration program was then made uniform by the "Best Practices" rule change in July 2000.
 
3 Confusion as to the scope of mandated arbitration arose out of the language of the July 2000 amendment which required an amendment in 2002 defining the type of cases subject to arbitration as being "Tracks I, II and III, as set forth in paragraphs (1), (2) and (3) below …" R. 4:21A-1(a). The addition of this language was designed to specifically identify the kinds of actions for which arbitration was to be held. As a result of this change, it became clear that such actions as employment and "law against discrimination" cases were not included in the cases to actions as employment and "law against discrimination" cases were not included in the cases to be arbitrated.
 
4 Occasionally commercial arbitration demands and receives additional time, i.e., up to an hour or more, from the arbitrators but this is an exception.
 
5 Professor Hensler in a recent telephone interview in February 2003 advises that court annexed arbitration has fallen into disfavor; has not expanded in the state courts beyond the original 22 jurisdictions that joined the movement in the early 1980s; and has been less than favorably reported upon in the federal experience as an explanation for the lack of interest in further study. Robert J. McCoun, author of Rand Commentary, and currently Professor of Psychology at University of California Berkley reports no further studies on the subject, as do representatives at Rand.
 
6 Reported in the New Jersey Law Journal, June 28, 1998.
 
7 "A recent source book on alternative dispute resolution in the federal courts, jointly published by the Federal Judicial Center and the Center for Public Resources, asserts: 'mediation has emerged as the primary ADR process in the federal district courts'." The source book notes that "(N)on-binding arbitration is second most frequently authorized ADR program, but falls well short of mediation in a number of courts that have implemented it." Hensler, In Search of "Good" Mediation; Rhetoric, Practice and Empiricism (Handbook of Justice Research and Law, edited by Sanders & Hamilton. Kluwer Academic Plenum Publishers, NY, 2000). (p. 260).
 
8 B. Meierhoffer, Court Annexed Arbitration in Ten District Courts (Federal Judicial Center 1990). A publication which is the product of study by Federal Judicial Center mandated by act of Congress to report on pilot programs.
 
9 Through the cooperation of Chief Judge John W. Bissell, the mandatory court-annexed arbitration program in the United States District Court was cursorily examined. Qualifying cases, those with claims valued at $150,000 or less, are included in the program at filing. Thereafter, where appropriate, through use of the magistrate judge system, cases designated for arbitration are evaluated in their early stages with discovery limited to that required by the parties for a meaningful arbitration hearing (a cost saving feature). Arbitration hearings are held at locations convenient to the arbitrator with supporting documentation provided to the arbitrator in advance of the hearing. Court policy suggests an evaluative proceeding. Both the extensive preparation and the time allocated to the hearing suggests a far different system than currently in vogue in the state court.
From April 1, 2002 to March 31, 2003, 1,980 cases were placed in the program. Approximately 300 cases were assigned to an arbitrator by court order, approximately 200 cases were settled prior to the hearing, and awards were filed in 107 cases. Although requests for trial de novo are "usually 80% of the awards" only 25 trials actually took place from the aforementioned pool. Judge Bissell reports that the District Court judiciary is quite satisfied with the efficacy of the program. Also, an active mediation program is maintained and is being encouraged.
 
10 Moreover, in an appearance before a House Subcommittee on May 11, 1995, Ann Clair Williams, Chair of the Judicial Conference Committee on Court Administration and Case Management said, "The judicial conference believes that the decision of adopting a particular court annexed arbitration program should be left to the individual district courts, rather than mandating an across-the-board requirement". Williams added that there was "concern that the mandatory arbitration programs created under House H.R. 1443 could actually add to expense and delay by requiring all litigants, regardless of the circumstances surrounding the case, to go this extra first step before proceeding to a traditional jury trial."
"The conference's view is that well run voluntary programs will attract participants and provide an effective forum of alternative dispute resolution without demanding that all litigants participate regardless of their circumstances." Williams, moreover, said "therefore, the conference believes that the discretion to adopt court annexed arbitration programs should be limited to voluntary programs."
 
11 Moreover, arbitration committee efforts to evaluate the mandated seven year experience is uneven at best.
 
12 In a survey conducted by the Arbitration Committee of the Morris County Bar Association, two lawyers each citing more than 30 years at the bar responded: one, a noted plaintiff's attorney, reported favorably on the program, "It gets all sides to look at and upgrade the file - gets policy cases paid." The other, a noted defense practitioner who, with associates, arbitrates "184" cases a year would not like to see the program continue - "a waste of time".
 
13 To include plaintiff's need for money, and personal stamina to withstand the process to be sure.