Escaping the Courthouse

Crowded courts and escalating litigation costs are fueling demand for private alternatives to courts. But not everyone thinks that the burgeoning market in private courts and private judges is desirable. Supporters say private justice will reduce the court workload and provide faster resolution of disputes. Opponents argue that opportunities for higher incomes in the private sector may strip the bench of talent, that disputants may receive seriously flawed justice, and that business incentives may result in special outcomes for special customers.

Each side of the debate holds strong convictions, but no one has the empirical data to test assertions. A recently completed Institute for Civil Justice study, Escaping the Courthouse: Private Alternative Dispute Resolution in Los Angeles, by Elizabeth Rolph, Erik Moller, and Laura Petersen, provides a basis for drawing some tentative conclusions. Their key findings:

• Private alternative dispute resolution (ADR) is a small but growing segment of the Los Angeles market and has the potential to reduce court workload.
• Private ADR is attracting substantial numbers of judges, but at retirement age.
• Private ADR is probably not currently reducing the courts' ability to set precedents or reinforce social standards through the public decision process.
• Providers of ADR services have substantial experience and usually some training.
• Private ADR is serving individuals, businesses, and especially insurers.

Private ADR is the service provided when disputants take disputes to third-party neutrals for resolution and pay a fee for the service. Disputants come to private ADR by a variety of routes, including a predispute contract or postdispute agreement. The third-party neutrals may be nonprofit or for-profit organizations that provide private ADR services, or they may be independent neutrals without affiliation. Both organizations and independent neutrals offer a wide range of processes, the outcomes of which may be binding or nonbinding.

The study focused on all civil money suits in Los Angeles County in 1992 and 1993. Data came from interviews with six of the most active private ADR organizations, a survey of the 1,200 third-party neutrals (some of whom are associated with organizations) who offer private ADR services in Los Angeles, and the Los Angeles County Superior Court case records.

What Is the Private ADR Caseload Like?

Of the more than 465,000 disputes filed in Los Angeles County Superior Court in 1993, only 5 percent were handled by private ADR providers. However, the private ADR caseload has grown very rapidly, at an average of 15 percent per year since 1988. Nearly two-thirds of the cases have claim amounts greater than $25,000, and about three-quarters continue to some form of third-party intervention. More than 40 percent are automobile personal injury disputes. Individuals and businesses are well represented among private ADR clients.

What Is the Private ADR Process Like?

Organizational ADR providers and individual ADR neutrals offer their clients a wide choice of procedures, including arbitration, mediation, private judging, and mini-trials. However, the mix of services they actually provide is narrower. More than half the time, disputants opt for the private ADR procedure most like that offered by the courts: arbitration.

The fee structure for private ADR is complex and variable. Firms charge administrative and hearing fees; independent neutrals typically charge only an hourly rate. The average hearing fee is about $200 per hour, and ADR fees usually exceed any fees imposed by the courts during litigation. (Attorneys' fees were not part of the analysis, so no conclusions can be drawn from this study about comparative costs of litigation through public and private courts.)

Who Are the Neutrals?

The third-party neutrals providing private ADR are predominantly white males with a median age of 60. More than two-thirds are attorneys, and about 10 percent are former judges. Three-quarters have had some kind of legal training, and half have had some formal training in ADR techniques.

The private ADR caseload is not evenly distributed across all providers. More than half of all neutrals see fewer than ten disputes annually, while less than 10 percent handle more than half of the disputes (see figure). In contrast to the total pool of neutrals, nearly half of these "heavy hitters" are former judges, and nearly half are nonjudge attorneys. They are also slightly older as a group.

The professional backgrounds of neutrals influence both their case mixes and the procedures they are likely to provide. Former judges are more likely to see less common and higher-value disputes, while three-quarters of the cases handled by attorneys are either auto personal injury or employment disputes. Former judges are more likely to provide courtlike procedures, such as voluntary settlement conferences and private judging, while attorneys provide arbitration to two-thirds of their clients.

What Effect Is Private ADR Having?

This case study of private ADR in Los Angeles does not resolve the debate about private justice, but it does begin to address some of the key policy concerns:

• The private ADR caseload is currently too small to have much effect on court workload. But the caseload is growing and the potential remains for reducing the demands on the public courts.
• Private ADR may be providing an option for judges who would not otherwise have retired, but so far it is not attracting judges in substantial numbers before retirement age.
• Most Los Angeles neutrals have legal training, some private ADR training, and more than a decade of experience offering private ADR. If experience is a proxy for quality, Los Angeles neutrals ought to be good.
• Private ADR is a business. However, this does not imply that neutrals bias their decisions to please their repeat customers. They may as logically conclude that future business depends on establishing a reputation for fairness. The presence or absence of bias remains an open question.

These results, based on only one private ADR marketplace, can only suggest what might be occurring in other major metropolitan areas, where legal cultures may differ and where use of private ADR may be less advanced.