the aaa's not-so-happy new year

AlternativesTO THE HIGH COST OF LITIGATION

Alternatives to the High Cost of Litigation (Print ISSN 1549-4373, Online ISSN 1549-4381) is a newsletter published 11 times a year by the International Institute forConflict Prevention & Resolution and Wiley Periodicals, Inc., a Wiley Company, at Jossey-Bass. Jossey-Bass is a registered trademark of John Wiley & Sons, Inc.

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Publishers:Thomas J. StipanowichInternational Institute for Conflict Preven-tion & Resolution

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INTERNATIONAL INSTITUTE FOR CONFLICT PREVENTION & RESOLUTION VOL. 24 NO. 2 FEBRUARY 2006

Alternatives

But the home offices in New Yorkwere hit by the cuts. A veteran library em-ployee was let go, and Parker says that thecollection, which has been open to thepublic for research for decades, will besold or transferred to a law firm or an-other organization.

Parker says the association plans toclose the Madison Avenue office by the endof this year, and consolidate operations atspace at 1633 Broadway. A third office,which handles New York state no-fault au-tomobile insurance arbitrations in the city’sfinancial district downtown, will remainopen, Parker says, and a Minnesota officedoing similar work also is unaffected.

And, he says, in deference to the col-leagues who lost their jobs, the associationheadquarters didn’t hold a 2006 holidayparty. “There is recognition that it has beena difficult year,” he says. “We believe thatthis positions us far better for our future.”

* * *

About a month after the moves, Parker dis-cussed the layoffs, acknowledging the

THE AAA’SNOT-SO-HAPPY NEW YEAR

The American Arbitration Association ismoving to shore up its business relation-ships in areas affected by late 2005 officeclosings and layoffs.

Association spokesman Larry Parker, atthe company’s New York headquarters, saysthat officials will be developing outreachprograms, including increased promotionalefforts and education programs, as well asconducting field trips to the affected areas.

The 80-year-old nonprofit alternativedispute resolution provider restructured itsbusiness on Nov. 10. It laid off 50 employ-ees, including many long-timers, andclosed five offices, effective nearly immedi-ately. It shifted some employees, and re-duced the number of centers that managelabor cases—a stalwart of the association’sbusiness plans since its inception—toeight, from 11.

The retrenchment, in fields and geo-graphic locations once exclusively occupiedby the association, signals increased ADRprovider competition. In first reporting themoves the day before Thanksgiving, theRecorder of San Francisco cited the loss ofthe New Jersey state no-fault insuranceclaims arbitration contract as a significantfactor, responsible in part for declining rev-enue and a 2004 operating loss of morethan $1.8 million.

The layoffs reduced the number of as-sociation employees to about 725. Themoves didn’t affect the association’s 8,000neutral panelists. Parker says that fired em-ployees received severance, but he declinesto discuss the terms.

Parker, who is the association’s corpo-rate communications director, insists thatthe association is facing marketplace reali-ties, not retreating. “The message we wantto absolutely emphasize is that we remain a50-state organization,” he says. “The factthat for administrative purposes we needfive fewer administration facilities shouldbe in no way indicative of a lessening of adesire to serve customers anywhere in thecountry.”

He adds that the association also still is

emphasizing its global reach through its In-ternational Centre for Dispute Resolutionunit, which was unaffected by the layoffs.The center, which is based in New Yorkand Dublin, has about a dozen employees,according to Parker, and overlaps functionswith U.S. domestic operations.

Still, the cuts hit both wide and deep.Association offices were closed in Cleve-land; Hartford, Conn.; Las Vegas; Pitts-burgh, and Syracuse, N.Y. Administrationof all Ohio labor cases will move to the De-troit area. Cleveland’s commercial cases willgo to Cincinnati. Upstate New York’s laborcases will move to New York City fromSyracuse. Las Vegas operations will movesouth to Phoenix.

And Pittsburgh operations will be han-dled out of the Philadelphia office, thoughmuch of the case administration there, aswell as all of the Pittsburgh work, hadmoved the Northeast Case ManagementCenter when it opened in East Providence,R.I., as part of a June 2002 reorganization.

The four regional case managementcenters, which include, in addition toRhode Island, Atlanta, Dallas, and Fresno,Calif., were unaffected by the Novemberreorganization, Parker says.

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“I’m afraid the arbitration failed!”

VOL. 24 NO. 2 FEBRUARY 2006 ALTERNATIVES 19

ADR BRIEF • ADR BRIEF • ADR BRIEF

Published online in Wiley InterScience (www.interscience.wiley.com).Alternatives DOI: 10.1002/alt


VOL. 24 NO. 2 FEBRUARY 200620 ALTERNATIVES

upstate New York,” says Bantle.“We . . . have to get to know the peopledownstate who are getting those cases. Wehave had some phone calls and some in-troductions. But they don’t really knowus, and we don’t know them.”

The predominant sentiment among hisregion’s academy members, says Bantle, issympathy for the departing case managersand sadness at the demise of long-term re-lationships. But, he says, “we should havethis conversation again in six months.”

Albert Bates Jr. IV, a partner in Pitts-burgh’s Reed Smith, says the local reactionis negative not only to the association’s of-fice closing, but also to other Pittsburghmoves the association has made in recentyears.

Bates explains that Pittsburgh alreadyhad gone from a case management centerto a local sales office—a characterizationthat the association’s Parker says is accurate.

Still, the Pittsburgh association vicepresident provided the comfort of a localcontact, Bates says. “That person wasable to bridge the gap with the changingof the case management center to thelarger [regional] centers, and it still feltlike there was a local Triple A presence.”That “good rapport with the ADRprocess in Pittsburgh,” says Bates, “is go-ing to be missed.”

When the Pittsburgh case manage-ment center was closed because of the2002 reorganization, the local AlleghenyCounty Bar Association's ConstructionLaw Section Council set up a constructiondispute resolution ADR provider group.The service’s Web page says it “fills a voidin the region.” See www.acba.org/Acbs/-cons_dis_res.html.

Bates says that while the bar grouphasn’t received many cases nor hurt theAmerican Arbitration Association’s busi-ness, he says that the national organiza-tion will suffer in Pittsburgh because ofthe 2005 year-end office closing. “[T]hefallout will likely be with people currentlydrafting contracts,” he says. “They will bebeginning to consider other providers.”

Bates says the move also may hurt con-flict resolution generally, because somecompanies still may consider the associa-

painful decisions and timing. He says thatthe association will place a special emphasison the locations losing offices in order tomaintain the organization’s presence.

He explains that the association’s busi-ness development and marketing peoplewill be planning public events on alterna-tive dispute resolution processes for theaffected cities and regions. The associa-tion expects to include continuing legaleducation programs for attorneys onADR subjects.

For example, the Philadelphia re-gional vice president “will make an extraeffort to hold training events and othermeetings in Pittsburgh and WesternPennsylvania,” he says. Similar outreachis expected in Las Vegas, and by the re-maining Ohio employees for the Cleve-land area.

New England cases also will be cen-tralized, in Boston, with the closing ofthe Hartford, Conn., office; Parker sayssome Connecticut employees were movedto Boston. While the association’s Cincin-nati office will remain open for commer-cial cases, labor cases from Cincinnati,Columbus and the closed Cleveland of-fice, which previously would have re-mained in Ohio, will now all funnel intothe Detroit area office located in South-field, Mich.

Syracuse, N.Y., which did a lot of la-bor work and was a labor case manage-ment center, appears to be more compli-cated. The association will retain a vicepresident in the area, though there will beno central office.

Parker says that the association hashad discussions with the National Acad-emy of Arbitrators, which focuses on re-solving labor disputes, to inform theacademy of the changes. Parker says thatthe association provided reassurance thatit could handle labor work with threefewer labor case management centers,which were established where the associa-tion had agreements with unions andlarge employers. While the centers—nowlocated in Atlanta, Boston; Dallas; De-troit; Fresno, Calif.; Somerset, N.J.; NewYork, and Philadelphia—originally fo-

cused on traditional labor issues, theyhave been expanded to a wider range ofemployment and workplace disputes.

Arbitrators who had handled laborcases with the shuttered Syracuse, N.Y.,office will now have to deal with adminis-trators in New York City. Margery F.Gootnick, a Rochester, N.Y., solo attorneyand neutral who is the current NationalAcademy of Arbitrators’ president, saysthat Syracuse “was a wonderful office,”but she doesn’t anticipate major changesin the way labor arbitrators operate in theregion. “People would like that things bethe way they always were,” she says, “butlife isn’t like that.”

Gootnick says that “it’s a differentmailing address and telephone number,”but the association is still “a top drawerorganization.”

Tracy L. Allen, a senior partner inSouthfield, Mich.’s Sommers Schwartz,and current president of the InternationalAcademy of Mediators, a professionalgroup based in Toronto, says, “We wantgood ADR services providers out there,and we know that the Triple A has a longhistory and we hope the changes they’remaking will be successful for them, forusers and for the public.” Allen says she isworking on two American Arbitration As-sociation cases.

The public good wishes may maskdeeper concerns. In upstate New York,where the former Syracuse office’s caseswill be moved to New York City, the Na-tional Academy of Arbitrators’ regionalchairman, veteran labor arbitrator and at-torney Douglas Bantle, of Mendon, N.Y.,says there is no immediate negativity, buthis colleagues are watching closely. “Obvi-ously,” he says, “there is apprehension,even though we have assurances of trans-parency from the Triple A people.”

When contacted on Dec. 16, Bantlesaid that academy members had been dis-cussing by telephone a goodbye party forthe two Syracuse case administrators, whowere set to depart and close the office—the last of the regional closings—the sameday. The staffers, who had about 40 years’association experience between them,“knew every party and every arbitrator in

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The attorney says that the contractenforcement issues have grown so trou-blesome that the company no longer in-cludes the association in its arbitrationclauses. “We have been really less thansatisfied in the way the arbitrators appliedthe law,” the attorney says, adding thatassociation neutrals aren’t biased.“They’re just not going to be punitiveagainst smaller companies where there isthis perceived imbalance of power. That isthe most frustrating repetitive experiencewe’ve had” in ADR.

“We have registered our dissatisfac-tion,” the Pittsburgh corporate counselsays. The veteran litigator expects that thecompany will still have to deal with the as-sociation, via Philadelphia, the regionalcase management centers, and in othersites worldwide, where disputes arise overexisting purchase orders.

Larry Parker notes that there is no di-rect tie between neutral evaluation, whichhe explains is “strictly an internal admin-istrative issue,” and the reorganization.

* * *

As Alternatives went to press, the associa-tion announced that it had picked up sig-nificant new business: It was selected toserve as administrator of two state-man-dated mediation programs to resolve Hur-ricane Katrina–related insurance claim dis-putes between homeowners and theirinsurance carriers.

The Louisiana and Mississippi pro-grams were scheduled to begin early thisyear. The Louisiana program also was slatedto cover damage from Hurricane Rita aswell as Katrina.

The release says that the associationwill use its New Orleans office and its on-line case filing system to administer thenew programs, under which Louisianaand Mississippi require insurers to offermediation to their policyholders regardingdisputed claims. The programs aremandatory for insurers, but voluntary forpolicyholders. �

DOI 10.1002/alt.20113

(For bulk reprints of this article, please call (201) 748-8789.)

VOL. 24 NO. 2 FEBRUARY 2006 ALTERNATIVES 21

tion the best ADR option and, given thelogistics, decide that if disputes arise, theywill be more comfortable in state or localfederal courts.

He says that the contact is key. “I’mstill comfortable with the Triple A and theadministration in Providence, [R.I.],” andPhiladelphia, he says, noting that heknows the Philadelphia regional vice pres-ident personally. “I have that safety net.”

Bates concludes that others in his mar-ket may not have those contacts, and itwill be tough for the association to main-tain its business. “Confidence in a personhelps provide confidence in a system,” hesays, and “that’s where a lot of people arestruggling with what has happened withthe Triple A. That confidence level doesn’tappear to be the same.”

One veteran association neutral in an-other city which still has an office and abig association presence says that repeatcustomers often say that losing local casemanagement to a regional center in 2002has made dealing with the associationmuch more difficult. The neutral says thecustomers are usually correct. “It is notthe same as having the guy on the phonetwo miles away,” the neutral says.

* * *

“We are sensitive to the fact that there isgoing to be some disappointment,” saysassociation communications director LarryParker, adding, “There is going to be someadjustment.” He says that the associationis “committed to serving” its old customersat the closed offices.

The moves don’t necessarily reflect theassociation stepping away from traditionalADR administration, which critics say canbe bulky, inflexible and, ultimately, ex-pensive. “It means giving customers moreoptions,” says Parker. “[W]e are now in-creasingly in a competitive atmosphere.There are many ADR providers. From thecustomer’s point of view, there are moreoptions in terms of hearing formats, and[the association is making efforts in] re-minding them on the flexibility we are ex-tending them that can obviously impacttheir ultimate bill for services.”

Specifically, he says, the different ADRoptions involve factors such as the levelsof discovery and types of neutrals’ experi-ence.

In recent years, the association has in-troduced a variety of products that allowcustomers to define the amount of servicethey enlist from the association for theirADR matters, stemming from the survey-ing of 48,000 customers, and the associa-tion’s 2003 Dispute-Wise Business Man-agement study.

“Clearly,” Parker says, “we want toleave it up to our customers [to decide]where the balance lies between resolvingdisputes quickly and efficiently from acost point of view but also while stayingout of litigation, [and feeling that] theyreceived the most consideration of the ev-idence and the facts of a given case.”

Parker says that areas discussed in the2004 annual report—the most recentposted at the association’s Web site atwww.adr.org—as growth sources will con-tinue to receive emphasis. Besides the re-cent-vintage case management services,including an online tool, the associationappears ready to continue pushing itsseminars and trainings, factfinding serv-ices, and elections services for unions, as-sociations, colleges and corporations.

“And, certainly, we want to continueboosting our mediation services,” saysParker, as part of the plan of offering di-versified ADR services. “We believestrongly that we are the ADR providerthat provides the most flexibility and themost resources to the customer across therange of dispute methods.”

Still, one Pittsburgh veteran in-houselitigation director says the problem isn’tthe closing of the office, nor the newproducts or the range of services, but in-stead is the neutrals the association is de-ploying in construction matters. “The pa-per and the pure administration by thearbitrators is not my main gripe,” the at-torney says. “It’s substantive contract law.The arbitrators are either unable or un-willing to apply it. In construction projectdisputes with very large numbers, theywon’t enforce the clauses which are prettyclear contractually.”


the aaa's not-so-happy new year

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