Special Masters: How to Make the Best of Both Worlds, Part I

This is the first in a series of posts discussing the role of Special Masters in complex litigation and how litigants can best use them to improve their litigation experience. Stay tuned!

Part One: The Problem

By: Merril Hirsh, James M. Rhodes, and Karl Bayer

An article in the Spring 2014 issue of the ABA’s Dispute Resolution reports on the sad results of a 2011 Fortune 1000 ADR survey. The survey updated a 1997 study. The bottom line: in 1997, Fortune 1000 companies, tired of the expense and inefficiency of litigation, were overwhelmingly interested in using arbitration. In 2011, Fortune 1000 companies, tired of the expense and inefficiency of arbitration, were really more interested in mediation. Give us another 14 years, and in 2025, we can make mediation sufficiently expensive and inefficient that we will just have to stop having disputes entirely: a disastrous prospect for us lawyers.

Unfortunately, jokes aside, the issue is real: the cost of resolving disputes is critical to its fairness. If litigation or arbitration is too expensive or protracted, participants cannot afford to get their disputes resolved. This is not just a problem for participants of modest means: a partner in management large New York law firm is reported to have said recently that “we really can’t efficiently handle cases with less than $50 million at stake.” And even when the costs do not outstrip the amount in dispute, they can damage the fairness of resolution by making settle­ment turn more on the fear of transactions costs (or just physical exhaustion) than on the merits.

The rap on arbitration for some time has been that (1) although it should be less expensive than litigation, in practice, it is not; and (2) there is a risk of having a decisionmaker get it wrong without the meaningful possibility of appeal. Like most “raps,” these should be preceded by “rightly or wrongly.” Handled properly, arbitration should not be as expensive, but it is not always handled properly; and organizations have recently implemented appellate arbitration procedures. However, for purposes of this article, the fact that arbitration is perceived this way is enough to justify looking for ways to protect against these concerns. And, in any event, it does not necessarily solve people’s problems to have two imperfect systems: A system of civil litigation that does a great job of permitting appeals, but is perceived to be, or is, too cumbersome or expensive to resolve disputes; and a system of arbitration that, one hopes, is cheaper, but does not permit, at least the judicial appeal that parties might wish to have available if the arbitrator gets it “wrong.”

Fortunately, there are potential ways out of this box.   In Part II, we discuss what previous attempts have been made to resolve the problem and where those attempts have fallen short.

 Read Part Two: Improving the Process, Not Just the Rules.

Read Part Three: What Incentives Are We Creating?

Read Part Four: How Do We Create Better Incentives?

Read Part Five: Incentives Through Expertise.

Read Part Six: An Appellate Court Success Story.

Read Part Seven: Being the Neutral Eyes.

Read Part Eight: How Are Special Masters Perceived?

Read Part Nine: Beating the Rap.

Read Part Ten: Using Regularity to Start Beating the Rap

Read Part Eleven: The Rule Rather than the Exception

Read Part Twelve:  An Adjunct to Civil Litigation

Read Part Thirteen: Doing Disagreement as Effectively as Doing Agreement

Read Part Fourteen: Is Doesn’t Just Have To Be Construction That’s Constructive

Read Part Fifteen: Where Else Do We Bring Alternative Dispute Resolution Skills to Dispute Resolution?