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Calling mandatory arbitration a poor substitute for good lawyering and a “bureaucratic waste,” New Jersey’s state Bar Association is pushing to eliminate it. In a blistering report by its Ad Hoc Committee on Arbitration, the Bar urges adoption of a multi-option, alternative dispute resolution program similar to one used in some federal districts. The committee recommends using mediation instead of arbitration and making arbitration optional and only one of a variety of ADR resolutions available. The report, sent to New Jersey Chief Justice Deborah Poritz in early November but only made public last week, says the system has too many inexperienced arbitrators and built-in problems, such as chumminess among lawyers, unavoidable biases of arbitrators and conflicts that arise through some lawyers’ relationships with carriers. Although the perceived failure of arbitration has not led to more cases going to trial — only 6.3 percent of trial de novo requests go to a jury — there is a high rate of rejection of arbitration awards, more than 72 percent, the report says. It also characterizes the arbitration process as an often-abused settlement tool, taking a swipe at Allstate Insurance Co. in particular for its policy of never accepting an arbitration award. “This evaluation of the current system offers an opportunity for New Jersey to embrace national trends toward mediation, and other innovative dispute resolution reforms,” State Bar President Karol Corbin Walker said in a statement that accompanied release of the report. “This multi-optional system, which has proven successful in federal courts, would substitute New Jersey’s one-size-fits-all approach with a new dynamic allowing parties to tailor the appropriate complimentary dispute resolution (CDR) device to their particular case,” she adds. As the State Bar sees it, the bottom line is that the system is defeating the goals of arbitration by increasing costs to parties, delaying adjudication of cases and adding to court congestion. The report deems the process a failure, despite positive reports from the Administrative Office of the Courts. Most objectionable, says the report, is the high rate of rejection of arbitration awards. For the court year ending in August 2001, 19,774 of 27,285 arbitrated cases, or 72.5 percent, were rejected. That rejection rate was higher for auto cases, which constitute almost two-thirds of those arbitrated. For the 2000-2001 year, the latest figures available, 74.3 percent of the 12,897 cases arbitrated resulted in a de novo request. That’s up from 48.8 percent in 1990. Personal injury cases did not fare much better, according to the data in the report, which comes from the AOC’s annual reports. Of 6,981 arbitrations, one side rejected the award 5,020 times, or 71.9 percent of the time. Commercial cases did slightly better. Even so, almost two thirds of the 2,807 commercial cases that went through arbitration resulted in a de novo trial request. Most rejections come from the defense, particularly in auto cases. And that rate continues to rise. Defense lawyers accounted for 82.2 percent of de novo requests in 2002, up from 55 percent in 1987. That increase “reflects either unremitting and increasing dissatisfaction with the system, or worse, a conscious abuse,” the Bar report says. Richard Williams, administrative director of the courts, makes clear in a statement that the AOC disagrees with the State Bar. Williams says the report will be reviewed but suggests, “its conclusions are at variance with our experience and the views of numerous attorneys and local bar associations.” He adds, “The success of our arbitration program is due in large part to the dedication and commitment of many attorneys at the local level … and we will keep their interests and those of their clients at the forefront in reviewing this report.” Lewis Stein, who chaired the committee, says, “At some point, we must separate the opinions of those with a vested interest in this system and realize that any system rejected 75 percent of the time is a failed system.” 20-YEAR-OLD PROGRAM Mandatory arbitration came to New Jersey through legislation in 1983, after a study by a Supreme Court committee on CDR. Initially the program covered only auto negligence cases where the noneconomic loss claim was under $15,000. In 1987, the Legislature expanded the program to personal injury cases and raised the ceiling to $20,000. Then, in July 2000, the Supreme Court included simple commercial cases. By that time, however, 19 of the 21 counties had included some commercial cases in the arbitration stream through pilot projects. The State Bar report questions whether the court had the authority to expand the program by rule, without going back to the Legislature, but drew no conclusions. The report finds fault with many aspects of the system, saying applications vary from county to county, as do guidelines for what type of cases should be included. Too much power is left to attorneys, who identify the nature of the case to the court, the committee suggests. But the hearings themselves are what draw the bulk of the criticism. Scheduled at 30-minute intervals, they are too short, especially when some arbitrators lack the requisite seven years of experience in negligence matters. Moreover, although each attorney is supposed to submit a position statement 10 days before the hearing, often that doesn’t happen. Instead, lawyers show up with their statements and the arbitrator reads them on the spot. Hearings are designed to be efficient and informal. Rules of evidence are suspended. Clients attend, and usually are sworn and are subject to cross-examination. Lawyers may sum up before the arbitrator renders an award. But because the court some time ago pushed arbitration dates to the end of discovery — in the hope of reducing the rejection rates — the system winds up costing more, the report concludes. Defense lawyers who charge carriers by the hour spend roughly six hours for preparation and appearance, while plaintiffs’ attorneys spend the same amount of time, but nonbillable. Using $150 an hour as a gauge, the State Bar concludes that the “soft” cost to litigants is about $1,000 per lawyer, or $54 million for fiscal 2003. “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,” the report says. The report also says the program is losing money for the court system. Looking at AOC statistics, the committee says that between 1998 and 2003 revenues from de novo fees were $3.5 million to $3.9 million. But expenditures exceeded those revenues by $555,220 in 2000, $210,505 in 2001 and $953,310 for the first nine months of 2002. It chides the AOC, saying it has reported the program as self-supporting annually since 1994. RAND STUDY CITES INEFFICIENCIES The State Bar committee says it is unrealistic to determine a case’s value, given all the variables, including the proofs and the lawyers’ skills and experience. Moreover, the process is a waste of time if insurance companies constantly reject recommended awards, the State Bar says. The State Bar cites a 1991 Rand Corp. study of arbitration systems in five states, including New Jersey. That study found such programs were increasing costs and clogging courts, particularly in New Jersey’s auto arbitration program. Rand researchers concluded that while the programs meet the demand for fair, adjudicative third-party hearings, “they don’t always improve court efficiency and can even reduce it.” But after the Rand study, the AOC commissioned its own, which showed “continued satisfaction” by most lawyers. Experts say that while 22 states have adopted some form of arbitration, no additional states have done so in about a decade, according to the State Bar report. Florida’s and North Carolina’s programs were cited as most similar to New Jersey’s but more successful. Florida uses mediation and other CDR options, and pays mediators $250 an hour. North Carolina’s average time for the hearing is four hours. Florida’s rejection rate is 25 percent and North Carolina’s 30 percent. What’s more, New Jersey’s disincentives to filing for a de novo trial — the $200 fee plus an assessment if the filing party does not do better by at least 20 percent — do not work, the State Bar says. The assessment, in particular, has no punch because cases invariably settle. The report describes awards as sometimes being not much more than “a minimally informed opinion that is long on the imprimatur of authority but short on experience and influence.” Ultimately, the committee concludes that the process is just a substitution for good communication between lawyer and client, and between opposing lawyers. “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,” the report concludes. “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.”

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