CHAPTER 11 THE AVAILABILITY OF ALTERNATIVE DISPUTE RESOLUTION IN FEE ROYALTY DISPUTES
| Jurisdiction | United States |
(Apr 1993)
THE AVAILABILITY OF ALTERNATIVE DISPUTE RESOLUTION IN FEE ROYALTY DISPUTES
Holme Roberts & Owen
Denver, Colorado
This article presents a pragmatic consideration of alternative dispute resolution ("ADR") in oil and gas royalty disputes involving private lands. Its purpose is to assist a party embroiled in or on the verge of a royalty dispute in determining whether and how ADR may be useful in resolving that dispute.
The article begins with general comments concerning ADR. That discussion is followed by a description of the different kinds of ADR available, an analysis of the advantages and disadvantages of each, and concludes with a discussion of certain practical considerations.
A. General Comments on ADR.
Like it or not, ADR has become a fact of life in civil litigation. Some state and federal court systems have implemented mandatory ADR programs.1 Others have granted judges broad discretion in using ADR or have strongly encouraged voluntary ADR programs.2 Whether through mandatory
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or voluntary participation, a growing number of parties and lawyers are now using ADR as a means of attempting to resolve their disputes.
Although ADR has a long and distinguished history in labor law, its general use in natural resources litigation is a relatively recent phenomenon. The growing interest in ADR for natural resources litigation is the result of both increasing dissatisfaction with the expense, delay and constraints of traditional litigation and an increasing awareness of the potential benefits of ADR.
The reviews of ADR have been mixed, although generally favorable.3 ADR has been the subject of glowing praise by some and growing skepticism by others.4 Rather than
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attempting to determine which, if either, of those views is appropriate, this article will attempt to provide a basis for a party in a royalty dispute to better assess the potential advantages and disadvantages of using ADR as a means of resolving its particular dispute.
B. The Kinds of ADR Available.
An integral part of the determination of whether to use ADR is the determination of which form of ADR to use. As discussed below, there are a number of different kinds of ADR available. The determination of the kind of ADR to use requires consideration of a wide array of factors more fully discussed below. Because the selection of the form of ADR can have a significant impact on the success or failure of the settlement process, careful consideration should be given in choosing the form of ADR best suited to the particular circumstances of the specific dispute.
Ultimately, the only limits on the kinds of ADR available are the limits of one's imagination and the ability to convince the other disputants to participate in the process. The parties to a dispute can fashion their own ADR process best suited to their particular dispute, either by incorporating specific ADR provisions in their contracts before a dispute arises or by agreeing to ADR after a dispute has arisen. The parties also can agree to incorporate more
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than one kind of ADR by providing for use of alternative forms of ADR if the initial ADR process proves unsuccessful.
As a practical matter, however, one should not underestimate the importance of selecting a form of ADR with which the other disputants are comfortable. Indeed, little is accomplished if the process of determining which ADR process to use becomes a source of extended negotiation or further dispute. Moreover, the prospects of resolving a dispute are diminished if the parties do not have confidence and comfort in the ADR process. For that reason, just as a party drafting an agreement will often use standard and accepted forms and clauses, a party considering ADR may prefer to use the more standard and accepted forms of ADR.
There are both voluntary and mandatory ADR processes. The primary emphasis of this article will be on voluntary ADR, although some of the mandatory, court-ordered forms of ADR will be discussed as well.
There are also both binding and non-binding forms of ADR. A party's willingness to participate in ADR often depends on whether the process is binding or not. Accordingly, this article will categorize the different kinds of ADR on the basis of whether or not they are binding, beginning with a discussion of the non-binding forms of ADR.
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1. Non-binding ADR.
The basic non-binding ADR processes include mediation, early neutral evaluation, court-annexed arbitration, mini-trials and summary jury trials.5 Each of these different kinds of non-binding ADR involves, in varying degrees, a summary presentation of the parties' positions followed by negotiation by the parties. The goal of non-binding ADR is for the parties to reach a mutually agreeable resolution of their dispute. The basic premise of non-binding ADR is that disputants are more likely to reach a mutually agreeable resolution of their dispute as they come to better understand and assess both their own and their opponent's position in the dispute.
a. Mediation.
Mediation involves the use of a neutral third party to assist and to direct the parties in their efforts to resolve their dispute through negotiation.6 The mediator can facilitate discussion and understanding of the parties'
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positions, assess the relative strength and weaknesses of arguments and positions, articulate the potential risks, rewards and costs of not settling, and even propose creative solutions not previously considered by the disputants. The mediator, however, cannot impose a particular result or compel resolution of the dispute.
Mediation is normally a voluntary process, but it also may be court-ordered.7 The mediation process will vary depending on the preferences of the parties and the approach of the mediator, but generally involves a preliminary joint meeting of the parties with the mediator, followed by separate and successive meetings between the mediator and each of the individual disputants. Over the course of the mediation process, the mediator normally shuttles back and forth between the parties, who usually are placed in separate conference rooms after the initial joint meeting. If the parties reach agreement, the mediator may assist in drafting or recording their agreement. If the parties do not reach agreement, they can either schedule a subsequent mediation session, resort to another form of ADR or proceed with litigation.
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b. Early Neutral Evaluation.
Early neutral evaluation involves assessment of each party's position by a neutral third party shortly after a lawsuit has been filed.8 The neutral evaluator is usually a lawyer with expertise in the area of dispute. The standard format of early neutral evaluation involves review of the key pleadings by the neutral third party, followed by a meeting with the parties and a summary presentation to the neutral third party of each party's case by counsel. The neutral third party then assesses the parties' positions and provides estimates of potential ranges of liability. Based on those comments by the neutral evaluator, the parties may, but are not necessarily required to, engage in settlement negotiations.
Early neutral evaluation also may involve docket control functions not directly related to settlement.9 For instance, early neutral evaluation also may involve efforts at defining and focusing issues, directing discovery and attempting to reach stipulations on undisputed issues. Early
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neutral evaluation is usually, but not always, a mandatory rather than a voluntary process.
c. Court-annexed Arbitration.
Court-annexed arbitration is a mandatory ADR process that involves presentation of the dispute to a neutral arbitrator who then renders a non-binding decision for the parties.10 The presentation to the arbitrator usually involves testimony from witnesses and exhibits. The parties then can use the arbitrator's decision as a basis for spurring further negotiation. If one or more of the parties does not accept the arbitrator's decision, the dispute proceeds to trial. Some court-annexed arbitration programs provide for payment of attorneys' fees and costs if a party proceeds to trial and the results at trial are not as favorable as the arbitrator's non-binding decision.11 Generally, court-annexed arbitration applies only to smaller disputes below a certain threshold dollar amount of claimed damages.12
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d. Mini-trial.
The mini-trial is a voluntary ADR process that involves a private summary presentation of the disputants' positions to one or more of the principals with settlement authority for each of the disputants.13 The extent of the summary presentation can be as extensive as the parties desire, including testimony and exhibits, but frequently the process involves only a summary of a party's position presented by each party's lawyer. Mini-trials also often involve neutral third parties who serve as coordinators, mediators or judges to provide advisory opinions on the dispute and to project likely outcomes if the case were to proceed to trial.
Following the summary presentation of the parties' positions, the principals engage in negotiations based on the summary presentation. The ensuing negotiations by the principals may occur with or without the involvement of lawyers for the parties and a neutral third party to facilitate negotiations.
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e. Summary Jury Trial.
The summary jury trial is a mandatory ADR concept involving a summary presentation of the anticipated evidence at trial to a jury empanelled by the court, usually after discovery has been completed in the case.14 Based on the summary presentation, the jury renders an advisory verdict. The attorneys then are permitted to question the jurors about the summary presentation and the jurors' advisory verdict. The parties...
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