Taming the Litigation Beast

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While no two programs are the same, two key elements are found in the most successful ones. First is early case assessment—evaluating all aspects of potential claims soon after they appear on the horizon. This allows the company to determine whether there is a valid claim and, if so, how best to resolve it. Second is selecting a forum, other than a courtroom, to resolve the claim. More times than not, that alternative forum will be mediation or arbitration. Given the ready availability of neutrals—for example, a disinterested professional serving as mediator or arbitrator—from CPR, American Arbitration Assn., and other similar organizations, finding an acceptable alternative forum is not difficult.

An early and effective adopter of CPR's principles is paper and building-products giant Georgia-Pacific. Through an aggressive use of early case assessment and alternative dispute resolution, Georgia-Pacific estimates that it has saved millions of dollars through reduced litigation costs. While businesses may be giving up their "win at any cost" mentality, most find that they actually have much more to gain. In the 10-year period from 1997 through 2006, Georgia-Pacific estimates that it saved at least $42 million—a meaningful amount even for a company with billions in annual revenues.

Deterring Frivolous Claims

One concern expressed by many businesses is that if they adopt an alternative approach to conflict prevention and resolution, their company will be seen as weak and open to settlement of frivolous claims. This is not a problem when companies, such as Georgia-Pacific, take the view that they will actively litigate whenever necessary. By making it clear that it will only seek to resolve legitimate claims and will vigorously defend against frivolous claims, a business may actually deter such disputes.

Dispute resolution through negotiation, mediation, and arbitration is clearly preferable to all-out litigation, but dispute prevention is an even better approach. As we were all told as children, "An ounce of prevention is worth a pound of cure." Businesses can prevent disputes if they are committed to doing so. Of course, that is easier said than done. However, companies that have made a concerted effort to proactively address potential conflicts as they occur and keep them from escalating have found that fewer minor issues become big disputes. While in any particular situation the effort may not seem justified, a systematic approach to eliminating sources of conflict can and does yield significant benefits to all parties.

While litigation and its associated expenses cannot be easily eliminated, businesses that take active and thoughtful steps to address potential issues and resolve disputes will almost always be able to reduce the need for going to court. As businesses look to reduce their costs, clearly this is an area worth exploring.

No matter what the cost, America has a judicial system that is the envy of the world. We should relish and protect the system, but we must also find creative ways of resolving disputes outside the courtroom. If that happens, we will all win in the long run.

Aquila is a partner in the Mergers & Acquisitions Group of Sullivan & Cromwell LLP.

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