Law for Accountants Answer 3 questions – No Plagiarism and 100% original

  

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Chapter 3–8 Arbitration Chapter 3–9A. A Question of Ethics: Agreement to arbitrateChapter 4–8 Violation of internal ethical codes
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Australia • Brazil • Japan • Korea • Mexico • Singapore
Spain • United Kingdom • United States
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
T
rials are costly and time consuming. It has been said that
this is the result of “too many
lawyers, too many lawsuits, and too
many laws.” In fact, since 1960, the
number of lawyers has tripled, the
number of lawsuits has tripled, and
the number of laws has multiplied,
while the numbers of judges and courts
have not kept pace.
Although it is true that the number
of lawsuits ?led has grown rapidly,
only 5 to 10 percent of lawsuits ?led
actually go to trial. Most cases are
settled or dismissed long before the
parties enter a courtroom. Moreover,
the number of cases that are litigated
does not appear to be growing any
faster than the population. When
compared with the large number of
transactions that occur in our highly
complex economy, the rate of litigation
appears low to some.
Nevertheless, in any individual case,
it may be months before a hearing
can be scheduled. Depending on the
complexity of the case, the extent of
discovery proceedings required, the
delaying tactics of the opposing party,
and the backlog of cases pending in the
particular court, several years may pass
before a case is actually tried. Even in
the best of situations, the civil procedures discussed in Chapter 2 all require
much time and expense, particularly
when electronic discovery is involved.
As the cost and complexity of litigation have grown, businesspersons and
other individuals have asked, “Is there
a more appropriate way to resolve
disputes?”
SECTION 1
THE SEARCH FOR
ALTERNATIVES TO LITIGATION
A number of solutions have been proposed, and some
have been implemented, to reduce the congestion in
our court system and to reduce the litigation costs facing all members of society. The enforcement of arbitration clauses, the use of court-referred arbitration and
mediation, and the emergence of an increasing number of private forums for dispute resolution have all
helped to reduce the caseload of the courts.
Another solution to the problem involves putting caps on damage awards, particularly for pain
and suffering. Without the probability of obtaining
multimillion-dollar judgments for pain and suffering, some potential litigants will be deterred from
undertaking lawsuits to obtain damages. Another
avenue of attack is to penalize those who bring frivolous lawsuits. Rule 11 of the Federal Rules of Civil
Procedure allows for disciplinary sanctions against
lawyers and litigants who bring frivolous lawsuits in
federal courts.
Many courts require mediation or arbitration
before a case goes to trial. There are proposals to further reduce delay and expenses in federal civil cases,
and proposals are being considered by the states as
well. Some of the proposals can be viewed as casemanagement plans. One proposal, for example,
would require each federal district court to implement procedures for placing cases on different tracks,
with simple cases being handled more quickly than
complex ones.
Politics and Law
Because reforms of any system affect individuals and
groups differently, they seldom are accomplished
easily and quickly. Reform of the court system is
a prime example. At the federal level, members of
Congress long have been concerned with bringing
court costs and delay under control. These concerns
57
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
58
UNIT ONE
TH E FOU N DATIONS
led to legislation that required the federal courts to
develop a plan to cut costs and reduce delay within
the federal judicial system.
New Methods and Arrangements
The search for alternative means to resolve disputes
has produced several distinct methods and arrangements. These range from neighbors sitting down
over a cup of coffee to work out their differences to
huge multinational corporations agreeing to resolve
a dispute through a formal hearing before a panel of
experts. All of these alternatives to traditional litigation make up what is broadly termed alternative
dispute resolution (ADR).
ADR describes any procedure or device for resolving disputes outside the traditional judicial process.
ADR normally is a less expensive and less timeconsuming process than formal litigation. In some
instances, it also has the advantage of being more
private. Except in disputes involving court-annexed
arbitration (as will be discussed later in this chapter),
no public record of ADR proceedings is created; only
the parties directly involved are privy to the information presented during the process. This is a particularly important consideration in many business
disputes, because such cases may involve sensitive
commercial information. Today, ADR also includes
online methods of resolving disputes.
The great advantage of ADR is its ?exibility.
Normally, the parties themselves can control how
the dispute will be settled, what procedures will be
used, whether a neutral third party will be present or
make a decision, and whether that decision will be
legally binding or nonbinding. ADR also offers more
privacy than court proceedings and allows disputes
to be resolved relatively quickly.
Today, more than 90 percent of civil lawsuits are
settled before trial using some form of ADR. Indeed,
most states either require or encourage parties to
undertake ADR prior to trial. Many federal courts
have instituted ADR programs as well. In the following pages, we examine the basic forms of ADR. Keep
in mind, though, that new methods of ADR—and
new combinations of existing methods—are constantly being devised and employed.
SECTION 2
NEGOTIATION AND MEDIATION
Alternative dispute resolution methods differ in the
degree of formality involved and the extent to which
third parties participate in the process. Generally,
negotiation is the least formal method and involves
no third parties. Mediation may be similarly informal but does involve the participation of a third
party.
Negotiation
The simplest form of ADR is negotiation. In the
process of negotiation, the parties come together
informally, with or without attorneys to represent
them. Within this informal setting, the parties air
their differences and try to reach a settlement or
resolution without the involvement of independent
third parties. Because no third parties are involved
and because of the informal setting, negotiation is
the simplest form of ADR. Even if a lawsuit has been
initiated, the parties may continue to negotiate their
differences at any time during the litigation process
and attempt to settle their dispute.
PREPARATION FOR NEGOTIATION In spite of the
informality of negotiation, each party must carefully prepare his or her side of the case. The elements
of the dispute should be considered, documents
and other evidence should be collected, and witnesses should be prepared to testify. Negotiating
from a well-prepared position improves the odds of
obtaining a favorable result. Even if a dispute is not
resolved through negotiation, preparation for negotiation will reduce the effort required to prepare for
the next step in the dispute-resolution process.
ASSISTED NEGOTIATION To facilitate negotiation,
various forms of what might be called “assisted
negotiation” have emerged in recent years. Assisted
negotation, as the term implies, involves the assistance of a third party. Forms of ADR associated with
the negotation process include mini-trials, early neutral case evaluation, and facilitation. Another form of
assisted negotiation—the summary jury trial—will
be discussed later in this chapter.
A mini-trial is a private proceeding in which
each party’s attorney brie?y argues the party’s case
before the other party. Typically, a neutral third
party, who acts as an adviser and an expert in the
area being disputed, is also present. If the parties fail
to reach an agreement, the adviser renders an opinion as to how a court would likely decide the issue.
The proceeding assists the parties in determining
whether they should negotiate a settlement of the
dispute or take it to court.
In early neutral case evaluation, the parties
select a neutral third party (generally an expert in
the subject matter of the dispute) to evaluate their
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C HAPTE R 3
59
Alternative and Online Dispute Resolution
respective positions. The parties explain their positions to the case evaluator however they wish. The
evaluator then assesses the strengths and weaknesses
of the parties’ positions, and this evaluation forms
the basis for negotiating a settlement.
Disputes may also be resolved in a friendly, nonadversarial manner through facilitation, in which
a third party assists disputing parties in reconciling their differences. The facilitator helps to schedule negotiating sessions and carries offers back and
forth between the parties when they refuse to face
each other in direct negotiations. Technically, facilitators are not to recommend solutions. (In practice,
however, they often do.) In contrast, a mediator is
expected to propose solutions.
Mediation
One of the oldest forms of ADR is mediation. In
mediation, a neutral third party acts as a mediator
and works with both sides in the dispute to facilitate a resolution. The mediator normally talks with
the parties separately as well as jointly, emphasizes
points of agreement, and helps the parties to evaluate their options. Although the mediator may propose a solution (called a mediator’s proposal), he or
she does not make a decision resolving the matter.
The mediator, who need not be a lawyer, usually
charges a fee for his or her services (which can be
split between the parties). States that require parties
to undergo ADR before trial often offer mediation as
one of the ADR options or (as in Florida) the only
option.
Mediation is essentially a form of assisted negotiation. We treat it separately here because traditionally
it has been viewed as an alternative to negotiation.
Additionally, a mediator usually plays a more active
role than the neutral third parties in negotiationassociated forms of ADR.
Today, characteristics of mediation are being
combined with those of arbitration (to be discussed
next). In binding mediation, for example, the parties
agree that if they cannot resolve the dispute, the
mediator can make a legally binding decision on
the issue. In mediation-arbitration, or “med-arb,” the
parties ?rst attempt to settle their dispute through
mediation. If no settlement is reached, the dispute
will be arbitrated.
ADVANTAGES OF MEDIATION Few procedural rules
are involved in the mediation process—far fewer
than in a courtroom setting. The proceedings can be
tailored to ?t the needs of the parties—the mediator
can be told to maintain a diplomatic role or be asked
to express an opinion about the dispute, lawyers can
be excluded from the proceedings, and the exchange
of a few documents can replace the more expensive
and time-consuming process of pretrial discovery.
Disputes are often settled far more quickly in mediation than in formal litigation.
One of the bigger advantages of mediation is that
it is not as adversarial in nature as litigation. In mediation, the mediator takes an active role and attempts
to bring the parties together so that they can come
to a mutually satisfactory resolution. The mediation
process tends to reduce the antagonism between the
disputants, allowing them to resume their former
relationship while minimizing hostility. For this reason, mediation is often the preferred form of ADR
for disputes involving business partners, employers
and employees, or other parties involved in longterm relationships.
Another important bene?t of mediation is that
the mediator is selected by the parties. In litigation,
the parties have no control over the selection of a
judge. In mediation, the parties may select a mediator on the basis of expertise in a particular ?eld as
well as for fairness and impartiality. To the degree
that the mediator has these attributes, he or she will
more effectively aid the parties in reaching an agreement over their dispute.
DISADVANTAGES OF MEDIATION Mediation is not
without disadvantages. A mediator is likely to charge
a fee. (This can be split between the parties, though,
and thus may represent less expense than would
both sides’ hiring lawyers.)
Informality and the absence of a third party referee
can also be disadvantageous. (Remember that a mediator can only help the parties reach a decision, not
make a decision for them.) Without a deadline hanging over the parties’ heads, and without the threat of
sanctions if they fail to negotiate in good faith, they
may be less willing to make concessions or otherwise
strive honestly and diligently to reach a settlement.
This can slow the process or even cause it to fail.
SECTION 3
ARBITRATION
A more formal method of ADR is arbitration, in
which an arbitrator (a neutral third party or a panel
of experts) hears a dispute and imposes a resolution
on the parties. Arbitration differs from other forms
of ADR in that the third party hearing the dispute
makes a decision for the parties. Exhibit 3–1 on the
following page outlines the basic differences among
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
60
UNIT ONE
TH E FOU N DATIONS
E X H I B I T 3–1 • Basic Differences in the Traditional Forms of ADR
NEUTRAL THIRD
PARTY PRESENT
WHO DECIDES
THE RESOLUTION
TYPE OF ADR
DESCRIPTION
Negotiation
Parties meet informally with or without their
attorneys and attempt to agree on a resolution. This
is the simplest and least expensive method of ADR.
No
The parties themselves
reach a resolution.
Mediation
A neutral third party meets with the parties and
emphasizes points of agreement to bring them
toward resolution of their dispute.
1. This method of ADR reduces hostility between
parties.
2. Mediation is preferred for resolving disputes
between business partners, employers and
employees, or others involved in long-term
relationships.
Yes
The parties, but the
mediator may suggest or
propose a resolution.
Arbitration
The parties present their arguments and evidence
before an arbitrator at a hearing, and the arbitrator
renders a decision resolving the parties’ dispute.
1. This ADR method is the most formal and
resembles a court proceeding because some
rules of evidence apply.
2. The parties are free to frame the issues and set
the powers of the arbitrator.
3. If the parties agree that the arbitration is
binding, then the parties’ right to appeal the
decision is limited.
Yes
The arbitrator imposes a
resolution on the parties
that may be either binding
or nonbinding.
the three traditional forms of ADR. The key difference between arbitration and the forms of ADR just
discussed is that in arbitration, the third party’s decision may be legally binding on the parties. Usually
the parties in arbitration agree that the third party’s
decision will be legally binding, although the parties
can also agree to nonbinding arbitration.
When a dispute arises, the parties can agree to
settle their differences informally through arbitration rather than formally through the court system.
Alternatively, the parties may agree ahead of time
that, if a dispute should arise, they will submit to
arbitration rather than bring a lawsuit. If the parties agree that the arbitrator’s decision will be legally
binding, they are obligated to abide by the arbitrator’s decision regardless of whether or not they agree
with it. (See this chapter’s Insight into Ethics feature
on the facing page for a discussion of some potential
ethical implications of the use of arbitration.)
The federal government and many state governments favor arbitration over litigation. The federal policy favoring arbitration is embodied in the
Federal Arbitration Act (FAA) of 1925.1 The FAA
requires that courts give deference to all voluntary
1. 9 U.S.C. Sections 1–15.
arbitration agreements in cases governed by federal
law. Virtually any dispute can be the subject of arbitration. A voluntary agreement to arbitrate a dispute
normally will be enforced by the courts if the agreement does not compel an illegal act or contravene
public policy.
The Federal Arbitration Act
The Federal Arbitration Act does not establish a set
arbitration procedure. The parties themselves must
agree on the manner of resolving their dispute. The
FAA provides the means for enforcing the arbitration procedure that the parties have established for
themselves.
Section 4 allows a party to petition a federal district court for an order compelling arbitration under
an agreement to arbitrate a dispute. If the judge is
“satis?ed that the making of the agreement for arbitration or the failure to comply therewith is not in
issue, the court shall make an order directing the
parties to proceed with arbitration in accordance
with the terms of the agreement.”
Under Section 9 of the FAA, the parties to the
arbitration may agree to have the arbitrator’s decision con?rmed in a federal district court. Through
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
C HAPTE R 3
61
Alternative and Online Dispute Resolution
Implications of an Increasingly Private Justice System
Downtown Houston boasts a relatively new courthouse with thirty-nine
courtrooms, but often, many of those
courtrooms stand empty. Has litigation in Texas slowed
down? Indeed, it has not—the courtrooms are empty
because fewer civil lawsuits are going to trial. A similar
situation is occurring in the federal courts. In 1984, more
than 12,000 civil trials were heard in our federal courts.
Today, only about 3,500 federal civil trials take place
annually. Two developments in particular are contributing to the disappearance of civil trials—arbitration and
private judges.
Corporations Use Arbitration Instead of Courts
Since the 1980s, corp …
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