When a small Virginia wholesale supplier got into a dispute last year with a large computer company over problems with the $60,000 computer it had bought, the last thing the companies wanted to do was go to court. That could have cost them at least $25,000 apiece. Instead, the two companies turned to EnDispute Inc., a Washington, D.C.-based company that offers alternative methods of dispute resolution. EnDispute organized a private "minitrial" for them, and the case was settled in a day and a half, at a charge of $4,500 each.
That kind of bargain-basement justice is growing more popular. Similar private court systems have emerged in Philadelphia, Phoenix, and several other cities, providing a faster, cheaper means of resolving disputes.
"We're Federal Express in a legal context," says Alan Epstein, the founder of Judicate Inc., a private court based on Philadelphia. Because every month of litigation amounts to another blank check for legal services, delays amounting to several years can rocket legal costs for individual cases past the million-dollar mark. "There are two reasons to use [alternative dispute resolution]," explains Robert McLucas, director for casualty property claims at The Travelers Insurance Cos. "One, they're cheap. And two, they're inexpensive."
The for-profit courts also offer privacy and a degree of flexibility unimaginable in the public system. Participants can choose the judge, the timing, and the king of evidence allowed. Confidentiality is strictly respected -- no press or public are allowed.
If they wish, the parties can make the private court's ruling binding by signing an agreement beforehand. Often, however, the litigation is used as a step toward an out-of-court settlement.
Judicate and Civicourt Inc., a private court in Phoenix, opened for business in the past year. Each maintains a panel of judges, some of them retirees from the bench, who decide cases in accordance with local and state laws. The companies arrange the trials and provide the courtroom. For these services, Judicate charges a $75 administrative fee and $600 for a three-hour session. Epstein says that about 80 cases have been filed on Judicate's docket; half were settled before the private trial, and at least 5 proceeded through trial and judgment.
EnDispute, the largest of the private, for-profit dispute resolution services, with revenues of $250,000 last year, has offices in five cities: San Francisco, Los Angeles, Chicago, Pittsburgh, and Washington, D.C. It offers a variety of litigation alternatives, including the minitrial, which it pioneered. In the minitrial, which is not binding, lawyers argue the case to a judge and to the executives of the disputing parties. Then the executives retire to discuss their differences, calling on the judge as a consultant on the legal merits.
Marketing these private courts presents a major challenge because lawyers stand to lose enormous fees by referring their cases. "The training and self-interest of lawyers exerts pressures hostile to alternative dispute resolution," says Marvin Frankel, a retired federal judge and a member of Judicate's panel. Bill MacQueen, director of communications for Judicate, says, "Ultimately, the use of [private courts] has to be forced by the people who will save money -- the businesspeople.
Executives of the private courts preach their gospel to groups of lawyers and businesspeople. They also target in-house counsel, "who don't have a built-in financial interest in keeping legal fees high and in fact are under pressure from their CEOs to reduce those costs," says Michael Farrell, head of EnDispute's southern California operations.