1 States and the district courts in connection with their duties

2 under this Act.

3 (b) The Federal Judicial Center, in consultation with 4 the Attorney General and the Administrative Office of the 5 United States Courts, shall transmit to the Congress, on or 6 before the expiration of the third year following the effective 7 date of this Act, a report on the use, effectiveness, and bene8 fits of arbitration in the test district courts and such other 9 districts in which cases are referred to arbitration under this 10 Act.

11

SEC. 8. (a) The Attorney General shall promulgate 12 regulations to describe the cases subject to arbitration pur13 suant to section 644 (a) (1) (A) of title 28, United States 14 Code, within one hundred and twenty days of the date of 15 enactment of this Act.

16

(b) This Act shall take effect one hundred and twenty 17 days after the date of enactment, except that subsection (a) 18 shall take effect on the date of enactment.

19

SEC. 9. There is authorized to be appropriated for the 20 fiscal year ending September 30, 1979, to the judicial branch 21 of the Government such sums as may be necessary to be 22 allocated by the Administrative Office of the United States 23 Courts to Federal judicial districts and the Federal Judicial 24 Center to carry out the purposes of this Act. The funds so 25 appropriated shall remain available until expended.

General Bell, I want to thank you for your time once again. I realize how busy you are and also I want to compliment Mr. Meador and the people in his office and division for the outstanding support, and assistance, and cooperation we have received from that Department.

STATEMENT OF GRIFFIN B. BELL, ATTORNEY GENERAL OF THE UNITED STATES, ACCOMPANIED BY DANIEL J. MEADOR, ASSISTANT ATTORNEY GENERAL, OFFICE FOR IMPROVEMENTS IN THE ADMINISTRATION OF JUSTICE; AND JOHN M. BEAL, ATTORNEY, OFFICE FOR IMPROVEMENTS IN THE ADMINISTRATION OF JUSTICE

General BELL. I have with me Professor Meador and John Beal, who is Professor Meador's assistant.

I would like to submit my written testimony.

Senator DECONCINI. It will appear in the record at this point in its entirety.

[Material follows:]

STATEMENT OF GRIFFIN B. BELL, ATTORNEY GENERAL

It is a pleasure to appear before the Subcommittee on Improvements in Judicial Machinery to urge careful and prompt consideration of S. 2253. This bill provides for an experiment in certain federal district courts with mandatory but non-binding arbitration of selected cases.

This proposal for court-annexed arbitration is a key element in the program of the Department of Justice to assure access to effective justice for all citizens and to improve the operations of our judicial system. In that effort over the past year we have worked very closely with this Subcommittee. We have been grateful for the counsel and cooperation you and your staff have provided us. As a result of our joint efforts, including the work of the Kastenmeier Subcommittee in the House, a number of measures are moving forward which will have a salutary impact on the administration of justice in the federal courts.

We have reached the point in our judicial system where simply adding more judges will not necessarily enable us to insure adequate access to effective justice for the variety and volume of disputes with which the federal courts are faced.

It is difficult to state with certainty what the cumulative effect would be of various court reform measures now pending in the Congress. We do not know whether or in what form they will be enacted. Each measure is directed at a particular part of the judicial process, and each would produce its own particular benefits.

Expanding the role of magistrates will relieve district court judges of tasks that do not require their attention. Diversity jurisdiction reform will clear the way for more federal judicial time to be given to federal law questions. The measure now before you to experiment with court annexed arbitration for some types of disputes is complementary to these other measures.

The consequence of clogged federal courts and mounting backlogs is not only an overworked federal judiciary but also litigants frustrated with unconscionable delay and great expense in their efforts to obtain the resolution of their legal disputes. This bill seeks to broaden access for the American people to their justice system and to provide mechanisms that will permit the expeditious resolution of disputes at a reasonable cost.

A large measure of actions filed in federal district courts are resolved by settlement before any trial. However, many settlements take place only after substantial preparation expenses have been incurred, often including voluminous discovery. In addition, some of the trials that are held could be avoided by having a neutral third party consider the evidence and provide an informed

decision on the merits, with some inducement to the litigants to accept that decision as the judgment in the case.

This proposal for court-annexed arbitration has been designed with these twin goals in mind: (1) speeding up the resolution of cases that are now settled and (2) resolving more quickly and less expensively many of the cases that now go to trial.

THE SUCCESSFUL STATE EXPERIENCES

Compulsory non-binding arbitration of civil court cases has been utilized by several states with good results. In Pennsylvania, a court-annexed arbitration system has been in effect for over 25 years. New York and Ohio have utilized arbitration since 1970; Michigan and Arizona, since 1971. California adopted a statute providing for compulsory nonbinding arbitration that became effective in 1976, after a successful program of voluntary arbitration. In addition, arbitration procedures for particular kinds of cases, such as medical malpractice and uninsured motorist insurance disputes, have been utilized in several states. Thus the use of arbitration at the state level is gradually expanding. In Pennsylvania, the original jurisdictional ceiling was $1000. It was raised to $2000, then $3000, and, in 1971, after considerable study, to $10,000. Moreover, I am aware of no state that has chosen to discontinue arbitration after trying it out. The State systems generally involve referral of money damage cases to volunteer lawyer arbitrators. The maximum value of claims that may be referred varies from $3,000 to $10,000.

The arbitrators are paid fees ranging from $30 in Ohio to $150 in California per case. They hear the evidence under relaxed rules of admissibility and render an award. There is generally a trial de novo available in the trial court, but with financial disincentives placed upon such a demand. Some States impose their disincentives on any party requesting a trial de novo, others only if the party does not improve its position at the trial de novo. The State plans have generally fared well against court challenges, beginning with the decision upholding the constitutionality of the first program in Pennsylvania. Smith, 381 Pa. 223, 112 A.2d 625, appeal dismissed sub nom. Application of Smith v. Wissler, 350 U.S. 858 (1955).

Appeal rates for trials de novo have ranged from 5 to no more than 15 percent of all cases arbitrated. This means that from 85 to 95% of cases referred to arbitration terminate there. Because of the difference in magnitude between the State cases and the cases encompassed in our arbitration proposal, we recognize that direct comparisons are difficult to make. However, the success that the State systems have had clearly indicates that this experiment is one worth trying in the federal courts. We have examined the particular procedures of the different State programs to determine what procedures would work best in the Federal system.

My own interest in the use of arbitration was heightened by my service as chairman of the Pound Conference Follow-up Task Force. In May of 1976, a distinguished group of lawyers, judges, and academicians gathered together in Minneapolis under the auspices of the Judicial Conference of the United States, the Conference of Chief Justices, and the American Bar Association. The conference marked the 50th anniversary of Roscoe Pound's seminal address entitled "The Cause of Popular Dissatisfaction with the Administration of Justice." At the conclusion of the conference, the Task Force was appointed to formulate recommendations based on the deliberations of and the material presented at the Conference. One of the main recommendations of the Task Force report was that arbitration procedures should be tried in the Federal courts. Consequently, when I became Attorney General, I directed the Office for Improvements in the Administration of Justice to develop legislation that would put this idea into

effect.

THE PROPOSED STATUTORY PLAN

S. 2253 would authorize an experiment with court annexed arbitration for specified categories of cases in five to eight district courts for a three-year period. The legislation would also authorize any additional district court in the country to adopt the statutory experiment at the option of the judges. The Federal Judicial Center would evaluate the program and report to the Congress. The bill sets forth specific categories of cases which would automatically be referred to arbitration before trial. These cases were identified on the basis of

three criteria. The first criterion is that the cases involve claims for money damages only. In such cases, often the only dispute is over the amount of money owed by one party to the other. In contrast, pleas for equitable relief would probably mean increased complexity and could require the continuing supervision of the court. Such cases would be inappropriate for arbitration.

The second criterion is that cases referred to arbitration be limited to those in which the claim does not exceed $50,000. In cases with claims in the hundreds of thousands or millions of dollars, the cost of a subsequent trial and of any disincentives for demanding such a trial are very small, relative to the claim itself. It is our belief, based upon the experience in the states that, where larger amounts are involved in the suit, the likelihood of one litigant or another requesting a trial de novo is greatly increased. In addition, cases involving hundreds of thousands of dollars or more could very well be of such complexity that they would require an arbitration proceeding of greater length than the speedy proceedings intended to be produced by the bill. As a result, suits over $50,000 are not mandatorily referred, but the parties to a money damage lawsuit of any amount may consent to arbitration under the procedures set forth in the bill.

The final criterion is that the cases present predominantly factual issues. rather than complex legal questions, constitutional claims, or novel issues of law which may establish important precedents. These matters are the province of the federal judiciary. With cases involving arbitration, referral under the bill is to occur only after the disposition of pretrial motions, which will allow for the pre-arbitration resolution by the district court judge of many legal issues.

By applying the foregoing three criteria to the federal civil docket, we have concluded that money damage tort and contract cases are the groups of cases that are most suitable for arbitration. With respect to cases in which the United States is not a party, the language in the bill as now drafted covers most of these cases. However, we have more closely examined this issue since transmitting the statute to the Congress, and we believe now that section 644(a) (2) (B) (ii) should be amended to make it simpler and more comprehensive. Our amended version reads:

"(ii) jurisdiction is based in whole or in part on section 1331, 1332, or 1333 of this title, and the action is based on a negotiable instrument or contract or is for personal injury or property damage, except that an action brought pursuant to section 130 of the Truth-in-Lending Act (16 U.S.C. 1640) shall not be referred."

Under this amended provision all tort and contract cases under $50,000 are covered. These are matters that most commonly turn on questions of fact. They are cases that attorneys experienced in litigating before the federal courts could, with reasonable facility, determine the award a trial would produce. Thus, the arbitration process should present the parties in these cases with a result closely approximating what they could expect should they go to trial in the district court.

Cases arising under the truth-in-lending statute have not been included. This is a new, complex area of the law, involving voluminous regulations and still in need of published legal precedents. The computation of the amount of damages is automatic under a formula in the statute and would leave the arbitrator without discretion. Also, the losing party pays attorney's fees which are better set by a judge.

We have provided a separate category for cases in which the United States is a party. Many of these cases are treated differently from those involving private parties. For example, actions against the federal government arising out of contracts to which the government is a party must be initially tried before the United States Court of Claims. Others go through administrative proceedings not unlike arbitration before reaching the federal district court. For instance, the Federal Tort Claims Act requires that an administrative claim be filed and disposed of by the relevant agency as a predicate to a district court action. We do not believe that the parties to such actions should be required to go through an additional similar procedure.

We have been examining all money damages cases in which the United States is a party and are in the process of preparing a list of U.S. party cases to be arbitrated. The principle under which we are proceeding is that a category of

cases should be referred to arbitration if it meets the criteria set forth above unless there is a compelling reason not to refer it.

It is preferable to reserve United States party cases to regulation in order to maintain administrative flexibility. Statutory designation is best with cases in which the United States is not a party. The categories are simple and straightforward. Moreover, there is no obvious individual or agency to make prompt and informed decisions on the addition or subtraction of non-government cases from the group to be referred.

NUMBER OF CASES AFFECTED

It is difficult to predict precisely how many cases will be referred to arbitration under the legislation. I can, however, provide an impression of the magnitude of caseload that will be involved.

Nationally, 23,494 cases founded in tort and 19,928 cases founded in contract, in which the United States was not a party, were filed in the year ending June 30, 1977. This was out of a total of 130,567 civil filings that year.

Statistics provided by the Administrative Office of the United States Courts show that 7,396 of the 23,494 tort actions involved claims under $50,000. However, the amount of the claim was not reported in an additional 4,724 cases. If those are prorated among the cases where demand was reported, the number of cases under $50,000 rises to 9,257.

There were 9,007 contract cases under $50,000, out of a total of 19,928; 5,310 were unreported, resulting in an estimated total of 12,279 contract cases under $50,000. If, under the legislation, the Chief Justice were to select eight districts to participate, and together they processed ten percent of the federal district court caseload, then there would be on the order of 925 tort and 1,228 contract cases arbitrated in each year in those experimental districts. This would be enough to provide meaningful information on how well the process worked. As we develop the list of cases in which the United States is a party that are to be referred to arbitration, we will be able to provide some estimates on the expected volume of these cases. The numbers of United States cases, however, will undoubtedly be substantially below the foregoing private party totals, because the overall case totals in this category are initially well below those for private party cases.

I would like to add here that approximately 65% of the tort and 69% of the contract actions under $50,000 filed each year are filed under diversity jurisdiction. Elimination or reduction of diversity jurisdiction by the Congress would substantially reduce the number of these cases referred to arbitration.

HOW COURT-ANNEXED ARBITRATION WILL WORK UNDER S. 2253

The bill provides that the arbitration is to be conducted by attorneys who are experienced members of the Bar of the particular district court. To be certified as an arbitrator, an attorney must have been a member of the Bar of any state for at least five years and be currently admitted to practice before the certifying court. In addition, the attorney must be determined by the certifying court to be competent to perform the duties of an arbitrator. The Chief Judge will certify as many arbitrators as he determines to be necessary to implement the program. Thus, in each district a panel of attorneys experienced with federal court litigation will be maintained. It should be large enough so that no individual arbitrator will be called upon to serve more than two or three times a year.

Arbitrators are to be paid a fee to be set by the district court not to exceed $50 per case plus expenses, which may not include expenses for the procurement of office space. Service as arbitrators would be an excellent pro bono publico activity for the Bar. Lawyers are officers of the court and have an obligation to contribute to improving the administration of justice. It would be unfortunate if fees for arbitrators were set at such a level that it could be viewed as a program to enrich the legal profession. In addition, the modest fee will encourage arbitrators to dispose of cases expeditiously.

The proposed statute sets forth general procedures to be followed in all districts for cases submitted to arbitration. Cases are to be referred to arbitration by the clerk of the court immediately after the twentieth day following the close of pleadings, unless discovery or pretrial motions are filed with the court during the 20-day period.