Viewpoints : Mediating the Thrift Mess: Less Law, More Justice : S&Ls;: With a potential 80,000 lawsuits by year-end and millions in litigation costs, the government must take a different tack to resolve the current crisis.

Congress has given the agency responsible for the solution of the nation’s savings and loan problems an appropriate name: the Resolution Trust Corp. Time will tell whether this name is an oxymoron. Clearly, the agency has not resolved an adequate number of cases nor has it earned the public’s trust.

One small way to speed things along without compromising any of the delegated duties and responsibilities would be to look at a growing development in the law known as alternative dispute resolution (ADR). One salient method used in ADR is mediation, sometimes referred to as shuttle diplomacy.

First, let’s have a brief overview of the problem and then a short discussion of mediation techniques. It appears that there will be at least 700 S&Ls; under supervision by the RTC within the next year and probably many more. (Of the approximately 3,000 S&Ls;, there may be no more than 1,000 remaining, and these will have every outward appearance--including name--of being banks.)

The RTC will be responsible for hundreds of thousands of properties, well over $500 billion of assets, and the cost to the taxpayers will exceed $300 billion. (Some analysts now speak in trillions, rather than billions.) In the history of the United States only two domestic events have had a price tag greater than $50 billion: the establishment of the American railroads and the leasing of federal oil reserves (which resulted in the Teapot Dome scandal).

As to legal fees, L. William Seidman, chairman of both the Federal Deposit Insurance Corp. and the RTC, recently stated that the RTC has 40,000 lawsuits pending and will have more than 80,000 by year-end, costing more than $500 million in legal fees for outside counsel plus the cost of 1,000 government attorneys. “We are well under way to creating a shortage of lawyers in this country,” he quipped.

With all of this activity, the estimated recovery at the time of sale of these assets is 35% to 50% and may be less as the years go on.

Just as it is important to distinguish between activity and accomplishment, so is it important to draw careful lines between the government’s obligation to bring the wrongdoers to justice and the need to look forward to a disposition of these assets. The criminal and enforcement staff must look at the past actions of the people that caused the problems.

On the other hand, the asset and liquidation staff should not be haunted by the past but should only focus on the need to move forward. This article does not address criminal and enforcement matters but seeks to separate those areas from the workout needs of the RTC; the agency must not be “girded into inertia” by the problems of the past. This is an important lesson learned by the commercial banks. Rarely is the loan officer who originated the loan allowed to continue in the workout mode after a serious default.

As we remove the original loan officers and replace them with new workout specialists, we must ask an underlying question: Can we move forward with the workout, the entitlement problems and the sale of the properties with legal assistance but without the lawyers controlling the process? Certainly a number of environmental, lien priority and insolvency issues need to be addressed, but shouldn’t the focus of the process be the marketplace rather than the courthouse? How can we mediate and ameliorate rather than litigate and hyperventilate?

Now for a few simple suggestions:

First, Louis M. Brown, a California attorney and former law professor at the USC Law Center, is acknowledged as the “Father of Preventive Law.” He has spearheaded the formation of the National Center for Preventive Law at the University of Denver College of Law under the leadership of Edward A. Dauer. One purpose of this center is to redirect the thinking and mind set of society. We must become less litigious by nature and not have an over-reliance on lawyering. The most “just” result is not always achieved in the courtroom.

Second, thought must be given to the differences between litigation, arbitration and mediation. Each has advantages, and it is submitted that the least known of these methods is mediation.

Mediation involves the selection of one or more trained individuals to “talk out” a problem or series of problems with the parties and sometimes with their attorneys. It is the one method in which face-to-face meetings can be held with all people present and with direct communication among the parties, their attorneys and the mediator. This does not happen in a courtroom. It has been said that cross-examiners look for weakness while mediators look for commonality.

Think of a simple setting of a mediator in a suite of offices where people can rotate in and out of one office or another either with the parties alone, one of the parties with his or her attorney, the mediator talking to the attorneys, or any other combination. Imagine a meeting that commences at 5:00 p.m. with the understanding that people will remain talking until 10:00 p.m. with a sincere desire to reach a resolution. With that amount of time and personal effort invested, many people cannot let go of the settlement process; clients want to resolve things, not win them.

The most frequent type of lawsuit handled by the RTC involves delinquent borrowers. Often there is no motivation to reach a speedy conclusion. Mediation injects several factors to move things along. What are these factors and what are the advantages of mediation?

First, mediation, with its less formal meetings and caucuses, saves tremendous costs on both sides. Second, a much speedier result is assured, and confidentiality on certain important issues can be maintained. Next, the parties are involved from beginning to end. Mediation, which is fact-oriented and less legalistic than litigation, has the advantage of allowing future relationships with less acrimony and reduced hostilities.

Finally, there is more certainty of a just result since the parties can actually see the process moving forward toward conclusion without waiting for several years as is normally the case in litigation. One factor that should not be forgotten is the following: Although mediation is non-binding, one can always return to litigation or arbitration should mediation not bring about the desired result.

Congress, the Executive Branch and various governmental agencies have made some small steps toward encouraging mediation and ADR. Examples include the Environmental Protection Agency, the Corps of Engineers and the Farmers Home Administration, where thousands of loan workouts have been handled, 50% of them settled through mediation. Legislation has been submitted by Sen. Charles E. Grassley (R-Iowa) and Rep. Dan Glickman (D-Kan.) encouraging the use of ADR. Finally, state legislatures, the courts and various trade associations have favored arbitration language in real estate, escrow and lending documents.

The RTC and the FDIC must be challenged to apply mediation techniques to a major portion of their case load. These regulators certainly know that 95% of litigated cases are settled before trial, whereas 75% of the costs are incurred before trial. They also know that the clogging of the courtroom is matched as a national crisis only by the clogging of the RTC pipeline. Within each crisis is always the opportunity to improve upon the system if creative thinkers will challenge themselves and the system. The public is certainly not demanding a lawless society, but it is beginning to insist upon one with less law.