Alternatives to Litigation
Many businesses become involved in disputes. Most of these disputes are resolved informally before taking precious time and energy away from the business. However, there are times when it is not possible to resolve a dispute informally.
When a dispute cannot be resolved informally, the normal course of events is for the parties to retain lawyers to assist them with the dispute. This can lead to negotiations and a resolution. Sometimes it goes the other way, with the parties hardening their positions and going down the path to a civil lawsuit in court.
The Middle Way
With this blog post, I want to address a middle way. That is, a way of resolving a dispute after informal talks have failed, but prior to one of the parties filing a lawsuit in court. The middle way is moving forward with a mediated or arbitrated resolution. Mediation and arbitration are very similar. They both require that the parties hire a neutral third party (typically a retired judge) to make an attempt to resolve the dispute. And they both require that the parties agree to mediation or arbitration. They are often cheaper and quicker than a civil lawsuit in court.
Mediation and arbitration differ in that in arbitration, the neutral third party acts as a judge and makes a final decision that is as binding as one that you would get in court. And in arbitration, the parties present their cases before the arbitrator as they would in court. Whereas in mediation, the neutral third party engages in "shuttle diplomacy" by going back and forth between the parties trying to bring them to a point where they can reach a compromise and resolve the dispute. The neutral third party has no power to force a resolution in mediation. If the parties are still reluctant to resolve the case after mediation, they can walk away from the effort and still file a civil lawsuit in court.
How to Proceed to Mediation or Arbitration
There are two ways to get to mediation or arbitration prior to filing a lawsuit. The first way is to look at the contract between the warring parties. It is very common for a business contract to have a "dispute resolution" paragraph or section. That section will lay out the general rules for resolving disputes. It is very likely that the section will provide that any dispute be resolved through arbitration. Sometimes there will be a mediation provision instead of or in conjunction with the arbitration provision. If your contract has a arbitration or mediation requirement, consult with an attorney on compliance with that requirement. This is very important particularly for arbitration as it is common to require arbitration in lieu of litigation. So that if you file a civil lawsuit to resolve the dispute, the other side can get the case dismissed for the simple reason that you did not follow the arbitration requirement in the "dispute resolution" section. Occasionally, the dispute resolution section will require that the parties first attempt mediation, and that if mediation fails, then they can move forward with arbitration or litigation. There may be other quirks or requirements in that section, so please confer with legal counsel on complying.
But what if there is no written contract, or what if the contract does not have a "dispute resolution" section? In that case, you have to discuss mediation or arbitration with the opposing side. A lot of times, the opposing side is very interested in making an effort to resolve the dispute without going to court. In that case, arbitration or mediation is an option worth considering. If the other party is open to resolving the dispute that way, then a simple written agreement to engage in mediation or to arbitrate the dispute is in order, depending upon which one is agreed to. Once that simple agreement is executed, then the parties move forward with the arbitration or mediation process.
Planning for Mediation or Arbitration
Should businesses plan on mediation or arbitration from the inception of their business relationship? The answer to that question is yes. Where possible, businesses should confer with their legal counsel on how the business wants its "dispute resolution" process set up. Then that idea should be incorporated into the business's contracts.
Harmony Law, LLC
We have a lot of experience with business contracts and business disputes. We can assist with drafting contracts, amending contracts and advising on them. We can also assist your business with the mediation process, the arbitration process or civil litigation. Please contact our firm for assistance. Or call at (970) 488-1857.