“I want to sue!” While this is the sentiment expressed by many of our clients in the midst of a heated business dispute, filing a lawsuit and litigating it to trial may not always be the best business decision. Americans may be some of the most litigious people in the world, but there are other ways to resolve business disputes. In many cases, the right course of action might be alternative dispute resolution (ADR), where parties seek relief outside of the formal legal system.
With the rising costs of litigation, the increased backlog of cases, and the decreasing budgets and personnel of the courts, filing a lawsuit and litigating to trial can be time consuming, less efficient, and expensive. In a 2013 survey by the Court Statistics Project, the median number of attorney hours in a contract dispute from initiation to post-trial procedures was 367 hours. With a standard attorney rate of several hundred dollars an hour, a business client can expect to spend well over $100,000 in legal fees alone! If you include the hours expended by junior attorneys, paralegals and expert witnesses to litigate a business case, the fees and court costs continue to climb.
To save you time, money and possibly preserve business and personal relationships, exploring ADR options may be the right move. This article discusses three of these ADR options — negotiation, mediation, and arbitration – and their advantages over litigation. While Punzalan Law represents clients in litigation, we also help clients resolve their dispute through these ADR methods.
NEGOTIATION. Negotiation is an option if both parties can enter into discussions aimed at reaching an agreement. Negotiation is often the first step in resolving a dispute and is “the preeminent mode of dispute resolution,” allowing the parties to control the process and the solution. It can be a quicker and less costly way to resolve disputes, and parties can try to resolve the dispute themselves, without involving attorneys. Negotiation is a give and take bargaining process where parties seek to discover common ground to resolve a matter of mutual concern or conflict in a manner that both parties find acceptable.
If the parties find it difficult to come to agreement, then hiring attorneys to represent their interests and negotiate the dispute on their behalf is the next step. Securing legal counsel at this stage is still more cost-effective than filing a lawsuit. What should you look for in a lawyer-negotiator? Find an attorney who can:
- Problem-solve creatively, brainstorm solutions;
- Identify the goals or desired outcomes of the party;
- Evaluate strengths and weaknesses of both parties;
- Demonstrate emotional intelligence and read the political “temperature” of the room.
Negotiation can also be advantageous if you seek to restore, preserve or strengthen relationships between the parties. This is especially true in disputes between customers and companies, contractors and subcontractors, or business partners. While both sides may need to compromise in order to reach resolution, the parties may be able to reach an agreement that incorporates terms and ideas from both parties.
MEDIATION. Mediation is an informal process to settle a legal dispute through active participation of a third party, the mediator, who works to find points of agreement and guide those in conflict to a mutually agreeable result. In recent years, mediation has become more frequent in contract and civil damage cases. A mediator can help parties communicate more effectively, promote understanding, and focus the parties on their goals and interests rather than their entrenched positions. Mediators cannot impose a settlement upon the parties since they are unable to make legally binding decisions (unlike in arbitration). If the parties reach a resolution, then they can sign a settlement agreement just like any other contract.
While experienced professional mediators or lawyers may charge substantial fees, overall, the financial cost will likely be substantially less than litigating the matter in court as mediation generally takes less time. Resolving a dispute quickly through mediation can also help avoid the emotional cost of litigation that often takes a toll on the party’s time and spirits. Settling a dispute more quickly can also dispel anxiety and worry, allowing a business owner to focus less on her legal woes and more on running her business. Like negotiation, both parties must be willing to enter into mediation and cooperate with the process. Mediation has a structure, timetable and dynamics that “ordinary” negotiation lacks. The process is private and confidential, unlike in a lawsuit where court papers are public documents. The mediator acts as a neutral third party and facilitates rather than directs the process.
Mediating a business a dispute can also offer the following potential advantages: (1) allows business relations to remain on good terms; (2) allows for a commercially sensible decision to be made that will benefit both parties; (3) avoids the winner / loser result of a court proceeding; and (4) allows both parties to remain in control as the parties select the neutral third party and the parties, not the mediator, makes the final decision regarding resolution.
ARBITRATION. Arbitration is a formal ADR technique with governing rules and procedure making it a simplified version of a trial. In arbitration, the parties submit their dispute to one or more impartial persons, the arbitrator, who act as judge and jury for their dispute. Additionally, many arbitrators are specialized experts in areas such as commercial, intellectual property, construction, and real estate law, saving parties from expert witness fees and the need to educate the arbitrator.
An arbitration is also usually governed by detailed arbitration laws or rules, such as those used by the American Arbitration Association or JAMS. Sometimes the contract itself governs the arbitration process. For instance, arbitration is used frequently in consumer and employment matters, where arbitration may be mandated by the terms of employment or the commercial contract. The parties select their arbitrator, who may hold a preliminary hearing to discuss the substantive issues of the case. The parties typically exchange information and evidence, and write an arbitration brief for the hearing. During the hearing, the parties present their case, providing evidence, testimony and documents to the arbitrator. The arbitrator then renders a written decision, deciding the resolution for the case and determining which party wins.
If the parties agree in advance to “binding arbitration,” then arbitrator’s decision is called an “award,” enforceable in court if the losing party fails to comply with the terms of the award. Binding arbitration is more similar to litigation in this manner than mediation. However, unlike litigation, the parties cannot generally appeal the arbitrator’s decision. Many businesses now have binding arbitration clauses in their contracts that helps keep their costs down and their disputes private.
CONCLUSION. Litigation is just one way to resolve a dispute. Private negotiation, mediation or arbitration are other forms of resolution that may allow the parties to arrive at a settlement with less cost, less time, and even less stress. If you have a business dispute, contact Punzalan Law so we can help you discuss your options and select the right course for your business. We also assist clients with drafting contracts with binding arbitration clauses so you can remain focused on your business, instead of worrying about potential litigation.