Dispute Resolution: Picking Your Fights Carefully
From time to time, every business owner involved in the service industry will find themselves in conflict with customers, suppliers, subcontractors or employees. We live in a litigious society and, right or wrong, access to courts and the litigation process is easily available to litigants whether they have a meritorious claim or not. Because of the increasing numbers of disputes filed with our court systems, many forms of alternative dispute resolution have been introduced to lighten the burden in the civil courts and to theoretically streamline the dispute resolution process. The purpose of this article is to first define the various dispute resolution mechanisms, then to share some thoughts as to which path to follow, given the circumstances of the particular conflict in which you may be placed.
Civil LitigationState and federal civil court actions have historically been the most common forum for asserting business-related claims arising from contract disputes or claims of negligence resulting in personal injury or property damage. Federal courts are most often utilized for disputes arising from issues involving federal law or when the litigants are residents of separate states. Federal cases also typically involve disputes over larger sums of money as the federal courts have jurisdictional minimums in many instances. The state courts handle claims arising from state law and disputes among parties residing or conducting business in the same state.
Because many state and federal jurisdictions are heavily burdened with high volumes of caseloads, the "wheels of justice" move very slowly and it can take years for disputes to be resolved or tried. Additionally, because of the pretrial procedures allowed in the civil courts, the legal expenses involved in civil litigation are extremely hard to budget. Contrary to popular belief (and perhaps common sense), the legal expenses involved in civil litigation are usually the responsibility of the individual parties and, with few exceptions, are not awarded in favor of either party to the litigation, even upon the successful prosecution or defense of a claim.
ArbitrationArbitration is the most common form of alternative dispute resolution and is a frequent requirement in commercial construction contracts. The arbitration process is managed by private associations, including the American Arbitration Association or other trade group organizations that adopt procedures designed to shorten the pre-hearing process with the goal of saving time and money to the litigants. An arbitration result is binding upon the parties and an arbitration award can be converted to a court judgment that is enforceable in a court of law. Arbitration awards can be appealed in extremely limited circumstances.
MediationMediation is an informal resolution process that can either be entered into voluntarily or by order of a court as part of civil litigation. Mediation is typically a non-binding summary review of the parties' claims that results in a recommended settlement. Once the recommendation of the mediator(s) is issued, the parties have a period of time in which to accept or reject mediation. The incentive to resolve a case through mediation is that a party who rejects a mediation recommendation may face the sanctions of paying the opposing side's costs and attorney fees if the case is ultimately tried.
FacilitationLike mediation, facilitation is a voluntary process that is increasingly recommended or directed by civil courts as a forum of avoiding lengthy court processes. In facilitation, the court usually appoints or recommends a single facilitator to informally listen to the parties' disputes and attempt to negotiate a settlement on behalf of the parties. A successful facilitation will result in a settlement agreement reached by the parties that is reduced to writing. There are generally no sanctions for parties pursuing facilitation that cannot resolve their disputes. Rather, if facilitation proves unsuccessful, the case continues along the civil court docket to trial.
Which Form of Dispute Resolution is Best for My Business?None of them are. In almost 20 years of litigation experience, I have yet to have a client tell me that they had enjoyed the experience of civil litigation, arbitration or any other form of dispute resolution. Regardless of the outcome, it comes at some expense to the business owner. It is that "expense" that is critical for a business owner to assess before committing time, resources and effort towards engaging in a formal dispute.
The expense of obtaining competent counsel is the first obvious cost usually considered by a business owner. However, that expense can often times be outweighed if the business owner considers what its own internal expenses may be in engaging itself in a dispute. Expenses such as having to devote employees' time toward recreating historical events, locating and producing documentation, providing deposition testimony and other litigation support is a huge factor to be considered. Every hour an employee spends in supporting a company's litigation is an hour spent away from being a productive worker.
Therefore, from a business perspective, an employer must recognize that when they are required to dedicate employees to support litigation, they are paying their employees for non-productive work and are then turning over that work to their attorneys to analyze the litigation support produced. Thus, the cost of a single employee supporting litigation on a company's behalf is really a triple cost to the employer that results in no advancement of their business goal.
Expense also includes the opportunity lost when energies are devoted towards litigation that could be devoted towards better management, production or prospecting for new opportunities. For those business owners who have been fortunate enough to have only limited experience in business litigation, it may be hard to appreciate the amount of time, frustration and anxiety that can be involved as a client in the litigation process, whether as a plaintiff or a defendant.
Perhaps the most important expense that should be considered by a business owner when deciding whether to engage in a formal dispute is the impact that dispute may have amongst its inner relationships with its customers, subcontractors and suppliers. It is easy for business owners to recognize that it may not be in their best interest to pursue claims against large or recurring business sources. What can be more difficult to recognize is the impact litigation can have on your business contacts not even involved in your dispute. Often times complicated commercial disputes require the involvement of many non-party witnesses. This means that in order to prove or defend your case, you may be required to call on your best customers, subcontractors or suppliers to put themselves in a position as witnesses that may be embarrassing, and/or at a minimum, distracting to them.
The single best piece of legal advice an attorney can provide a business client is to try to objectively assess the risks and expenses involved in a potential dispute. If such an assessment is made at the outset, it is often times the conclusion that none of the dispute resolution processes are in the best interest of the business. Commonly, the best resolution is to try to negotiate a compromised position with the opposing party before any form of litigation is started.
Most business owners who have not had the benefit of experience in the litigation process do not appreciate this advice from their attorneys, especially when they are emotionally involved in a dispute and want aggressive representation in protecting their hard earned business reputation and assets. They want to fight; they don't care what the cost is; and they want to see blood. A business litigation attorney should try to diffuse that natural emotion from a business owner. When conflicts arise, an attorney and his client should analyze the specific facts of the dispute, the potential outcome and the effect the litigation will have on the business internally as well as on its customers, contacts, and reputation in the community. If litigation is not objectively in the best interest of the business, an effective counselor will help a business owner steer the matter to resolution before the formal processes begin.
On the other hand, there are instances in which business disputes must be resolved through the litigation process because of the unwillingness or inability of the opposing side to act reasonably or because the business owner wants to further a business "policy" or philosophy from which it is not willing to back down. In instances where litigation is inevitable, the appropriate litigation forum should be selected and pursued in the most efficient manner possible, including taking the necessary steps to reduce all of the related expenses.
In summary, the best process of dispute resolution is the adoption of a process of dispute avoidance. Fully assessing developing conflicts with your attorney and making early decisions as to resolving conflicts before they mature is the key to maintaining your business' productivity and reputation. Courtroom drama is best saved for the movie screen rather than in your conference room or local court.