1.2.Business Disputes

Introduction

Sometimes the owners of businesses, whether that business be a partnership, a limited company or a limited liability partnership, fall into dispute.  The dispute might, for example, be about the way the business is run or the way profits should be split.

In the case of partnerships the dispute could be between partners who had become embroiled in a partnership dispute. In a limited liability partnership the dispute could be between the Members of that LLP. In the case of a limited company the dispute would be between directors and/or between shareholders (who are the actual owners of the business).Any dispute within a business quickly causes damage and it is vital therefore that disputes are resolved as quickly as possible (Moffitt, Bordone & Program on Negotiation at Harvard Law School, 2005). 

1.1.2. Definitions of Dispute Resolution

Despite the fact that no single definition is fit enough to elucidate the meaning of dispute resolution, Bobukeeva (2007) explains that it is much easier to understand definitions related to dispute resolution by first understanding the nature of disputes involved. To this, he lists a number of disputes which normally occur in business environments. These include:

Labor and Employment – discrimination, harassment, retaliation, wrongful discharge, severance issues, wage and hour disputes, whistleblower claims, and union/labor relations (including collective bargaining agreement disputes)

Employee Benefits – disputes concerning ERISA and COBRA benefits, pension plans, and cafeteria plans

Non-Competes – disputes involving covenants not to compete and trade secrets

Property, Real Estate, and Land Use – landlord/tenant conflicts, escrow and earnest money disputes, land use/zoning, eminent domain, code enforcement, neighborhood disputes (HOA), and title disputes

Government Contracts – disputes between and among government contractors and/or subcontractors, and those involving contract procurement.

Workers’ Compensation – appeals, coverage, liability, and compensation issues

Business/Commercial – contract disputes, buyouts/restructurings, and business dissolutions

Construction – contractor and subcontractor disputes, and conflicts between contractors and homeowners

Bankruptcy – debtor/creditor disputes, reorganizations, insolvency

Malpractice – medical, legal, and accounting malpractice claims

Estates/Trusts – disputes involving wills, trusts, estates, and other probate matters

Premises Liability – negligence actions

Insurance – coverage and denial issues

Intellectual Property/Patents – disputes over trademarks, copyrights, advertising, patents, licensing, software, trade secrets, unfair competition, and literary and artistic works.

Products Liability – consumer claims regarding defective products

Class Actions – class or collective action lawsuits involving wage and hour issues, employment law issues, products liability claims, consumer protection issues, and securities and shareholder derivative claims

Definition of Dispute Resolution

In considering the processes taken in solving such disputes, Moffitt, Bordone & Program on Negotiation at Harvard Law School (2005) define dispute resolution as the methods used by trained neutrals to help people to communicate more clearly, negotiate effectively, develop and evaluate solutions, or resolve conflicts.  Neutrals do not take sides or represent the parties.  Dispute resolution is an interdisciplinary field that attracts neutrals from backgrounds like human resources, law and social work.

As expressed by Deutsch and Coleman (2000), the most common forms of dispute resolution are:

Negotiation; is a process whereby parties to a dispute attempt to settle that dispute on their own and without the assistance or intervention of a third party. Parties may either be represented by professional negotiators or conduct the negotiation themselves.

Mediation; a process whereby parties are assisted in their negotiations by a neutral third party (mediator) to identify the issues in dispute, generate options around these issues, consider alternatives and to attempt to reach agreement that will meet the underlying needs and interests of both or all parties to the dispute.

Conciliation; Conciliation is a term often used interchangeably with mediation. Many statutory or judicial bodies use conciliation conferences in an attempt to settle matters before their tribunal or court.

Expert appraisal; is a process where the parties nominate a mutually agreed third party, an expert in the field of their dispute, and request that person give his or her opinion of the probable outcome if the matter were to proceed to court.

Arbitration; Arbitration is a process in which the parties to a dispute present the facts of their case to a neutral third party to make a determination on that dispute. The third party arbitrator is ordinarily a recognised expert in the specific field of the dispute.

Litigation; in the litigation process, parties submit their dispute to the relevant court and either a Magistrate or a Judge decides the outcome of the dispute on their behalf. It is often a very time consuming and costly process.

1.1.3. Types of Alternative Dispute Resolution

Definition of Alternative Dispute Resolution (ADR)

Alternative dispute resolution (ADR) (also known as external dispute resolution in some countries, such as Australia) includes dispute resolution processes and techniques that act as a means for disagreeing parties to come to an agreement short of litigation. It is a collective term for the ways that parties can settle disputes, with (or without) the help of a third party (Herrman, 2006).

There are four major types of alternative dispute resolution. These include: negotiation, mediation, and arbitration.

 In negotiation, participation is voluntary and there is no third party who facilitates the resolution process or imposes a resolution. Yet, third parties, especially lawyers are allowed to coach negotiators behind the scenes.

 In mediation, there is a third party, a mediator, who facilitates the resolution process (and may even suggest a resolution, typically known as a “mediator’s proposal”), but does not impose a resolution on the parties.

In arbitration, participation is typically voluntary, and there is a third party who, as a private judge, imposes a resolution. Arbitrations often occur because parties to contracts agree that any future dispute concerning the agreement will be resolved by arbitration.

1.1.4. Advantages of Alternative Dispute Resolution

Alternative dispute resolution (ADR) gives parties in dispute the opportunity to work through disputed issues with the help of a neutral third party. It is generally faster and less expensive than going to court (Herrman, 2006).

When used appropriately, advantages of alternative dispute resolution include:

1. More flexibility.  In the case of arbitration, the parties have far more flexibility to select what procedural and discovery rules will apply to their dispute (they can choose to apply relevant industry standards, domestic law, the law of a foreign country, etc.).

2. Select your own Arbitrator or Mediator.  The parties can often select the arbitrator or mediator that will hear their case, typically selecting someone with expertise in the substantive field involved in the dispute.  The arbitrator (or panel members) need not even be an attorney.  In this way the focus can be on the substantive issues involved rather than on technical procedural rules.  In normal litigation, the parties cannot select the judge, and the judge and/or jury may often need expert witnesses to explain extremely complex issues.  The greater the expertise of the arbitrator, the less time that needs to be spent bringing him up to speed.

3. A jury is not involved.  Juries are unpredictable and often damage awards are based solely on whether they like the parties or are upset at one party because of some piece of evidence such as a photo that inflames the passion of the jury. Juries have awarded claimants damages that are well above what they would have received through alternative dispute resolution; and they have also done the opposite.

4. Expenses are reduced.  Attorneys and expert witnesses are very expensive.  Litigating a case can easily run into the tens of thousands of dollars.  Alternative dispute resolution offers the benefit of getting the issue resolved quicker than would occur at trial – and that means less fees incurred by all parties.

5. ADR is speedy.  Trials are lengthy, and in many states and counties it could take years to have a case heard by a judge or jury. Appeals can then last months or years after that. In a matter of hours, an arbitrator often can often hear a case that otherwise may take a week in court to try with live witnesses.  With arbitration, the evidence can be submitted by documents rather than by testimony presented through witnesses. ADR can be scheduled by the parties and the panelist as soon as they are all able to meet together.

6. The results can be kept confidential.  The parties can agree that information disclosed during negotiations or arbitration hearings cannot be used later even if litigation ensues.  The final outcome can also be made private if the parties so stipulate and agree.  On the other hand, most trials and related proceedings are open to the public and the press.

7. Party participation.  ADR permits more participation by the litigants. ADR allows the parties the opportunity to tell their side of the story and have more control over the outcome than normal trials overseen by a judge.  Many parties desire the opportunity to speak their piece and tell their side of the story in their own words rather than just through counsel.

8. Fosters cooperation.  ADR allows the parties to work together with the neutral arbitrator or mediator to resolve the dispute and come to a mutually acceptable remedy.

9. Less stress.  ADR is often less stressful than expensive and lengthy litigation. Most people have reported a high degree of satisfaction with ADR.

Because of these advantages, many parties choose ADR (either mediation or arbitration) to resolve disputes instead of filing or even proceeding with a lawsuit after it has been filed.  It is not uncommon after a lawsuit has been filed for the court to refer the dispute to a neutral before the lawsuit becomes too costly. ADR has also been used to resolve disputes even after trial, while an appeal is pending.

1.1.5. Disadvantages of Alternative Dispute Resolution

According to Ford (2010), there are also numerous disadvantages of alternative dispute resolution. These include;

1. There is no guaranteed resolution.  With the exception of arbitration, alternative dispute resolution processes do not always lead to a resolution. That means it is possible that you could invest the time and money in trying to resolve the dispute out-of-court and still end up having to proceed with litigation and trial before a judge or jury.  However, you will certainly better understand the other side’s position!

2. Arbitration decisions are final.  With very few exceptions, the decision of a neutral arbitrator cannot be appealed, with fraud being an obvious exception.  Additionally, some states will not enforce decisions of arbitrators that are patently unfair, a high standard to meet.  Another ground for setting aside an award is if the arbitrator’s decision exceeded the scope of the arbitration clause or agreement.  Some arbitration clauses are broad, others are narrowly limited to specific disputes.  Decisions of a court, on the other hand, usually can be appealed to an appellate court for a variety of legal grounds and for numerous alleged procedural errors.

3. Limits on Arbitration Awards.  Arbitrators can only resolve disputes that involve money.  They cannot issue orders compelling one party to do something, or refrain from doing something (also known as injunctions).  For example, Arbitrators generally cannot change title to real property.  Of course this is subject to the specific language of the arbitration clause.

4. Discovery limitations.  Some of the procedural safeguards designed to protect parties in court may not be present in ADR, such as the liberal discovery rules used in U.S. courts, which make it relatively easy to obtain evidence from the other party in a lawsuit.

5. Fee for the Neutral.  The neutral mediator or arbitrator charges a fee for his or her services.  Depending on the arbitrator or mediator selected, the fees can be substantial (of course the parties typically agree to divide the fees between themselves).  Depending on the contract language and state law, a prevailing party can be awarded fees and costs.  A judge on the other hand, charges no fees for his services.

6. May have no choice.  Often the contract in dispute contains a broadly worded mandatory arbitration clause.  Many lease agreements and employment contracts, for example, contain mandatory arbitration provisions, as do operating agreements and other types of business contracts.  Unless both parties waive arbitration, most states will compel arbitration at the request of any party.

7. Non-binding arbitration.  Sometimes the court may order nonbinding or Judicial Arbitration.  This means that if a party is not satisfied with the decision of the arbitrator, they can file a request for trial with the court within a specified time period after the arbitration award.  Depending on the process ordered, if that party does not receive a more favorable result at trial, they may have to pay a penalty or fees to the other side.

References

Bobukeeva, M. (2007). Alternative Dispute Resolution: A Thin Peace is Better than a Good Quarrel. Conference Papers – Law & Society, 1.

Deutsch, M., & Coleman, P. T. (2000). The handbook of conflict resolution: Theory and practice. San Francisco, Calif: Jossey-Bass.

Ford, R. (2010). Alternative dispute resolution. United States: BarCharts, Inc.

Herrman, M. S. (2006). The Blackwell handbook of mediation: Bridging theory, research, and practice. Malden, MA: Blackwell Pub.

Moffitt, M. L., Bordone, R. C., & Program on Negotiation at Harvard Law School. (2005). The handbook of dispute resolution. San Francisco, CA: Jossey-Bass.