In an economy when business owners are slashing overhead and expenses in order to stay out of the red, a costly legal dispute or conflict can handicap a small business. Lawyers and business owners often refer to significant cases as “bet-the-company” litigation because the future existence of the business is at stake. In tough times, a greater percentage of business disputes fall into this daunting category. What are your options when your business doesn’t have a pre-existing “litigation expense” line item in your annual budget and there’s no padding in the budget to settle or pay for the expenses associated with prosecution or defense of legal claims? Sometimes it’s not whether you win or lose, but what it costs you to fight.
Business owners do themselves a disservice by assuming that expensive and drawn out court litigation is their only option for resolving the dispute. Early in the process, consult legal counsel familiar with the entire menu of dispute-resolution alternatives, including some highly cost-effective, alternative dispute resolution (ADR) processes. Taking advantage of all of the available options will help you avoid making mistakes that have serious repercussions and save time, money (generally ranging from 25% to as much as 80%), and the hassle in the process.
Advantages of ADR
ADR typically offers dispute resolution that is more cost-effective and expeditious than court litigation, and usually provides better results. ADR not only allows the parties involved to avoid unpredictable and often downright irrational juries, it also provides greater control over procedures than the parties would have in court litigation, such as specifying qualifications arbitrators must have (e.g., specific industry knowledge) and selecting the particular arbitrator who will hear and determine the case. ADR allows the parties involved to avoid negative publicity and adverse precedent (harmful impact on future cases) because the proceedings are private. Court proceedings are public information. This option also often preserves ongoing business relationships that would be destroyed by court litigation.
The principal goals of arbitration are to achieve fast, fair, expert, economical justice. It is a binding process similar to a mini-trial. The arbitrator hears evidence and argument, and renders an award (decision) that is enforceable in court and very difficult to appeal or vacate. There are streamlined discovery proceedings and fewer motions resulting in a quicker resolution than if the dispute or conflict is heard in court. The cost of the arbitrator’s fees (generally ranging in small-business cases from under $1,000 up to $20,000 or more) is more than offset by the savings in legal fees.
Mediation is consensual and somewhat less partisan than arbitration because it aims for more amicable settlement, whereas arbitration is more like a trial. Instead of imposing a decision, like a judge or arbitrator, a mediator serves as a neutral facilitator of the negotiations. A successful mediation concludes with all parties involved agreeing to an enforceable written settlement agreement. Mediation permits the parties to customize the resolution of their dispute and to achieve the proverbial win-win result. Statistics show that mainstream business mediation succeeds in resolving disputes more than 80% of the time, and it almost always costs a small fraction of what it would take to litigate the dispute in court. Even in those relatively few cases where mediation may not result in a full and final settlement, it often resolves at least some of the issues and usually limits the scope and expense of any ensuing arbitration or court proceeding. For more information, read “Choosing between Arbitration and Mediation.”
All dispute-resolution processes (including court litigation) can happen with or without the assistance of counsel representing the parties. However, a word to the wise: You should be wary of the pitfalls inherent in self-representation. Also, note that court litigation is the governmentally provided default mechanism for resolving disputes. To invoke ADR, all parties in the dispute must agree to ADR, either before or after the dispute arises.
The Pitfalls of ADR
ADR is beneficial for most business disputes, but it is not a universal panacea. ADR may be disadvantageous when:
- You require immediate action, such as a temporary restraining order (requiring the opponent to refrain from doing something) or when you need to enforce a subpoena to obtain documents or information. In these cases, ADR might not be the answer. The courts usually are better at this.
- You want to create a legal opinion that others must adhere to in the future. In these instances, head toward the courthouse rather than to ADR.
- You need to ensure that you will be able to conduct extensive discovery proceedings to uncover wide-ranging evidence before the hearing or trial. Court litigation provides more opportunity than ADR does.
- You are the “deep pocket” and believe that the opponent cannot endure expensive protracted litigation. These types of cases should go to court rather than ADR.
David J. Abeshouse serves as an arbitrator on the Commercial Panel of Neutrals of the American Arbitration Association and maintains a private business mediation practice based in Uniondale, Long Island. He can be reached at www.BizLawNY.com.