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ADR is A-OK

The following is the conclusion of a two-part article addressing the importance of identifying legal considerations in the commission of one’s business activities before it is too late.  In this first article, the importance of legal counsel was addressed.  In this second article, the various methods of conflict resolution will be explored.

Sometimes, even if the business owner does all that they can to avoid it, it will be necessary to consider seeking the court’s relief to resolve a dispute.  Jeffrey M. Haber, Esq., counsels his client to think critically about that decision before proceeding:

Whether to file a litigation depends on many factors, including the circumstances that caused the dispute, the complexity of the law and facts involved, the amount in dispute, and the objectives to be achieved. No case is the same. The factors that favor litigation in one case may favor arbitration in another. Hiring a lawyer can help a business owner weigh these and other factors, as well as the pros and cons of the form of dispute resolution to engage in. 

As a general matter, a business owner should try resolve disputes without going to court or arbitration.  It is less disruptive, time consuming and costly.  However, if a form of dispute resolution is necessary, business owners should consider mediation in the first instance. Remember, the goal of the mediator is to help the parties reach an agreement. Mediation not only can save time and money, but can also save the relationship with the other party.

Well-written contracts are the very foundation of avoiding conflict

Well-written contracts are the very foundation of avoiding conflict

What Causes Disputes?

Before delving into how to rectify the conflict, it is helpful to get some perspective on what are the primary causes of business conflicts.  Mr. Haber reflected on his experiences, and shared the following:

One of the most common reasons business owners find themselves in a contract dispute, whether it be with an employee, co-venturer or partner, is the failure to reach an understanding on terms at the time the contract or agreement is agreed upon. This understanding is often referred to as the “meeting of the minds” or mutual assent. In layman’s terms, this means that the parties must evidence a clear intention to enter the agreement on the terms and conditions set forth in the document.  The agreed upon terms represent the parties’ expression of the offer (the intention to enter into an agreement), acceptance (the agreement to the essential terms for the exchange of goods or services for something of value) and consideration (the receipt by each party of something of value) of their agreement.  Disputes arise when one of the parties fails to live up to its obligations under the contract. A common defense to an allegation that there has been a breach is that the parties never had a meeting of the minds on the provision that is claimed to have been violated.

Once a violation is claimed, however; there are various ways of attempting to resolve it.  While many people default to having a judge make a ruling, that is far from the only (or most beneficial) approach in all circumstances.  A quick review of the options and then an examination of each is offered below:

  1. First, the parties can negotiate a resolution of the dispute by themselves.
  2. Second, they can amend the term or provision in dispute or negotiate a new agreement.
  3. Third, the parties can litigate the dispute in court.
  4. Finally, the parties can resolve their disputes without going to court by using alternative methods, such as arbitration and mediation (ADR or Alternative Dispute Resolution).

Arbitration is like a trial without the formalities. It is an adversarial proceeding where the parties can call witnesses and present evidence to a neutral arbitrator or panel of arbitrators. The rules of discovery and evidence are relaxed to make it a shorter and more cost-efficient process.  Often, the parties select the arbitrator or panel of arbitrators. Arbitration can be binding, in which the arbitrator renders a decision that can be enforced by the courts, or non-binding, in which the arbitrator renders an advisory opinion that the parties can accept or reject.

Mediation is a process in which the parties seek the help of a neutral, third-party to resolve their dispute or litigation through negotiation. Unlike arbitration, mediation is not a proceeding in which the neutral renders a decision. The mediator helps the parties reach an agreement by clarifying their positions and goals and encouraging them to work together. In mediation, the parties have the power to decide whether, and on what terms, to settle their dispute.

Compare and Contrast Litigation versus ADR Methods

For a fuller description of some of the options available to resolving disputes, click on this definition.  However, Mr. Haber’s work has afforded him opportunities to participate in all three (3) of the conflict resolution methods and he explains:

“As with most things in life, there are advantages and disadvantages to going to trial, arbitration and mediation. While some people may prefer arbitration, some may feel that a courtroom is the only forum to be in, and still others may prefer a neutral party trying to resolve their dispute. Besides having a personal preference, there are reasons why one form of dispute resolution may be better than the other.”

A discussion of the pros and cons of each vis-à-vis the other is discussed below:

Arbitration vs. Litigation:

Costs:

Arbitration is often less costly than going to court. This is because arbitration does not involve time-consuming and expensive motion practice, discovery (both fact and expert), and trial.

Time:

Arbitration is typically a speedier process than a court trial. An arbitration can typically be concluded (that is, a decision issued) in 3 to 6 months from the filing of the statement of claim.

Typically, a lawsuit can take up to 12 months from the initial filing to the trial. More complex cases can take even longer.

Flexibility:

Litigation is controlled by statutory and procedural rules. Judges must adhere to these rules in all aspects of a case; they have little flexibility. By contrast, in arbitration, the parties set the rules with regard to the submission of evidence, calling of witnesses, and the manner in which the hearing will be conducted.

Arbitrator or Judge:

Both litigation and arbitration are dependent on the experience, temperament and disposition of the judge or arbitrator hearing the case. In litigation, a judge is randomly assigned to the case without any input from either party. In arbitration, the arbitrator is selected by the parties from a pool of professionals who typically have experience in the area in which the dispute has arisen.

Evidence:

The rules of evidence do not apply in arbitration, making it a is less time-consuming and less expensive process than in a litigation. However, this advantage is tempered by the fact that a party loses the ability to cross-exam third parties who submit affidavits and correspondence and are unable to attend the proceeding. Further, in a court proceeding, damages must be proven with reasonable certainty; in arbitration, proof of damages can be based on speculation and conjecture.

Discovery

In arbitration, the parties only have a limited right to conduct discovery. This allows the parties to conserve their resources and reduce the costs of the proceeding. By contrast, in court, the parties have various discovery tools at their disposal. Using these tools requires time and money.

Privacy:

Arbitration proceedings are not open to the public.  As such, the parties can agree to keep the proceeding confidential. In contrast, a court proceeding is open to the public, unless the judge orders otherwise, which is rarely done given the public policy involved.

Right to an Appeal:

Ordinarily an appeal from an arbitration award is permitted only very narrow grounds. Consequently, an arbitration award is rarely vacated, even if the evidence does not support the result. Additionally, an arbitrator is entitled to make a decision based on what he/she considers to be just and equitable within the scope of the contract between the parties. In litigation, the losing party has a right to appeal to a higher court. The basis for the appeal can include errors of law and fact made by the trial judge, as well as alleged mistakes made by the jury, including that the result is not supported by the evidence.

Mediation vs. Arbitration or Litigation

In mediation, a neutral, third person actively works with the parties to reach a resolution of the dispute.  Since mediation does not require any formal fact-finding, it takes a fraction of the time and money required by arbitration and litigation. The goal of the mediator is not to determine which party is right or wrong, but rather to find a mutually acceptable ground upon which the parties can settle their dispute. If the parties can reach an agreement, the parties will reduce their agreement to writing. Conversely, if the parties cannot reach an agreement, they are free to pursue litigation or arbitration, or nothing at all. Mediation gives each party the opportunity to see the other party in a different, more positive light, without the recriminations and hurt feelings that go with litigation and arbitration.

Jeffrey M. Haber can be reached at:

website (www.Jhaberlaw.com), tel. (212-209-1005), and/or contact email (info@jhaberlaw.com).

 

David Zahn