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Family Business Disputes

by Joe Markowitz
January 2017

Mediation's Place by Joe Markowitz

Joe Markowitz

Problems that arise in running a family business sometimes manifest themselves as legal claims. That seems obvious when the company gets sued by an employee or vendor or customer, but can also occur when the other owners choose to invoke the courts when they suspect another family member of financial improprieties or mismanagement. Anger at the alleged offender can then fuel the fires of litigation, turning the conflict into a costly experience that can not only destroy the business, but can also destroy the family. And litigation may never resolve the underlying causes of the conflict, which could stem from sibling rivalry, parental favoritism, or some form of abuse. Those underlying causes of conflict can't always be resolved, but they should at least be identified, so that the parties understand that they either need to deal with them, or perhaps dissolve or re-structure their business relationships.

The importance of identifying underlying causes of conflicts can perhaps best be appreciated in situations where problems arising in a family business don't naturally appear as a "cause of action." For example, one partner is not seen as pulling their weight. Or the owners simply have different strategies for running the business. If the parties can't construe these problems as breaches of contract or torts, they are precluded from resorting to the legal system to resolve them, and that can be a blessing. Family businesses usually deal with these kinds of problems by informal means, or they allow them to fester.

That's when business owners should look for attorneys who can help them negotiate a buy-out of the interests of a disgruntled partner, or reassign the owners' roles in the company. Mediation may also be invoked to help families work through the underlying causes of their conflicts. Family businesses should also consider using informal, negotiated processes for resolving problems that seem to raise legal claims. Why treat a conflict raising legal claims differently from a conflict that only creates problems for the business? Both may be driven by the same sorts of personal issues, and confronting those issues may be necessary to solve both kinds of cases. Litigation may only create new problems for the business without touching any of the underlying grievances, allowing them to reappear later in another context. That would suggest that families should resist the urge to "make a federal case" out of every claim arising from a partner's alleged dereliction of duty, but instead to try to understood the root causes of those actions. The challenge is to overcome a natural reluctance to confront difficult underlying issues, even when those issues may be poisoning the parties' relationships or harming the successful operation of the business.

Biography


Joseph C. Markowitz has over 30 years of experience as a business trial lawyer.  He has represented clients ranging from individuals and small businesses to Fortune 500 corporations.  He started practicing with a boutique litigation firm in New York City, then was a partner in a large international firm both in New York then in Los Angeles, then returned to practicing with a small firm and on his own.  In addition to general commercial litigation, Mr. Markowitz has expertise in  intellectual property, employment law, entertainment law, real estate, and bankruptcy litigation.  Mr. Markowitz has managed his own firm since 1994. Mr. Markowitz was trained as a mediator more than 15 years ago, and has conducted a substantial number of mediations as a member of the Mediation Panels in the Los Angeles County Superior Court, the District Court and Bankruptcy Court in  the Central District of California, as well as private mediations.  He has served since 2010 as a board member of the Southern California Mediation Association.   



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