Making Effective Use Of Alternative Dispute Resolution For Small Businesses
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December 2005 |
THE PROBEMS WITH THE COURT SYSTEM
In business, we make commitments to perform. Those commitments are written and verbal contracts. These contracts are promises, and parties making these promises rely upon each other to fulfill them. When one party or the other fails to keep those promises, disputes arise.
These disputes can prove costly. Supply chains for good and services are interrupted; the aggrieved party must scramble to meet customer’s needs; uncertainty and decreased profits are likely to result. Lawyers inevitably enter the scene at great cost and disruption.
Traditionally, in the event of a contract breach, one party will hire a lawyer and begin a negotiation process which may or may not achieve satisfactory resolution. When it does not, off to court with a lawsuit.
Lawsuits have several inherent disadvantages for business:
- The parties lose control. Lawyers and judges become the masters of timing and procedure. Disputes can take years to wind through the system.
- Juries are empanelled with little or no expertise in the subject matter to decide who wins or who loses.
- The parties lose the ability to communicate with each other in order to resolve the problem. Relationships are ruined.
- The cost of business escalates significantly due to these delays and attorney’s fees.
- Businesses embroiled in litigation can lose a competitive edge.
This system’s inherent drawbacks interfere with the small business owner as much, or more so, than the international corporation. Often small business owners have a narrow supply chain, and have built their businesses on personal relationships. These personal relationships become embattled with the advent of a lawsuit. Lawyers will instruct their clients not to discuss the case with the opponents outside of their presence, thus bringing communication—the lifeblood of commerce—to a halt.
Shifting to a global perspective, it is undeniable that the Earth is flattening for business. We compete with not only other local businesses, but also form strategic alliances which span the globe. For lawyers, this horizontal configuration of business means that jurisdictional issues develop. Where will you sue if there is a breach of contract? What law will apply? Lawyers know that it may prove difficult to compel overseas businesses to answer in American courts in the event of dispute.
Moreover, it can be an economic disaster to permit competition to gain strategic advantage with intelligent use a cheaper, tailored, and more efficient way to resolve the inevitable problems associated with business. American business must adapt to the flattening world through intelligent use of alternative dispute resolution in order to remain competitive.
HOW TO PREVENT THE WAR
Wise companies are often incorporating mandatory mediation in their contractual agreements prior to instituting litigation. Mediation is a much more flexible vehicle than the court system or arbitration for resolving business disputes. Requiring good faith participation in mediation prior to the filing of a lawsuit provides several strategic advantages to the traditional court system. These advantages include:
- Control. Rather than lawyers and judges dictating the pace and tempo of the dispute resolution, the parties remain in charge. An agreement is reached only if it is acceptable to both sides, after all issues are on the table in an informal setting. The trigger and method of ADR is agreed by the parties in the contract, and is therefore a known method and expense for which businesses may plan.
- Constructive Dialogue. When mandatory mediation is incorporated into the contract, the parties expect to keep the dispute de-escalated, and will often delay in the hiring of an outside attorney for a time sufficient to fully explore all possible ways the dispute can be resolved. This affords maximum opportunity to allow a healthy business relationship going forward.
- Creativity. A talented and trained mediator can assist the parties to craft a workable solution which may involve ingenious and creative options which are not available in the court system or even arbitration. The ability of the mediator to “think outside of the box” is his or her stock in trade. The adversarial process is held in abeyance in favor of the more elegant solution.
With mediation, costly war is, at best, prevented, and at worst, held in abeyance to actively pursue peace. Such clauses are frequently seen in real estate sales contracts, and contracts involving construction, and other businesses. The future for American business must include this alternative dispute vehicle to prevent the war.
DISTINGUISHING THE TYPES OF ADR
Arbitration vs. Court Litigation
- Arbitration is “court-light.” In arbitration, there is a one or three arbitrator panel that will issue an “award;” that is, they will decide who wins and who loses, and for how much. This is the same function as the court, with the judge and jury.
- Some feel arbitration is faster and more convenient to the parties than is the court system. Others who have utilized arbitration might disagree, as there are lengthy delays for discovery, expert depositions, etc. which are common to both.
- Arbitrators will have a level of education and perhaps expertise that is greater than a typical juror.
- Some feel arbitration is less costly than lawsuits. However, arbitration can be equally as expensive, or more expensive, than a jury trial because the attorney’s fees are the same, the expert’s costs are the same, and three arbitrators must be compensated by the parties. A judge is a salaried employee of the county and is provided at no cost to the litigants in court.
- Parties to arbitration often worry about the possible influence, through social contacts, promise of future business, or otherwise, that the opponent may have over one or more of the arbitrators. In the court system, the juries are paid nominal amounts by the county and are not in the business of issuing awards for a living.
Mediation vs. Arbitration
As you can see, none of the advantages of mediation: control, constructive dialogue or creativity, is available to the parties in arbitration. Lawyers are litigators, and arbitrators are judges at arbitration.
Arbitration does not prevent the war; it only changes the theater of battle. In contrast, mediation offers many opportunities that arbitration does not.
- Mediators do not issue “awards.” They reason with and persuade parties to craft mutually agreeable solutions.
- Mediations can occur without significant delay. This allows minimum disruption of commerce and business.
- Mediations require the parties to communicate. This allows the real underlying issues to be raised and resolved, thus increasing the possibility of future collaboration and business.
- Mediations may be convened and conducted in more creative fashions. Current technology allows mediations to be held through teleconferencing as well as in person. This minimizes the disruption to decision makers.
In the last decade, many lawyers, and some non-lawyers, have become specially trained to assist businesses solve their disputes by way of mediation. While some knowledge and expertise of the subject area can be helpful, more often the skilled mediator applies tried and true techniques in dispute resolution to successfully guide the parties to an agreed result. There are no losers in mediation, and often the root cause of the dispute can be identified and resolved so that business may continue in the future. This result is highly unlikely following jury trial verdict or arbitration award.
Preventing the war is far cheaper than fighting it. For example, the cost of mediation may be as much as $5,000.00 per day, split between the parties. Anyone who has paid an attorney’s fee in a dispute understands the cost savings and economic advantages of mediation over going to war.
MAKING THE PEACE
History is full of missed opportunities to make a just peace after war can not be avoided. Most litigants feel like combatants in a war of attrition in which resources are spent fighting rather than making profits. Many have personal interests and emotions invested in the dispute.
Lawyers are trained well to be litigators and to fight for their clients. They are the generals in a profitable war. Surprisingly, the majority of lawyers who litigate are not trained to make the peace. Only in the last ten years have law schools offered any courses of significance in ADR, and none are typically required as part of a core curriculum to graduate with a law degree.
Mediators are particularly skilled in navigating impasses that the parties can not overcome. Indeed, skilled mediators view impasse as opportunity.
It is a fact that, on many occasions, war can be ended only after the combatants are exhausted, either emotionally or financially, from fighting. If this is the case, mediation can assist in directing the parties to conducting more streamlined discovery to obtain facts which are at the crux of the dispute. Therefore, even if litigation can not be avoided entirely, mediation can assist in bringing it to an earlier end. This benefits the parties tremendously.
WHAT TO EXPECT AT MEDIATION AFTER LITIGATION IS COMMENCED
Participants in mediation after a lawsuit is filed are represented by their attorneys. Each side may choose to provide written briefs to the mediator outlining their respective positions in the dispute. Sometimes these briefs are confidential.
During the mediation process, there may be occasions when all parties are in the room together explaining positions. More often than not, however, the majority of time in mediation is spent in separate “caucuses” where information can be confidentially shared with the mediator. The mediator’s role is to listen and facilitate discussion, and most importantly to find the crux of the dispute and to work toward resolving the problem and/or harmonizing the parties’ positions.
CONCLUSION
Success in any business dispute is measured by the just peace, which is result in the continuing success of the venture. Misunderstandings and personality clashes with the inherent emotional issues they create must be separated from the truly irreparable conflict. When mutual profit is at stake, it is essential that the parties move quickly to attempt full and fair resolution. A skilled mediator can assist in this process, and make concrete suggestions to fashion the relationship going forward to avoid pitfalls and prevent foreseeable future disputes.
Biography
Robert Tessier is a California attorney since 1986 and co-founded CEDRS, an organization committed to helping businesses succeed by preventing and resolving commercial disputes. He earned his law degree in 1986 from Pepperdine University School of Law, with honors.
Mr. Tessier is a lifelong resident of Los Angeles. He attended Loyola Marymount University, earning a B.A. degree in 1983. He earned his law degree in 1986 from Pepperdine University, School of Law, with honors. While there he served on Law Review, was published in the Pepperdine Law Review in the area of civil law, earned a place on the Dean’s List every year, and won awards for academic excellence and legal writing. While in Law School, he was employed with a law firm specializing in Writs and Appeals. He graduated in the top five percent of his class, and was admitted to practice December 1986.
Work experience following law school includes defending product manufacturers against claims of defect, followed by working as an associate in firms committed to representing victims of vehicle accidents and defective products such as automobiles, conversion vans, trucks, and household consumer products. Other experience includes representing injured railroad workers in Federal Employees Liability Act (FELA) litigation, and the victims of industrial injury due to unsafe job sites or machinery and equipment.
In 1992, he co-founded the law firm Rowell & Tessier, and was managing partner there until 1997, at which time he formed the Law Offices of Robert M. Tessier, P.C. with his wife, Terri, also a practicing attorney who has significant experience in medical malpractice litigation. He earned an AV rating from Martindale Hubbell reflecting the respect garnered from the bench and adversaries in the field of civil litigation. During this time, he volunteered as a mediator in the Los Angeles County alternative dispute resolution program. Having discovered passion and talent in this sub-specialty, he chose to pursue ADR full time both as mediator, and teacher.
In 2005, he co-founded the Centres for Excellence in Dispute Resolution. He brings vast experience in the civil arena to assist parties and their lawyers achieve optimum settlements in claims involving negligence (including construction accidents, automobile and truck accidents, and premises liability), product defect (vehicles and consumer products), wrongful death, elder abuse, and professional negligence. He has developed particular expertise in orthopedic and neurological injuries, with continuing education focused on spinal injuries, knee injuries, and brain injuries.
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| Dina Beach Lynch, Boston MA | Dina@workwelltogether.com 12/23/05 | ||||||||||||||||||||
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