Resolving Business Disputes Without Lawsuits While avoiding legal trouble is the best business practice, when that isn't possible, mediation and arbitration offer less expensive options than going to court.
By Rick Gier
All businesses will endure conflict with vendors or clients at some point, but none wants to be threatened with a lawsuit-and few who have been through a lawsuit relish returning to court. Often the only "winners" in a lawsuit are the lawyers, who generally are paid whether or not their clients prevail. The best alternative is to address potential conflicts before they happen. If disputes cannot be prevented or resolved informally, mediation and arbitration are preferable alternatives to the court system.
Avoiding Disputes It may be obvious, but the best way to address disputes is to not let them happen in the first place. Sometimes the most important decision a business makes is choosing not to do business. The attraction of higher profits or the weight of financial pressures may tempt a business to obligate itself beyond its capabilities. With the potential higher return comes an increased risk of failure and resultant legal disputes.
The same goes for dealing with difficult and litigious clients and vendors. Of course, few can avoid all risky transactions and remain in business, but selecting the less risky course is a good way to avoid future business disputes.
Business Methods When you choose to do business, your methods can greatly minimize the potential escalation of disputes.
Building Good Business Relationships - Even when conflict cannot be avoided, a good business relationship can go a long way toward minimizing the damage. If a strong relationship has been established and nurtured, the other party is generally much more willing to work out a problem so that the dispute does not escalate.
Defining Scope and Responsibilities - It is important to slow down at the beginning of a project and document precisely what each party is agreeing to do, as well as when and how they are agreeing to do it. When changes occur during the course of a project, these too should be documented to reduce the number of items that can be disputed later.
Good Communication - Even when a project is not going as planned, one can generally minimize the escalation of consequences through open and honest communication with the other party. Few people like to be surprised at the last minute with bad news that the other party has known for weeks. By keeping the communications going, both parties can adapt to changing circumstances while mitigating the damage that might occur. Some may advise that keeping quiet to avoid taking the blame for unfavorable events or delays is a wise course. This mentality can contribute to an environment of mistrust, which often makes it difficult to resolve differences in a manner short of a lawsuit.
Negotiation - After practicing good business methods, a company is positioned to resolve its disputes through negotiation. This may need to occur between the highest levels of management and may require each party to weigh the costs of continuing the dispute against finding a middle ground, settling the dispute and moving on with other business opportunities.
Mediation When parties need outside assistance, a mediator can provide a forum and approach that will assist them in reaching a mutually acceptable resolution. Mediation may be required in a contract, but should be considered even when it is not. A mediator helps both sides and their attorneys to see the strengths and weaknesses of both sides' positions, the costs of continuing the dispute and the benefits of reaching a resolution. A mediator cannot force either side to agree to a particular resolution, but acts to facilitate discussions between willing parties who recognize the benefits of ending the dispute. A lingering dispute drains time, financial resources and energy, while resolving a dispute permits a business to direct its time and attention to other important matters.
Arbitration Businesses often agree in contracts to enter arbitration in lieu of using the court system. This is known as mandatory arbitration. Parties also may elect to arbitrate even if not contractually obligated. Arbitration follows similar procedures to a lawsuit, with each party represented by attorneys who present their cases to the arbitrator. The procedural rules are less formal than the court system, but so are the protections afforded the parties in a lawsuit. The discovery process is not as robust, meaning that the other side may not necessarily provide documents, and deposition testimony may not be as plentiful. However, if the facts are well-known to both sides and generally not in dispute, arbitration may lead to a faster resolution of the issue.
Under non-binding arbitration, the participants are not bound to the arbitrator's findings. With binding arbitration, the parties are generally bound by the results, which may be entered into a court's records with the same power and authority of a court ruling. However, arbitration is still less costly and time-consuming than a lawsuit.
Clearly, avoiding a dispute takes some planning, good decision-making and some luck. When a dispute does arise, several approaches are available that can provide a faster, cheaper and less stressful result than a lawsuit.
Rick Gier is an attorney and small business owner who serves small business clients in Kansas and Missouri through the law office of Richard E. Gier, P.A. in Overland Park. He can be reached at (913) 239-8902 or
or by visiting www.GierLaw.com.
