Resolving Business Disputes

The landscape of business disputes is changing. In the past, often when a dispute occurred, one party would file a lawsuit. As the frequency of lawsuits increased, resolving business disputes became a lengthy and expensive process. As with many types of litigation, alternative dispute resolution is becoming increasingly common in business disputes. Business owners and shareholders see mediation and/or arbitration as a more efficient and cost-effective method to resolve business disputes.

At formation, businesses are increasingly placing language within governance documents requiring mediation and/or arbitration before heading to court. These provisions reduce the likelihood of a dispute ending up in litigation. Rather, the dispute must go before an alternative dispute resolution method before going to court. The provisions spell out exactly how the alternative dispute resolution is completed; for example, by spelling out how mediators are selected, when an arbitration award must be accepted, and so forth.

Business attorneys are seeing fewer lawsuits and more alternative dispute resolutions to disputes: “There is an evolution on how business disputes are being resolved, and simply suing each other is no longer your only option,” he noted. “We are seeing fewer case filings all across the country, and there is a developing expertise among business lawyers to prepare for and resolve disputes outside the courthouse, either before suit is filed or during the proceeding through a referral to a certified mediator.”

Mediation and arbitration are similar mechanisms to resolve a dispute, with some distinct differences. When there is a dispute before a mediator, the parties on either side of the dispute sit down with the mediator. The mediator, a neutral third party, considers the strong and weak points of each side and assists the sides in reaching an agreement. A mediator has no authority to force an agreement on the sides, nor ability to force on side to agree to the proposed resolution.

Arbitration, on the other hand, is binding. In arbitration, the arbiter acts much like a judge: he or she has the ability to force a solution on the two sides. The decision of the arbiter cannot be appealed, so it’s a winner take all approach to resolving a dispute. One well known arbiter describes arbitration as ““Quick, efficient, more economical and final.”

There are several reasons to go to arbitration. One is the complexity of a business dispute. A concern in a business dispute is that the court and/or the jury simply lacks the knowledge and understanding of a business or its products. This would be most visible in technology disputes, such as a dispute involving a new cellphone technology. Arbitration allows the dispute to come before someone with knowledge of the underlying basis of the dispute. Arbitration is also much faster than litigation, which can be critical in certain businesses. Litigation, particularly complex business litigation, can last years in court. Arbitration can resolve the dispute in a matter of months. For example, if the dispute involves a new technology for automobiles, it is not desirable to have the technology tied up in court for years. Another reason business disputes prefer arbitration is confidentiality. Proprietary technology can result in a dispute, and the business does not want this technology on display for anyone to view. Thus, there are reasons outside of time and cost considerations that make arbitration and mediation favorable methods to resolve business disputes.

If you have a business dispute or want to consider governance provisions containing arbitration and/or mediation clauses, please contact Benjamin Long of Schmidt and Long.