Resolving Business Disputes

In an ideal world, business owners could spend all of their time and money focusing on a singular task:  running their business.  Despite the best laid plans, however, at some point auxiliary concerns will arise and require—at least to some extent—that a business divert its resources to address and correct an issue.  One area of concern that is likely all too familiar is dispute resolution.  Business disputes may be either internal (i.e., shareholder disputes) or external (i.e., contract disputes).  In either case, businesses can, and should, continuously analyze how to most effectively resolve disputes by the most efficient means possible.

1.  Preparation

Before a dispute even arises, a business can position itself so it has the ability to quickly react to and resolve a developing problem.  For example, a review of a company’s shareholder or operating agreement should provide all interested parties with clear guidelines on their respective roles, responsibilities, and authority.  Further, the relevant agreement may set forth a specific method of valuation and/or parameters for the dissolution of the company in the event of the “worst-case” scenario—a business divorce.  At a minimum, knowing the ramifications of heading down the path towards dissolution of a company should allow the involved parties to step back, set aside their emotions, and attempt to reach a smart business deal at the earliest possible stage.

For external disputes, the best opportunity to protect yourself often begins before any problem arises.  Specifically, by considering and inserting key provisions into a contract, a business can maximize its leverage if things go south with a contractual partner.  Simple provisions that can be very helpful include:  (1)  a requirement that disputes are first referred to an alternative dispute resolution (ADR, discussed further below) process, such as mediation, before either party commences litigation; (2)  a “choice of venue” provision, which establishes where any lawsuit may be brought; and (3) a provision that allows the prevailing party in any legal proceeding to collect reasonable attorneys’ fees.

2.  Alternative Dispute Resolution

As its name suggests, the ADR process is a mechanism that allows parties to submit their dispute to a mediator or an arbitrator rather than pursuing litigation in court.  One of the major benefits of ADR is that, on average, disputes are resolved quicker via ADR when compared to full scale litigation.  Another benefit is that parties typically have much greater flexibility in ADR to control and select the processes used to resolve the dispute.  One major example is the parties can often personally select a subject matter expert to serve as the decision maker in ADR, rather than be subject to the random assignment of a judge or jury.

Notwithstanding some of its advantage however, ADR is not always the ideal solution for a business dispute.  Particularly with mediation, a dispute cannot be settled unless—at least to some extent—each party is willing to consider making some concessions in order to arrive at a mutually acceptable middle ground.  Thus, if the parties are at complete loggerheads, ADR may do nothing more than delay the inevitable commencement of litigation.

3.  Litigation

Some commercial disputes, despite one’s best efforts, simply cannot be resolved without court involvement.  In that case, it would behoove any business to consult with a business litigator who can provide them with an assessment of the costs and risk associated with litigation—as well as the potential benefits and rewards.  Honest consideration and weighing of these various factors will allow a business to decide—at every stage—if proceeding with litigation is in its best interest.