Mediation, Arbitration, Litigation, Oh My…
Dispute resolution comes in many forms. Company agreements often state that the agreement is governed by the law of a certain state. There’s no mention of the preferred or required method to resolve disputes between the members. This typically means that resolutions of disputes between the members occur in either state or federal court, depending on the circumstances of the case. Business owners should consider other options for dispute resolution before signing a company agreement that is silent on dispute resolution. Today’s article will explore the benefits and uses of mediation.
What is mediation?
Mediation involves an impartial third party facilitating settlement discussions with the parties to a dispute. The parties present their side of the dispute to the mediator. The mediator then works with the parties to find common ground. The mediator’s neutral role often provides both parties with a new perspective on each of their positions. Often, the mediator helps each party identify flaws in their position or risks to pursuing a claim in a lawsuit or arbitration.
The Texas Association of Mediators says that
“[t]he objective of mediation is for parties in conflict to participate in good faith in a dialogue regarding their dispute, to present their points of view and to explore options for settlement in an effort to reach a mutually satisfactory resolution of their dispute.”
Mediators are often experienced attorneys. For a (typically) flat fee, the parties spend a half or full day at a mediator’s office for a mediation. The process is short, but effective. Even if a matter does not settle, the parties often get more realistic about their positions and the risks of pursuing litigation.
Business owners can use mediation to resolve deadlocks.
We often recommend to our clients that their company agreement contain mediation provisions for resolutions of deadlocks between members or managers of a company. If a dispute arises between members or managers of a company that a vote will not resolve, mediation is a good option for resolving the dispute.
We frequently build in mediation provisions that allow a member or manager to determine that there is an issue that may adversely affect the business, operations or financial condition of the company. The member or manager then provides a mediation notice to the other members or managers. The parties are then required to mediate in good faith prior to resorting to more expensive and time-consuming litigation.
These provisions set the terms and timelines for selecting a mediator and holding a mediation, and this is often done on a 30-to-45-day timeline. While sometimes the parties determine they cannot work out an issue before starting a much bigger fight, this procedure allows the parties to understand the risks and realities of their positions early in the life of the dispute.
Mediation is routinely required by judges and arbitrators prior to a trial or final hearing.
We often build mediation requirements into company agreements. Courts also routinely require parties to a lawsuit to mediate a case prior to trial. Mediation occurs frequently before arbitration hearings as well.
Mediation can occur at any stage in the life of a dispute, but often becomes a last-ditch effort to settle a matter prior to a trial or arbitration hearing. This is often the last time that the parties have true control over the outcome of their case. The decisions of a judge, jury or arbitrator in a trial or arbitration are out of the parties’ control. Their decision may leave one or both parties wishing they would have compromised in mediation when they had the chance.
Business owners should strongly consider including mediation provisions in a company agreement.
It is true that mediation is not always successful. However, it is a quick and cost-effective option to attempt to resolve disputes. With the ability to conduct a mediation on a short timeline prior to filing litigation or demanding arbitration, it is really no harm, no foul. The parties get the opportunity to evaluate their positions. They also make an informed decision about the pros and cons of settling versus moving forward with litigation.
We all hope that our businesses run smoothly without disputes and disruption. But disputes inevitably happen. Setting dispute resolution ground rules early in the life of the business may help stave off time consuming, costly and disruptive litigation down the road.
Be sure to visit our articles page to find more information about limited liability companies and strategies for addressing issues head-on when you’re forming a new business.
Disclaimer: This article is not a substitute for legal advice. Every situation is different; you should not rely or act upon the contents of this article without seeking advice from your own attorney. Use and access to this article or any materials or information provided herein do not create an attorney-client relationship between you and Christine Stroud, PLLC d/b/a Fincher Stroud Law, PLLC (the “Firm”). By providing public access to this article, the Firm is not purporting to solicit or render legal or other professional advice or opinions on specific facts or matters, and the Firm is not creating or intending to solicit or create an attorney-client relationship between you and the Firm.