Ways to resolve business disputes without litigation

Generally, when a business dispute arises, avoiding litigation can be the only thing two parties agree on. It could be costly, and parties want to avoid it to protect not only their secrets, but also their relationships. 

“No one goes into a business transaction looking for a dispute,” says Nicholas R. Oleski, an associate at McCarthy, Lebit, Crystal & Liffman Co., LPA. “When two parties reach an impasse, lawyers can become involved to find a way around it. And, generally, lawyers will look to negotiate the issue without litigation.”

Smart Business spoke with Oleski about alternatives to litigation when working to resolve business disputes.

Why would avoiding litigation benefit the parties involved?

Costs, confidentially and certainty are reasons parties look to avoid litigation. The process is inherently uncertain. A party might enter the process believing its case is a clear winner, but a judge or jury might not see it that way. Results can’t be guaranteed, even by the best lawyers, and that opens a party up to a great deal of risk, as well as higher-than-expected costs if the process drags out.

It’s also difficult to maintain confidentiality during litigation because court is public, and much of what happens in court becomes public record. There are mechanisms to protect confidential business information, but pleadings and other documents submitted as evidence might not get sealed by the court. Businesses want to avoid litigation when trade secrets aren’t at the center of case but could be disclosed as part of a lawsuit. 

Commercial transaction documents — contracts between the buyer and seller — should provide remedies short of litigation for disputes. The process can have multiple ascending levels, starting with informal talks between executives, before heading into formal alternative dispute resolutions, such as mediation and arbitration.

What is involved in the mediation and arbitration processes? 

Mediation is a formal negotiation procedure during which two parties and their attorneys talk with a mediator — a neutral third party, usually an experienced lawyer, with a background in whatever area the dispute is about — and attempt to resolve the dispute with a nonbinding verdict. Any information exchanged in mediation is considered privileged and can’t be used in court. 

Arbitration is a more adversarial form of negotiation, held in a more formal venue in front of an arbitrator — again, usually a neutral lawyer — who will render a legally binding decision to the parties. Arbitration enforcement is backed by federal and state statutes. The party that wins in arbitration confirms the arbitration award by filing the decision in court, which then confirms the arbitrator’s award. Then the court issues a public judgment that’s fully binding. 

When is litigation the best option when resolving business disputes?

Litigation may be the best way to protect trade secret information when it’s at the center of a dispute. Courts generally will seal or otherwise protect certain sensitive documents, which means the information they contain can only be shared between the parties’ lawyers. 

Both mediation and arbitration may not be desirable if one party is going to need access to the other’s documents regarding the transaction. In this instance, litigation in court may be preferable because the discovery mechanisms are more formal. 

Also, litigation offers the losing party appellate rights through the court of appeals. That option doesn’t exist in arbitration. 

Who should the parties consult with when deciding how best to resolve a business dispute? 

Talk with the internal employees closest to the source of the dispute first to get their input, then consult with internal counsel and discuss the event with them. Outside counsel could be brought in if additional expertise is needed. 

If at all possible, try to work it out with the aggrieved party before involving outside counsel. It’s usually never a bad idea for two sides to try to negotiate with each other to resolve the dispute before involving lawyers. However, it’s important to get lawyers involved before the dispute rises to troubling levels.

Insights Legal Affairs is brought to you by McCarthy, Lebit, Crystal & Liffman Co., LPA