The Three 'Ates' — And How to Use Them

By Harlan E. Jones

Mediate. Arbitrate. Litigate. These words have great potential for very bad Broadway lyrics. But these concepts also have the potential to turn a business problem into a solution — or to turn a problem into a nightmare.

People involved in business may find themselves at odds with customers, suppliers, and even their own business colleagues. The customer will not pay. The supplier misses a critical deadline and business is lost. Your partner announces he has a vision for the company that is far different from yours, and far different from the agreed-upon business plan.

On rare occasions — the rarer the better — these differences must be resolved formally. People tend to think that means a lawsuit. But depending on the circumstances, you may have more flexibility than you think. Every time a business dispute arises — or looks as if it might — evaluate your options. If possible, take control early of how the dispute will be resolved.

Here, somewhat oversimplified, is a basic outline of how you might think about ways to resolve a dispute.

• First — should you just settle, quickly and informally? There can be hidden landmines in quick settlements, but if the dispute is not worth a bigger fight and you protect yourself adequately in the settlement, a quick settlement may be best.
  
  
• If you do nothing to change it, and if your dispute arises out of a contract with your customer, supplier, or partner (or other business entity), where will the contract take you? For example, some standard contract provisions require arbitration of disputes through a specified professional company, such as the American Arbitration Association. Some contracts require that the parties mediate before any party can commence arbitration or litigation. But whatever the contract says, does it take you where you want to go now? If both sides agree, the dispute resolution process in the contract can be changed. More steps can be added; steps can be deleted. Look at the contract, and decide if you now want to follow the process it provides for or if you want to seek another process.
  
  
• Should you mediate? The advantages of mediation are that it can be quicker and cheaper than other dispute resolution mechanisms — theoretically. Mediation is almost always a good idea when everybody believes that a persuasive neutral party dealing with people who have a good-faith disagreement might be able to bring them to a compromise. But a mediator cannot require the parties to do anything. The mediator can only attempt to get them to agree. If the dispute is complex enough, and the parties stubborn enough, and the mediator weak enough, mediation can simply be a very expensive pause in the dispute resolution process.
  
  
• Should you arbitrate? The main advantage of arbitration is that an arbitrator, unlike a mediator, imposes a final result on the parties. Theoretically, arbitration is less costly and complex than litigation. But unless the arbitrator is firm about keeping things under control, arbitration can easily become just another trial. A major disadvantage of arbitration can be that an arbitrator's decision is almost always unchallengeable. If an arbitrator makes big mistakes about the facts or the law, or chooses to do rough justice at your expense, you're stuck. On the other hand, if fairness is on your side but the technicalities are not, you may be better off with an arbitrator doing rough justice than with a judge strictly applying the law.
  
  
• Should you litigate? Litigation is usually slow and expensive. If you start or are brought into a lawsuit, assume it will be a year before a judge or jury decides the dispute, and it is often longer. Also remember that the first judge or jury decision in litigation may not end the matter because appeals can drag the uncertainty out for years. On the other hand, the firmness of court-supervised litigation rules can be very useful when the other side wants to play "hide the ball," or is probably going to see the light only when a judge or jury clobbers them. Sometimes (if the contract allows or the other side will agree), starting with litigation — skipping right over mediation and arbitration — might even make sense to force some things to happen. And remember, litigation can be moved to mediation or arbitration any time the parties agree.

The main point is this: carefully consider your options for resolving your dispute. Do not simply move ahead with what was agreed upon earlier unless that makes sense. Parties are always free to make new agreements about how they will resolve disputes. If one dispute resolution alternative is clearly best for you, do everything you can to move the dispute there. Do not allow the process to control you.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

BACK TO TOP | BACK TO ARTICLE INDEX | PRINTER-FRIENDLY PAGE