When faced with a dispute, it is if difficult to determine the best course of action. The dispute may involve a business partner, the other party to a contract, or a client. It is easy to conclude that the other party to the dispute is trying to take advantage of you, is dishonest, or that the other party’s position is not reasonable. The emotions caused by the situation can cause you to spend money on a lawsuit or arbitration which does not result in a final net benefit.
If you retain an attorney to help you resolve a dispute, part of your attorney’s job is to help you to focus your attention on moving forward rather than looking backward when deciding how to attempt to resolve a dispute. Looking backward often involves investing future resources in trying to correct the results of a past decision you may have made. It may appear that you entered into a bad contract, or agreed to take on a partner who you now realize is less than honest. You now are stuck with money owed, or being in a partnership which you want to end.
Moving forward to effectively resolve your dispute requires that you rationally examine your options, rather than feeling that you must seek justice or fairness. Even worse, you may feel that you need to take counterproductive steps to avoid the other party taking advantage of you. To effectively resolve your dispute requires you thoroughly review the options you have, their likely result, and the investment of time and money that each of the available methods of dispute resolution is going to require.
A. Traditional Court Litigation as a Method of Dispute Resolution
The classic response to resolving a dispute is to sue the other party. Filing a lawsuit involves the plaintiff preparing and filing a complaint, the defendant filing and answer to the complaint. A defendant may also file a cross-complaint against the plaintiff or others seeking relief of his or her own.
The parties then use litigation discovery tools such as interrogatories, depositions, and requests for documents to exchange information regarding the facts, issues, and evidence in the case. Discovery is intended to allow each party to learn the other side’s contentions, and to learn what evidence each party has to support his or her contentions.
After discovery, a trial occurs before a judge or jury to have the court render a judgment which decides the issues in the dispute. A judgment may include whether the plaintiff receives the relief he or she was seeking, or the defendant’s defenses are valid, and the plaintiff receives nothing.
Sometimes, where there is a complaint by a plaintiff, and a cross-complaint by a defendant, the judgment is a process of determining all claims before the court, whether claims of a plaintiff or a cross-complainant.
A typical lawsuit can last between 12 and 18 months, and can involve legal fees in the neighborhood of $50,000 to $150,000. Expert fees and court fees add to that cost.
B. Alternatives to Litigation in Superior Court
Alternatives to litigation are available to avoid spending the money in filing and pursuing a lawsuit. These can include:
1. Walking away from the dispute, which would avoid spending legal fees or expenses in pursuit of your claim, and personally investing time in the matter;
2. Trying to negotiate your claim to a satisfactory conclusion.
3. Using a third-party neutral to mediate your dispute to a settlement agreed by the parties.
4. Using binding arbitration to resolve the dispute.
C. Walking Away From Your Claim/Dispute
For example, you did work for a party who owes you money. Instead of investing money or energy in suing that person in court or pursuing binding arbitration, you just give up your claim. Although this may seem obvious, it is one of the choices in that situation. If the amount of your claim is less than $25,000, you should seriously consider this option. Any litigation is likely to cost at least $25,000, with an uncertain outcome. Walking away ensures that you do not invest future time or energy in pursuing the payment claim.
D. Negotiation to a Compromise Settlement
You may be owed $25,000 for services or materials you provided to the other party, and you and the other party agree to the other party paying you $12,500 instead of the full amount you are owed. This avoids future investment of time and energy, but provides you with some payment on your claim.
E. Mediation to Negotiate a Compromise Settlement
Mediation involves hiring a retired judge or other professional with experience or training in mediating disputes. The parties usually prepare written briefs, then appear at the mediation. The mediator meets in a joint session with all parties who have agreed to mediate, and then meets separately with each of the parties to the dispute to try to get each party to agree to a settlement.
Many cases are resolved in mediation. It does however require consent of the parties. Its success depends on participation by all parties to the mediation in good faith, recognizing the risks and expenses of litigation or arbitration as an alternative. To agree to a compromise in mediation, the parties have to realistically analyze their position, and the costs of litigation or other form of binding resolution. Statistically, mediation is the most successful dispute resolution process.
F. Binding Arbitration
Many contracts or claims are subject to binding arbitration. Generally, the right to binding arbitration arises from a contract clause between the parties which mandates that disputes involving the contract be resolved by binding arbitration rather than litigation. Binding arbitration means that the parties hire a third party neutral arbitrator to hear evidence in the case and write an award, which will become a legally enforceable judgment.
The advantages of binding arbitration are that the hearing process is private, as is the award. It may also be less expensive than litigation, and an award could happen more quickly than a court case. The arbitration award is also more final than a judgment after trial.
One major disadvantage or binding arbitration is that the parties bear the cost of the hourly rate of the arbitrator. This can be anywhere from $250 to $1250 per hour. If an arbitration takes three days for hearing, involves pre-arbitration hearings, and review of documents prior to and subsequent to the hearing, arbitration fees and related costs could easily be $40,000. This is in addition to legal fees to prepare for and participate in arbitration. Typical hourly rates for attorneys in California with litigation experience can vary from $350 to $1250 per hour.
If binding arbitration is through a formal organization such as the American Arbitration Association, or JAMS, administrative fees for filing a demand for arbitration, and other fees will be due the organization which can substantially add to the cost of arbitration as a binding dispute resolution mechanism.
Another major disadvantage of binding arbitration is that there is almost no right for a party to appeal or seek review of an arbitration decision. The limited basis for reversal or to set aside an arbitration award in California is that the arbitrator failed to disclose a bias which affected the impartiality of the arbitrator. Error of law or fact in the arbitration decision are not grounds to change or set aside an arbitration decision in California.
Another disadvantage of using binding arbitration is that there may be additional parties to participate in the dispute resolution, or who may become a party to the dispute who may not be subject to the binding arbitration. You could end up having to fight the battle twice, once in arbitration and once in court. For example, if you had to cross-complain against new parties who you may contend are responsible, those parties may not be bound to participate in a binding arbitration.
G. Recovery of Attorneys' Fees by Any Party
Under California law, a party who wins a court case does not recover the attorneys’ fees it expended in the case unless attorneys’ fees are provided for by a contract clause or an applicable statute. If there is no contract clause, or statute which so provides, each party is on its own for attorneys' fees incurred in litigation. This is an argument for not using binding dispute resolution, because for a smaller dispute, the cost of the attorneys’ fees expended to resolve the dispute can wipe out any benefit of a party winning.
The most important consideration in resolving disputes is to compromise to avoid expending future time and energy which is not productive. Anger and frustration caused by being in a difficult situation can result in making short-sighted expensive decisions on how to resolve a dispute. If there is the possibility of future relationship with the other party, a compromise or negotiated settlement may allow the parties to salvage a business relationship and obtain benefits in the future from other contracts or work.
Lawsuits are rarely an effective means of securing compensation or resolving disputes. Keeping an open mind to compromise, and focusing on your true objective to resolve disputes is far better. For most people, their goal is to obtain a net benefit. This is far better than trying to punish bad behavior or teach someone else a lesson.
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