April 7, 2011
OPEN Forum Message
Affordably Build Your Brand
FedEx Global Brand Management Director Monica Skipper shares a cost-effective way to build a bigger brand for your small business.
Learn more
When two businesses disagree, the conflict may end up in court. But when small businesses are involved, there are often family issues, personal relationships or crippling costs that make it much more practical to seek a solution outside the courtroom.
In mediation, a neutral person is enlisted with the consent of all parties to help them design and reach a settlement in a confidential setting.
Following are three examples I’ve seen of situations that have been resolved in mediation. In each, the parties had the foresight to recognize that extended litigation, with its inherent delays (adjournments at every stage, lengthy discovery, motions, appeals on motions, pre-trial preparation, trial scheduling) and costs, is against their best interests.
Scenario 1: Inherited business
A father owns a distribution business and brings his two sons in. He dies after 10 years, leaving the business to the two brothers who do not get along. The younger brother leaves six months later to start a competing business. The older brother remains, and gets a court injunction against the younger brother’s poaching of clients, but the younger brother approaches them anyway. The customers, seeing internal fighting, dwindle. The business is sold, with each brother getting half of the proceeds. The older brother sues the younger one, blaming him for the decline in revenue.
Want to read more law tips? Check these out:
Scenario 2: Unsatisfactory Product
A local offset printing business buys a name-brand, high-volume color printer. The printer produces output only half as fast as the manufacturer claimed, and the color is off. The business owner tries to exchange the machine for a new one, but the distributor refuses. The printing business sues for the cost of the machine, plus all of its lost business opportunities.
Scenario 3: Fire Damage
After a hair cutting and coloring salon in a suburban office park closes for the night, a fire erupts inside, causing about $250,000 worth of damage. The fire department reports that the back door was found ajar, raising the possibility that a stranger entered and caused the fire. The building’s insurance company and the salon’s insurance company sue each other and the salon owner, claiming that the salon was reckless in not locking up properly at night.
Each litigant in a business dispute is seeking resolution of a difficult and, in many instances, complex group of conundrums. When long-standing family, personal or business relationships are part of the mix, the emotional level and complexities that are routine in a “stranger-based” civil litigation only escalate. A formal court proceeding does not always provide the necessary atmosphere to properly handle the situation. These types of disputes often cry out for mediation.
A family business dispute can quickly grow to resemble a volcanic eruption. It is a business that is at issue, be it a corporation with “related” officers and directors, or a partnership. So it includes the ingredients that go into a standard business disagreement, but it becomes far more complicated. For instance, in a sibling business dispute there is always the issue of how the parents will react. Often a private mediation conference room is the most appropriate forum to bring about a peaceful conclusion.
Standard (non-family) small business disputes can also escalate, draining the resources of the business with excessive legal costs and expert witness reports and fees. The owners of the business, instead of doing what they do best–run the operation–are preparing answers to interrogatories, preparing for, and attending, depositions and taking weeks off to attend a trial. Court reporter fees for depositions, alone, can exceed the cost of mediation.
Another factor in the move toward alternative dispute resolution, whether or not a family business is involved, is the sensitive nature of the subject matter. Consideration must be given to what could be disclosed about the business’ affairs during the course of a public trial. The automatic cloak of confidentiality that accompanies mediation is perfectly suited to these types of battles.
Mediation is quick, and participants have input in formulating the outcome. Most mediations take a few months, not years. Unlike judges whose calendars are overflowing with lengthy dockets, a mediator can devote a substantial amount of time to solving a particular matter. Good mediators are creative and persistent and do not give up until a settlement is reached, or it is clear, after months of trying, that settlement would not work.
OPEN Cardmember Mark J. Bunim is the Managing Director of Case Closure, LLC, a mediation and arbitration firm headquartered in New York.
Check your balance, review recent transactions and pay your bill on the go.
GARY SMITH 1 year 1 months and 11 days ago
Excellent and valuable advice. Another matter that is for the most part overlooked by closely-held companies ( S and C corporations and LLCs) is the necessity of holding annual shareholder and Board of Directors meetings (Members for LLCs) in order to make formal written records of required approvals of actions. Many small business owners mistakenly think that since they are the owner of the business and its sole Director, and hold all of the offices that holding annual meetings and having written minutes of the meetings is not necessary.Nothing can be further from the truth. This is necessary to avoid having the company “veil” pierced and being held personally liable for company obligations. Or, having the IRS disallow or change something that the owner thought was obvious.The writer of this comment is Gary E. Smith, President of Teneo Corporation, who specializes in providing a service designed to get companies records up-to-date and keep them that way each year by drafting annual minutes for closely-held companies.