Many a business dispute has ended with the dramatic declaration: “I’ll see you in court!” But these days, it’s becoming increasingly common for opposing parties to first apply good business sense to the situation so they end up seeing each other across the table with a mediator or an arbitrator rather than a judge and jury.
“As practicing attorneys, we’ve all witnessed a growing reluctance for litigants to use our court system,” said William D. Gilbride Jr., a shareholder and member of the board of directors at Abbott Nicholson, PC, the business law firm with offices in Detroit and Troy. “I call it dispute or litigation avoidance. There are a growing number of alternative ways to nip business disputes in the bud.”
Gilbride will become chair of the State Bar of Michigan’s Alternative Dispute Resolution Council in October and has become a devotee of ADR to assist businesses in resolving all nature of business disputes.
“There is an evolution on how business disputes are being resolved, and simply suing each other is no longer your only option,” he noted. “We are seeing fewer case filings all across the country, and there is a developing expertise among business lawyers to prepare for and resolve disputes outside the courthouse, either before suit is filed or during the proceeding through a referral to a certified mediator.”
Mediation vs. Arbitration
Alternative Dispute Resolution includes the use of mediators or arbitrators instead of the traditional court system. In mediation, the two sides sit down with a neutral third party who points out the strengths and weaknesses of each position and helps them find a solution agreeable to both.
“In mediation, the parties have hands-on resolution and they are the decision makers all the way to the end,” explained Gene J. Esshaki, senior counsel and a founding shareholder at Abbott Nicholson. “The mediator is simply a facilitator with no power or authority. The parties are empowered to craft a deal that makes good business sense for them.”
If mediation doesn’t end in a solution that appeases both parties, they can move onto arbitration or litigation. The State Bar of Michigan is currently helping to draft legislation that would allow courts to automatically refer cases into non-binding mediation, early in the proceeding, to explore ways to resolve the dispute with the assistance of a mediator, Gilbride said.
Arbitration, on the other hand, is binding and the arbitrator, who acts as a judge, has the final word on a case. Decisions cannot be appealed – “a double-edged sword,” Gilbride pointed out. “If you win you like it, but if you lose, you are stuck with the decision.”
“Quick, efficient, more economical and final,” is how Esshaki, one of Michigan’s best-known arbitrators, describes the process. “When you’re talking about commercial disputes, why wouldn’t you arbitrate?”
Both parties get to agree on their arbitrator, who specializes not only in the law but in the disputed area, be it technology, construction or engineering. Some complex business cases can drag on forever in court, and often juries have a hard time following the technical aspects of a dispute.
“A jury will get lost trying to comprehend all the issues, so in many business disputes you really almost have to use an arbitrator,” Esshaki said. “In fact, I believe all the automakers have mandatory arbitration clauses in their contracts.”
Esshaki arbitrated the news-making case of Compuware vs. Peter Karmanos. After the tech company fired its co-founder in 2013, Esshaki awarded Karmanos $16.5 million in damages.
“That case was perfectly made for arbitration because it needed to be kept confidential,” Esshaki said. “There were numerous rumors of hostile takeovers of Compuware and if the case became public, it would have had an impact on the stock price and brought out more of the sharks looking to take over the company. And, it needed to be resolved quickly, not linger on for several years.”
In a move that made the confidential case wide open to the media and public, Compuware tried to fight Esshaki’s ruling on one discreet legal issue, but the Michigan Court of Appeals upheld the arbitration award in 2016.
“Having a court affirm my decision brought a certain amount of gratification,” Esshaki said, “but I really don’t take sides. I am neutral – I call balls and I call strikes.”
The process, Esshaki said, has come a long way. “Arbitration was sort of looked down upon 20 or 30 years ago. People felt you tended to cut the baby in half with compromise. But now larger and larger cases are flowing into the arbitration field, including one that’s a $600-million case between two auto suppliers.”
Put It in Writing
Another way to avoid costly court cases is for businesses to put policies in place that prevent misunderstandings. With sexual discrimination and harassment cases, an ounce of prevention goes a long, long way, said John R. McGlinchey, an Abbott Nicholson shareholder who specializes in labor and employment issues.
While many Fortune 500 corporations have adopted sophisticated policies for dealing with sexual discrimination or harassment, a lot of companies are still playing catch-up, he said.
“They may have a general statement or written memo saying ‘Thou shalt not engage in harassment or discrimination,’ but that’s not nearly enough,” McGlinchey noted. “In order to have an effective policy, you first have to tell everyone what you are prohibiting, and give concrete examples. Sometimes people just don’t appreciate that the law prohibits more subtle things such as offensive jokes or cartoons in addition to the more obvious and overt things like unwanted touching.”
Consistency, he said, is essential. “You don’t want two or three supervisors who are turning a blind eye while the others are holding the line tightly. You have to make sure your supervisors are trained and understand their responsibilities, and that the company has an adequate response. Some oversight is always going to be necessary.”
Employment disputes are especially well suited for mediation or arbitration, McGlinchey said, because those proceedings are private. A victim of harassment may feel more comfortable revealing embarrassing or humiliating details in a non-public forum rather than testifying in open court. Through mediation, sometimes misunderstandings and false expectations can be exposed and handled promptly and privately, without a protracted adversarial legal proceeding.
It makes good business sense for businesses to review their contract documents to assure that they include “best practices” for promptly and economically resolving disputes, Gilbride concluded.
In addition to litigation, labor and employment law, Abbott Nicholson specializes in the automotive industry, corporate/business law, commercial/medical defense litigation, real estate law, tax law and trusts and estates. Founded in 1977, the firm is the exclusive east Michigan member of Meritas, an affiliation of 186 independent, full-service business law firms with 7,000 lawyers serving 234 markets in 80 countries. Visit abbottnicholson.com.
Members of the editorial and news staff of The Detroit News were not involved in the creation of this content.