The first two installments of this series (read part one and part two) discussed some of the elements of litigation. A central theme of that discussion was that litigation is expensive, risky and public. None of those elements is good for your business. To give you a taste of the potential costs, consider these figures:
- Consumer law attorneys’ average hourly rate in 2015 was $361.
- Overall average partners’ hourly rate in 2012 was $536; associates’ rate was $370 (American Bar Association, 2012).
- You will also be paying for paralegals and possibly experts.
- Consumer law paralegal 2015 rate was $116.
Note also that defense fees are not “contingent.” If your agency is the defendant, your attorney will almost certainly charge by the hour and not based on the outcome of the case.
Fortunately, there are several alternatives to litigation.
One is combat. Happily, we long ago abandoned that method in favor of peacefully resolving disputes. Don’t even think about it.
A better way is just to pay the claim and move on. The practicality of this approach depends on the amount and, to some extent, the nature of the claim, of course, but prompt payoff should always be evaluated in relation to the likely cost and risk of litigation. This choice is hard to make because it feels like surrender, but sometimes it is better to just end the matter by paying the claim and avoiding the costs of fighting about it through the legal system. Bear in mind that under the American system, absent a statute or agreement otherwise, each side bears its own costs in litigation. As the numbers cited above make clear, litigation costs add up quickly.
This quick payoff approach is, of course, a form of “settlement,” and it is absolutely essential to get a complete release of the claim as the price of paying the claim. Ideally, the release should contain a “no public statements” clause. Since even a quick settlement can be complicated, especially if issues of trust have arisen in the initial exchanges of complaint and response between the parties, always seek guidance from your attorney. This will cost you something, but such professional help can save you from a big mistake. Do it yourself is not recommended here.
Your attorney may urge you to negotiate with the other side, which is fine if the attorney fees don’t overrun the amount in dispute. The goal is a quick end to the dispute so you can move on to making money in your agency business.
The arbitration alternative
Another possible approach is arbitration. The advantages of arbitration are that it is conducted in and remains private unless the parties agree otherwise. The parties get to select the decision-maker and in some respects to shape the process that will be followed. The arbitrator conducts a hearing and decides the outcome in a process similar to a court trial, though the rules of discovery and evidence may be different in arbitration than in a court.
It is important to understand that arbitration cannot be compelled in the absence of an agreement providing for it. Absent such an agreement, the complaining parties are entitled to have their claim decided in a judicial proceeding.
Whether arbitration is less costly than litigation is debatable; it turns largely on the nature of the claim and of the evidence needed to resolve the dispute. The best instance is when the parties agree to use an arbitrator from, and the rules established by, a recognized arbitration organization, such as the American Arbitration Association. If not, much time and money can be expended in the selection of the decision-maker and identification of the rules to govern the process. Arbitrations that go through hearing may be just as costly as a formal trial in court.
Option three: mediation
The remaining way to get out of litigation with your bank balance intact is mediation. I am a big believer in mediation as a means of dispute resolution for many reasons. The three hallmarks of mediation are:
- The principle of self-determination. The parties alone decide whether to settle or not.
- Mediators are neutral. Their job is to help guide the parties to agreement, but they may not favor one side or force an agreement.
- Mediations are private, out of the public eye.
Lesser advantages of mediation include that it occurs in an office rather than a courtroom, and that the parties to the dispute, in collaboration with the mediator, decide on the process to be followed. Unlike a formal litigation, either party is free to stop the mediation at any time. The parties jointly choose the mediator, usually relying on the services of organizations such as the American Arbitration Association or, in complex cases, Judicial Arbitration and Mediation Services.
Mediations can be costly, of course, because one or both sides may use attorneys to help them through the process. But it is less costly than litigation in most cases.
Mediation is a process for seeking agreement with the help of a third-party neutral; it is a substitute for a battle, which is the essential character of a trial. Mediators will not allow a battle in mediation. They often act as go-betweens for the parties, meeting with them together as well as separately, but maintaining the parties’ confidences throughout the process. They will not disclose information provided by either side without express permission.
The mediator’s role is to remain calm throughout the process and at all times to operate in a way that keeps the trust of the parties. The goal is to arrive at an agreement that provides mutual gains for the two parties, rather than a victory for one over the other, and to avoid the mutual losses that often result from trials. And the parties share the costs of the mediator, creating a further incentive to resolve the dispute rather than by turning it over to a third person (judge, jury or arbitrator).
With proper preparation and collaboration with the mediator, most mediations should be concluded in a one-day negotiation, whereas a trial, with evidentiary motions and other process-related disputes, can easily run longer and thus cost more.
In my opinion, serious disputes that cannot be resolved by the parties just talking to each other should always be evaluated for possible mediation as an alternative to litigation.