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Welcome back to “Meet the Bincubators,” a series in which we interview notable professionals who are helping entrepreneurs and businesses to grow and succeed.
Today we speak with experienced arbitrator and mediator Noah J. Hanft.
Noah is the co-founder of AcumenADR LLC, former General Counsel of MasterCard Worldwide, the former CEO of The International Institute for Conflict Prevention and Resolution, and widely recognized for his skill in resolving all manner of disputes.
Whether you are building them, running them, selling them or anything in between, small businesses can be stressful. Conflicts can arise—with business partners, customers, employees, vendors or others—that can negatively impact or even threaten the very existence of your company. How can a small business with potentially limited resources think about both effectively and efficiently protecting themselves from conflict?
Welcome, Noah, and thank you for speaking to us. We are going to be discussing a number of dispute resolution avenues and techniques but before we get into that, I understand that you feel that one of the best dispute resolution techniques is actually trying to prevent that dispute in the first place. Can you talk a little about that?
Yes, absolutely. The ideal approach is to face the reality that disagreements and frictions are inevitable in commercial relationships, or any relationships for that matter. Of course, it is impossible to avoid all disputes, but what is possible is to anticipate challenges in relationships and plan for them. The key to avoiding serious disputes is to have mechanisms in place to identify areas of friction early on, and procedures to address them, well before they threaten the viability of the underlying relationship.
There are many mechanisms that parties can use that run the gamut, from simply building into a contract business facilitators from each side whose role is to sit down and discuss how things are going and candidly identify any problems, to a third party neutral to be involved or on call to work with the parties. Many businesses agree that each side will come to the table in good faith and try to talk through any disputes before suing each other, dissolving a business, or formally claiming a breach of contract. This should be the absolute minimum, but companies can and should be more proactive, avoid business distraction, litigation and ultimately loss of revenue by candidly confronting issues as they arise, rather than waiting for them to become crises.
What you are describing almost sounds similar to the type of counseling that some couples go through, discussing important topics like children, values and future plans around money and religion, etc., before they officially exchange their vows.
It is similar. Business partnerships are, in a very real sense, a professional ‘marriage,’ and all marriages benefit from communication and compromise and some work. All partnerships and collaborations will also benefit from the existence of an external support system and specific resources to which they can turn to in the event they ever run into problems. In the small business context, a contract is a great place to start. And much like in marriage, where couples often are wary about discussing potential problems, businesses often have the same concern about not wanting to sour the “honeymoon” period. However, we all know the time to address these issues is not when parties are in conflict, but rather when relationships are at their best.
How can a contract help small businesses resolve future conflicts?
Well, in addition to setting out the basic immediate terms, most contracts have a clause that discusses how future disputes will be handled (where, under what law, etc.). Many contracts also contain a clause that specifies the method of dispute resolution.
When entering into and negotiating contracts as a small business, don’t discount the dispute resolution clause or simply go with the default clause that a particular template you are using may provide. Take a moment to think about what kind of dispute resolution processes might work best for you, given the types of conflicts that might arise, and provide for them in the agreement.
What are some of the alternative dispute resolution options? And what are the differences between them?
Some of the main options—outside of traditional litigation-- are negotiation, mediation and arbitration. And you can combine them in various combinations, as desired.
Negotiation – Every dispute resolution provision should provide for the parties to have a negotiation period where individuals, not directly involved in the dispute, attempt in good faith to resolve the matter on their own. If that fails, mediation should follow.
Mediation is a voluntary process through which a neutral (objective) third party, which the parties select, works with both sides to a dispute and then helps facilitate a discussion and, hopefully, a compromise with which both sides can live. You typically walk away from a successful mediation with a written agreement, which should be enforceable. There is little to lose because, if no agreement can be reached, the parties can pursue an adjudication of their dispute. Mediation provides the parties with the ability to retain control over the outcome, and avoids the expense and anguish of an ongoing battle.
Arbitration is similar to mediation in that a neutral third party is involved. But more like a judge in a courtroom, the arbitrator hears the arguments and evidence and then arrives at a binding decision. However, arbitration still offers more flexibility than litigation in terms of procedures, and at least the potential for quicker and more cost-effective resolution than litigation would provide.
Do I need a lawyer to help me write a dispute resolution clause?
I would recommend that all businesses seek legal counsel when negotiating and entering into any significant contract. However, there are some model legal clauses available, e.g., on the CPR site, that you or your lawyer can freely utilize.
What if my contract is already signed and there’s no dispute resolution clause, but I’d still like to try and resolve the dispute more amicably, and outside of court. Can we still utilize one of these processes?
Absolutely, if both sides agree they can decide after the fact to use one of these processes by simply entering into another agreement to submit their dispute to one of these forms of resolution.
You seem to really love alternative dispute resolution (ADR) and, in fact, it is now your main professional focus. Have you always felt that way and what about it appeals to you?
I am certainly a big fan of ADR. I appreciate its nuance and flexibility, and I think it is an attractive option for small businesses that want to keep costs down and keep commercial relationships on track.
When I first came to MasterCard in the mid-1980s, I was a litigator, always ready to meet my adversary in court for a battle. However, as I progressed and matured in my career, both my skillset and mindset evolved. The scope, risks and costs of the litigation my company was involved in all but demanded a better way.
Of course, there were certain matters that would always need to be litigated. But I came to see that we could resolve almost all of MasterCard’s ongoing cases through a mediation process. And those results were often more finely nuanced and subjectively tailored to everyone’s needs than any result a judge could have handed us.
Sure, a court can order someone to do something, or to stop doing it, but other than that, all they really have to offer is money, damages. Money is great but, if you can manage it, why not craft a solution where both sides walk away feeling heard and as if the full range of their needs—even those not rigidly related to rights or obligations—can be discussed and creatively addressed, so that a continuing business relationship might even be possible?
Think of what else small businesses could do with the time, money and energy that litigation would otherwise consume? What could they create? How could they grow their business? What good could they accomplish, for their employees, their customers and society?
I’m sold! If I am a small business owner, how do I find a mediator or arbitrator that handles small business matters.
Well, feel free to reach out to me, but there are many mediators and arbitrators that can be located through local bar associations.
Is the process expensive?
It varies, depending upon the case and the experience level of your neutral. If a case is really specialized, you might need a subject matter expert. Most neutrals will charge hourly fees but there are also some flat fee and lower cost options available. But remember, both sides typically share the costs, and a mediation, anyway, typically only takes hours – as opposed to years, like a lawsuit can take.
Is a dispute ever better suited for litigation in court?
There are some factors that might tilt the analysis towards litigation. If you want a decision to be public, in order to set precedent or for other reasons, litigation will accomplish. If you think a jury might work in your favor, that might be another reason to consider litigation.
For more information about thoughtful dispute resolution options, Noah Hanft can be reached at nhanft@acumenadr.com.
This article is for informational purposes only and should not be considered legal advice.