Most common business related lawsuits

Being a business owner has ups and downs. While enjoying independence and hopefully a good profit margin, disputes may occur between companies or between a company and its customers. If parties cannot resolve their disputes via good-faith negotiations, there are several methods of dispute resolution in the United States that involve third parties. The most widely known and obvious is litigation in the U.S. courts. The general process of the lawsuit is outlined below:

 

1.         Plaintiff files complaint with the court and serves defendant with a copy.

2.       Defendant answers the complaint or makes a motion in lieu of answer. Defendant may also assert claims against plaintiff if those claims arise from the same circumstances (e.g. the same contract is involved). These are called counterclaims.

3.       Discovery begins, the period when all involved parties obtain information and evidence from the other parties. This is accomplished through written demands, depositions of the parties and witnesses, and other legal means. The law does not allow any surprises at trial, meaning that a party cannot introduce new evidence or information to the judge if advance notice was not given to all participants in the lawsuit. During the discovery period and before trial, parties can file various motions asking for court orders. Also, this is the time when preliminary, status, settlement, and other conferences are held between the parties and the judge.

4.         If parties cannot reach a settlement agreement after exchanging all evidence and evaluating their chances, the case goes to trial.

5.       The decision of the trial court may be appealed to the higher court. If no appeal is made, the final judgment is entered. Depending on its directives, the winning party can commence enforcement procedures.

 

Commercial lawsuits in U.S. courts are typically expensive and time consuming. Luckily it is not the only option for the aggrieved party. There are alternative dispute resolution methods (ADR) such as arbitration, mediation, or mixed dispute resolution process that allow parties to settle their disputes without involvement of the public court system. These methods are often more cost- and time-effective and give parties more control over the resolution process. Parties may agree in advance, at the initial stage of contract execution, that in case a dispute arises between them, they will try to resolve it by a certain ADR mechanism. The decision of the arbitrator, mediator, or other third-party adviser may be enforced by the courts, but only if the parties agreed to it in advance and properly drafted the relevant contract clause. Parties can also agree to try some methods of ADR before they go to court, but its outcome will not be binding. This is done when parties want to state their positions, evaluate their arguments, and try to settle the dispute before diving into the litigation process.

 

Mediation: This method is designed to help parties to settle their disputes. A mediator does not decide the case, but instead seeks common grounds among conflicting interests in order to assist the parties in reaching agreement or creating conditions where each party can be a winner. If parties reach an acceptable compromise and both agree, the outcome of the mediation can be binding and filed with the court. Even if no agreement is reached, it is often useful to mediate the matter before going to court. Even during court proceedings, most courts require parties to go through preliminary mediation, hoping to save public and private resources.

 

Arbitration: This is similar to court proceedings, only no judge or jury is involved. The arbitrator is a neutral party, generally a lawyer or an expert in the subject of the dispute. Arbitration is more structured than mediation. The parties may make oral arguments, submit written statements, call witnesses, and submit evidence. According to the parties’ preliminary agreement, the decision of the arbitrator may be binding and entered with the court or unbinding and serve to promote case settlement without trial.

 

Mixed Dispute Resolution Processes: These include elements of mediation, arbitration, and trials. This process can be sponsored by the court. The parties have opportunity to present their case before the jury prior to engaging in the full-scale trial (summary jury trials). Such proceedings are not binding and serve to give parties a real sense of the possible outcome of the trial. Private processes without court involvement include the use of mini-trials and a combination of arbitration and mediation. Private mini-trials are used when the process of negotiations is not moving forward. Parties choose a neutral adviser who will hear the case and ask the parties privately about the strengths and weaknesses of their case. Then the adviser can render his or her opinion regarding how the parties should proceed. The opinion of the adviser and the outcome of the private mini-trials are not binding and serve only as evaluation and facilitation mechanism. The mixture of arbitration and mediation is a process where parties mediate their dispute before submitting it to the binding arbitration. If the parties cannot reach an agreement during mediation, the case will be decided by the arbitrator, whose decision will be binding. Still this process can be a time- and money-saving method for both parties, as compared to the painstaking process of litigation.

 

ADR is a good alternative to litigation in many commercial transactions. Nevertheless, it may not be the optimal method in every business situation. Parties should carefully discuss with their attorneys whether it is beneficial to include arbitration, mediation, or another alternative dispute resolution clause in a particular contract. There are certain situations when court involvement may be necessary. For example, if one party may need to prevent the other party from doing something in the future rather than just curing a past breach, the court can react quickly by issuing a temporary restraining order. Arbitrators might have the power to issue similar orders, but they are often not in the position to react quickly enough. One such example is when an intellectual property license agreement is breached. Such agreements are not only about the payment of money, but the licensor is concerned that the licensee will not act beyond the scope of the license or disclose some trade secrets to the third parties. If a party is not expeditiously served with a restraining order, whether the other party prevails or not in the final dispute resolution, the consequences may be irreversible. To combine quick mechanisms of the courts and inexpensive procedures of ADR, it is possible to state in the contract that disputes and claims between the parties will be resolved by arbitration (or other ADR method), but the parties reserve the right to seek interlocutory relief from a court (temporary orders before the final resolution of the matter, as mentioned above).

 

Dispute resolution processes can be time consuming, complex, and expensive. But they are more manageable than is often believed. The foreseeability and manageability of the possible disputes are essential part of doing business. It is important to understand the U.S. litigation process and available alternative dispute resolution methods in order to make the right decision and to avoid unpredictability.

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