Got a beef? Don't litigate, mediate!
By By Jay MacDonald • Bankrate.com

Small businesses don't always face small problems. At any time, you could suddenly be confronted with a disagreement that threatens to shake your business to its core -- a blowup with a major supplier, a problem with a key subcontractor, seemingly irresolvable differences with a partner, or a serious grievance from a current or ex-employee.

Who do you call? Your lawyer?

Nah. That's the long, expensive route.

First, try mediation.

It's a dimes-to-dollars method to resolve disputes in an orderly fashion. It will likely save you time, definitely save you money and possibly salvage a valuable relationship -- and maybe even your business.

In addition, owing to the intricacies of courtroom proceedings, parties to a business litigation often come away feeling they weren't afforded a full and complete hearing; that they didn't get their day in court.

Alternative dispute resolution, as its name implies, offers two far more attractive options for resolving a business beef: mediation and arbitration. Today, many business contracts, and especially small-business contracts, contain a clause that requires each party to submit to mediation and/or arbitration should a dispute arise, as a measure of insurance against financially devastating court battles.

Simply put, ADR is a way of getting your "day in court" without submitting to the expensive and prolonged unpleasantness of the real thing.

"In mediation, there is a 90 percent settlement rate," says Bob Meade, senior vice president of the American Arbitration Association, one of several national mediation and arbitration organizations. "That means 90 percent of the time, when you sit at a table with a mediator, you're going to walk out with a settlement. You may not be totally thrilled with it, but it's settled, it's over, and you're not going to even go through arbitration. And that can happen in as little as 10 days."

What does it cost to mediate your dispute? Many state and federal courts have free mediators available, though these individuals may not have direct experience in your industry. AAA charges a flat $300 to file a mediation claim, then prepares a short list of AAA-trained mediators in your area with expertise in your industry from which to choose. AAA mediators typically charge between $200-$400 an hour, but you know their rate upfront before making your selection.

Carroll Neesemann, a lawyer with Morrison & Foerster in Manhattan, says mediation is quick and relatively painless -- if it works.

"Mediation is only the starting point. If it doesn't resolve the dispute, you're still stuck with a dispute to get rid of," he says. "Although mediation, if it fails, is an additional cost on top of the litigation or arbitration cost, it's usually pretty modest. Of course, if it succeeds, it saves you a bundle, which should be attractive to the small businessman."

Neesemann says don't be surprised if your lawyer balks at the idea of mediation, however.

"There are a lot of litigators that don't believe in mediation," he says. "They're more intent on winning than resolving."

On the other hand, Meade says attorneys will sometimes encourage mediation when a client just won't listen to reason.

"What we find is you'll have a client with a totally unrealistic expectation telling his lawyer, 'Look, this is a million-dollar case,'" he says. "And the lawyer can't control the client, so he brings them to mediation and the mediator does what the lawyer can't do: inject some reality."

As with mediation, arbitration also involves a third party, usually a trained arbitrator, hired to hear the dispute. Unlike a mediator, however, an arbitrator is charged with rendering a decision in the matter. Caucusing is not allowed; all evidence, witnesses and arguments must be presented in the presence of both parties. And the arbitrator's decision is usually final and enforceable.

"Arbitration per se is legally binding," says Meade. "However, you can provide in your contract that the decision of the arbitrator is not binding unless both parties accept it afterward."

Neesemann says the binding nature of arbitration raises the stakes.

"One of the problems with arbitration is people sometimes decide they don't want it after they're involved in it, and they go to court to try to fight it off," he says. "But by and large, arbitration is a creature of an agreement; if you've agreed to it, you're stuck with it, and if you haven't agreed to it, you're not stuck with it."

Meade says AAA arbitrations are generally completed within 90 to 100 days. Due to backed-up courts, business litigation can take three years and longer.

As would be expected, it costs more than mediation, too. AAA charges a graduated fee between $500 for cases under $10,000 up to $7,000 for cases in the $6 million range. AAA arbitrators generally charge a daily rate that varies widely, from $300 to as high as $2,000 to $3,000, again depending on the expertise of the arbitrator you select.

"The savings is a little bit overblown," says Neesemann. "The trend in arbitration is to have it become more and more like litigation, with more discovery and more of the things that are expected in court. It's more expensive than it used to be, but on balance, I would say arbitration is still cheaper and faster."

Meade says the speed and cooperative nature of ADR helps save valued business relationships, too.

"If you have a business where there is a manufacturing or financial relationship and it's broken off for three years, there's no way it's going to be re-established. But if you get before a decision-maker in 90 to 100 days, chances are more likely that you're going to be able to do something to preserve the relationship."

Jay MacDonald is a contributing editor based in Florida

-- Posted: March 12, 2001