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What the Contract Should … or Should Not … Say About Dispute Resolution June 13, 2013 Ruth Dowling: American Tower Corporation Daryl Lapp: Edwards Wildman Palmer LLP John Houlihan: Edwards Wildman Palmer LLP
MANDATORY CURE PERIOD: Let us/Can they … fix this? As a matter of law, certain contracts are subject to a right to cure product defects or performance defaults. Cure provisions are also common place in commercial contracts. See Appendix of Forms at A-1. • Undoubtedly, cure provisions prevent some disputes from ripening into litigation. • They provide the parties with “space” within which they can talk and perhaps avoid a dispute.
MANDATORY CURE PERIOD: Let us/Can they … fix this? They also present opportunities for “further complication.” Example: If Contractor commits a breach of this Agreement other than one referred to in Section 14.1 or Section 14.2.1, and fails to cure such breach within 5 days after notice thereof from Owner … Owner may terminate this Agreement effective upon notice to Contractor. Disputes multiply: • Dispute original breach; • Dispute whether Sections 14.1 or 14.2.1 apply; • Dispute adequate notice; and • Dispute effectiveness of subsequent termination.
MANDATORY INITIAL MEDIATION: Let’s talk before fighting! Advantages: • Forces parties to analyze the strengths and weaknesses of their respective positions early in the dispute cycle. • Provides a forum that is conducive to reaching an acceptable compromise. • The parties are not required to reach agreement. Resolution requires the consent of both parties. • Early mediation fosters: • Quicker resolution; and • More economically efficient results.
MANDATORY INITIAL MEDIATION: Let’s talk before fighting! Disadvantages: • Mediation assumes a willingness to compromise. • Even a party with very strong legal position is unlikely to obtain a total victory. • Where access to critical documents is asymmetrical the party with access to the critical documents possesses a distinct advantage. • Parties lose ability to assess the strengths and weaknesses of your opponents case through the discovery process. See Appendix of Forms at B-1.
MANDATORY INITIAL MEDIATION: Let’s talk before fighting! Final Note. The quality of mediators varies dramatically. • Generally speaking you get what you pay for. • On any reasonably complex commercial matter money spent on a good mediator is well spent. Particularly if contract is to be performed over relatively short period of time, consider agreeing to a mediator and an alternative mediator as part of the contract before a dispute arises.
ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? Litigation: • Procedural fairness and getting the “right” or “just” result are the dominant institutional priorities. “The courts are open to every citizen to claim what ‘he deems to be his right without fear of being prosecuted for heavy damages.’ Thus, the ordinary trouble and expense which arise from ordinary forms of legal controversy should be endured by the law-abiding citizen as one of the inevitable burdens which men must sustain under civil government.”Smith v. Michigan Buggy Co., 175 Ill. 619, 628 (1898)
ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? Is litigation a good environment for resolving your commercial disputes? • Litigation provides: • Very broad discovery rights to even the playing field where access to documents and relevant information is asymmetric. • Ability to compel resolution on winning questions of law: • Motions to dismiss; or • Summary judgment motions. • In appropriate cases, the ability to obtain a prejudgment or post judgment attachment to secure assets needed to satisfy a judgment. • In appropriate cases, the ability to seek and obtain emergency injunctive relief. • Ability to correct errors of law on appeal.
ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? The procedural safeguards designed to provide fairness and to yield “justice” come at a cost: • Litigation is contentious: It does not create an atmosphere that is particularly conducive to settlement. • Even with all of the built in safeguards, the ultimate outcome remains uncertain; the right and just result is usually, but not always, obtained. • Litigation is time consuming. • Litigation is public. • Litigation is expensive.
ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? Do the Rules of Civil Procedure create the right environment to resolve your commercial disputes: • Yes: If loss in a particular case would have a material impact on a company’s balance sheet. • Yes: If your company anticipates the need for special ancillary relief such as an attachment or an injunction. • Otherwise, there is a better way.
ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? Arbitration: • The basic proposition: Businesses are better off when they make the rules. • Money and time can be saved if customized rules are used rather than the canned rules offered by courts and dispute resolution companies. • By investing more time at the front end of a dispute, businesses can save hundreds of thousands of dollars at the back end.
ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? Because they work, ADR clauses are standard fare for contracts. • In spite of its phenomenal success and popularity, ADR has weaknesses. • In actual operation ADR processes have most of the attributes of a court case, including much of the • delay, • expense and • burden.
ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? A number of factors contribute to this molting of lawsuits into ADR equivalents: • The drive for information equality; • Counsel’s ingrained habit of searching for needles; • The lack of an appeal process creates a super incentive to thoroughly educate the arbitrator as to the legal and factual issues; • Consensus decision-making; and • Both counsel and decision-makers paid by the hour.
ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? The trend of modern ADR is towards less efficiency rather than more. • Involved clients need to take control of the process and insist that the participating attorneys and neutrals are required to optimize the intended efficiencies. Compelling efficiency to save time and money necessarily increases the risk of second-guessing when the results are not as expected. • Acceptance of the elevated risk of losing more money than expected or winning less than expected is part of the tradeoff for saving money on the “process.”
ARBITRATION vs. LITIGATION: What rules will govern dispute resolution? Examples of agreements adopting ADR “shortcuts”: • Executives Mini-Trial • Arbitration With High-Low Feature • Preview Arbitration • Arbitration With Mediation See Appendix of Forms at C-1 through C-4.