Ways to resolve business disputes

Viable businesses are typically engaged in multiple business areas. These can involve traditional commercial activity (selling goods, performing services, etc.) or government relations or intellectual property matters. If you operate a viable business, you will end up in a business dispute. That could be internal or external.

At the outset, we are not focused on business dispute resolution between a business and a customer/consumer. Those disputes raise a whole host of independent issues not within the scope of this article. Instead, this article is focused on partner-to-partner (i.e., internal) or business-to-business (i.e., external) dispute resolution. Internal business disputes can involve a disagreement springing from:

Vision differences — your business partner disagrees on the future of the business;

Loss of interest — your business partner is not pulling their weight or is disengaged;

Violating contracts — your business partner is breaching the terms of an agreement (e.g., employment, confidentiality, or non-compete agreement, or the governing documents of the business);

Diverting business opportunities — your business partner is giving business to another person;

Self-dealing — your business partner is taking opportunities for themselves; or

Disparagement/Interference — your business partner speaks poorly of the business or disrupts it.

On the other hand, external business disputes can arise from:

Breach of contract (e.g., scope of work, quality of work, payment, etc.);

Breach of warranty — violation of an express or implied warranty underlying a transaction; or

Liability to third parties — it may be that a person was injured in a situation where you or another business may be liable.

The above is a sampling of the various sources of conflict from both internal and external business matters. 

The most important action you can take after a business dispute arises is to understand your legal footing. Without a clear view of the legal landscape, you may lack critical information when making decisions. To that end, at the first sign of trouble, you should consult with an attorney. Because business law involves a wide range of interrelated topics, a lawyer can help you map the legal issues and identify pathways forward. You can then better articulate your goal in the dispute, such as getting paid, requiring performance, instigating a buy-out, etc.

If a degree of cooperation still exists between you and the other side, you may consider negotiating a dispute settlement. You could also retain a third party to represent you. Delegating to a third party usually helps when tensions are elevated. Negotiation is good because it keeps costs down, can be relatively quick and results in mutually agreeable outcomes.

Mediation is another option and involves retaining a mutually agreed third party who will use their skills to guide you and the other side to a settlement. When opting for mediation, we suggest you select a specialist familiar with the specifics of your business or industry. If the mediator is unfamiliar, they may ultimately hurt the mediation efforts. Mediation is usually cost-effective and swift. It also allows both parties to maintain some control over the process. Finally, mediation, like negotiation, requires consensus by both parties, which bolsters the strength of any mediated agreement.

Arbitration often results from a contract term and may be the exclusive remedy available to you and the other side. Sometimes, your relationship may be so toxic that negotiation or mediation will not function, and you need a more formal process. Arbitration can be that process. It involves a third-party arbitrator who is, in effect, a private judge. The arbitrator is frequently a specialist in the subject of the dispute and can understand the complexities. The benefits of arbitration are lower costs, a quicker time frame and almost always a final decision.

Litigation is the traditional choice to resolve commercial disputes. Often litigation is the only viable option due to the breakdown of the relationship between you and the other side. Litigation is also attractive because it allows for a full presentation of your case, requires adherence to rules of evidence and is enforced by a court judgment. In addition, if you lose, you still have appeal rights. On the negative side, litigation is slow, costly and often involves decision-makers (i.e., the judge or jury) who are not specialists in your business or industry. 

Jonathan Schmidt is the principal attorney with 303 Legal, P.C. He practices in the areas of business and litigation. He can be contacted at jonathan@303.legal or www.303.legal.