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How we resolve our disputes

Entries in agreement (4)


An ounce of prevention . . . 

Maybe it’s the economy. Or maybe it’s the latest negotiation tactic. Lately, I have conducted several mediations in which one party claims that it will file for bankruptcy if it does not prevail in the pending litigation. Collectibility is frequently an issue in mediation, but the spectre of bankruptcy raises it to a higher level. If a settlement is reached and the party who pays money then files for bankruptcy protection, will the recipient have to pay it back to the trustee to be distributed equitably to all creditors? In one case, the plaintiff alleged its business losses were due to conversion by a business partner — an intentional tort that could not be discharged in bankruptcy.

Of course, many business disputes, especially between partners, can be avoided with carefully worded contracts, partnership agreements or corporate documents. Unfortunately, in the recent cases I have mediated, the contracts and other documents were not carefully worded. In some instances, they were non-existent or, at best, inartfully drafted. Maybe the parties did not feel the need for written agreements, or maybe they were too cheap to pay attorneys to draft them. But I suspect that well-drafted legal documents would have come in handy when it came time to end the relationships or resolve disputes. In the absence of such documentation, the litigation became a he said/she said affair. And the mediation boiled down to “give me what I want” or “accept what I am offering” or else I’ll file for bankruptcy.

A transactional or business attorney’s best marketing tool is to tell a client to “pay me now or pay the litigators later.” In the cases I have seen, parties who scrimped on business planning and documentation have gotten what they paid for. Trouble.


Play Ball!

This is not about Major League Baseball, even though today is opening day of the 2011 season. However, baseball has been used as a metaphor for, or backdrop to, life in general for most of the last century, at least in U.S. literature and theater. From For Love of the Game to Field of Dreams, from The Chosen to the The Natural, baseball in novels and the movies is part of our national and cultural folklore. Baseball’s lessons and language also permeate mediation and dispute resolution.

The other day, I was engaged in some business negotiations. After presenting our initial proposal, the other party’s attorney said it was not even “in the ballpark” and advised his client to forget about making any deal with us. In effect, he wanted to pick up his ball and look for another game after the first pitch. Recognizing this as a time-worn negotiating tactic, I reminded them that we were only in the first inning and there was plenty of time for both sides to take their turn at the plate. In other words, we wanted to play ball with them. If they would have accepted our initial proposal, we would have been very happy but that was not our entire game plan. After the exchange of a few more proposals, it became apparent what was important to each side and an agreement was reached. All it required was for each side to demonstrate a love of the game and be prepared to “go the distance.”

Very often in mediation and negotiation, we see parties take positions that are seemingly irreconcilable at the outset. If the parties come in with positions that are truly their bottom lines, no agreement or settlement will be possible. Therefore, I recommend that the parties do their research ahead of time, come in with their best alternative to a negotiated agreement (BATNA) but be aware of the worst that could happen. And then play ball. After all, it is our national pasttime.


Buyer's remorse

In more than 30 years of practicing law, I have heard many attorneys say they do not need help negotiating contracts, agreements, or settlements of lawsuits.  I have also seen many contracts and agreements that are full of ambiguities or missing terms, which frequently lead to lawsuits.  Even when an agreement is not ambiguous or incomplete, a party who has “buyer’s remorse” often turns to the courts for help.

For example, in BV/B1, LLC v. Investors Bank, a real estate developer negotiated favorable terms on a loan from a bank.  In return, the bank inserted a fairly hefty prepayment penalty clause.  Sure enough, the developer got an offer to sell its building and property before the due date on the loan, triggering the prepayment penalty.  So the developer went to the bank and negotiated a reduction in the penalty in order to complete the sale, avoid litigation, and maintain a continuing relationship with the bank.  The developer paid off the loan and penalty out of the proceeds of the closing, but also sent a letter reserving its right to seek a refund of the penalty.  The developer quickly demanded its refund and the bank refused.  The developer sued.  (What happened to avoiding litigation and maintaining a good relationship with the bank?)

The trial court granted summary judgment to the bank, declaring not only that the bank did not have to refund the penalty, but that it was entitled to the balance of the original penalty.  The developer appealed, but the appellate court affirmed.  End result—the developer has to pay more than twice what it had negotiated for before filing its lawsuit.

Maybe the developer, or its attorneys, were good negotiators.  They just didn’t know when to leave well enough alone.  The bank and its attorneys were obviously also good negotiators.  And the courts appreciated that fact, refusing to relieve the parties of the benefits of their bargain.  The appellate court’s opinion refers to the parties’ “negotiations” and “agreement” (or variations thereof) more than a dozen times and finds no ambiguity. 

I don’t know whether the parties in this case considered mediation at any point, but a good mediator should help the parties appreciate the effect and importance of their negotiations and agreements, and avoid buyer’s remorse.  No matter how good the negotiators are, a settlement agreement that leads to litigation fails to achieve its purpose.  Dispute resolution means putting the dispute behind you, not kicking it down the road into court. 


Don't forget the attorney fees

We often hear complaints about the high costs of attorneys fees.  So how could anyone negotiating a settlement of a legal dispute forget about them?  Apparently, it happens.  In a recent Wisconsin Court of Appeals decision, the court held that a party who successfully settled a will dispute could not recover attorney fees despite the existence of a statute that provided for an award of attorney fees to a prevailing party in all appealable contested matters.  (In re the estate of Estate of Wolf)  Key to the decision was the fact that a settlement, by definition, is not an “appealable contested matter.”  If the parties agree to settle, neither side prevails and neither is aggrieved.  Therefore, neither side can appeal.  The courts obviously have no interest in inspecting every settlement agreement to determine who “prevailed.” 

Of course, the settlement agreement could have mentioned attorney fees, but it did not.  It would have been a simple matter for the agreement to state whether or not it included attorney fees.  By now, it should be routine for attorneys or mediators to raise that issue in settlement negotiations, especially where a fee-shifting statute arguably applies to the subject matter of the dispute.  In the absence of a provision in a settlement agreement reserving the right to seek attorney fees in court, parties to the settlement naturally expect that the settlement puts an end to the matter.  The moral of this story is that the settlement agreement should specify whether or not it includes attorney fees.