It's All Negotiable

I recently advised a client concerning a real estate purchase. My client had signed an offer to purchase many months ago, but the seller was under water with his lender and was trying to negotiate a short sale. The seller’s real estate broker wanted my client to sign a new offer to purchase, giving the seller another 60 days to complete the short sale negotiations. But my client did not want to delay for another 60 days. So I told the broker that my client would not sign another offer to purchase unless we saw some concrete progress toward completing the short sale. The broker and seller did not want us interfering in their negotiations with the lender, and did not want to show us the seller’s financial documents. But when I told the broker of my client’s concern with the length of time for completion specified in the offer for completion of the short sale approval, they came back with a revised proposal for 20 days. That was acceptable to my client. Now, if the seller or lender is still dilatory, my client can get out of the deal in a relatively short period of time. And the seller gets his new offer, which he says will help pave the way for approval. That may or may not be, but at least both sides now have a written offer they can live with. Sometimes, it is the seemingly small things that make a big difference.

I have said it before and I’ll say it again. When it comes to contracts, it is all negotiable. Even when one party presents a printed form, it is not written in stone. With computers, forms can be redrafted and reprinted much more easily and quickly today than when I began practicing law. That’s a good thing. People need to consider what they really want or need when making big purchases or commitments of time and money. They should not be deterred by the prospect of having to redraft some written document. Even the terms of written contracts to resolve disputes (e.g., Agreements to Mediate or Arbitrate) are negotiable—until you sign on the dotted line. So be sure you read and understand what you are signing. If you don’t, get an attorney to look it over and explain the potential pitfalls and consequences before you sign. If a dispute arises concerning the meaning or effect of the terms of the contract after you sign it, the parties to the contract can get attorneys and litigate in court, or they can agree to resolve it through arbitration or mediation, out of court.

In any event, it is wise to remember that courts are not in the business of creating or negotiating contracts for you. That is your job, with or without the help of an attorney or mediator. Courts either enforce agreements or decide that they are not enforceable. The time to negotiate is before the hammer falls. When a large amount of time, money, valuable property or assets are at stake, it is best to seek out an experienced attorney or mediator to help you.

Making law

Every few months, I talk to a local business networking group about the law. I get my topic by asking members to submit a question to me in advance. I call it “Ask the Attorney.” This month, the topic concerned an arbitration that involved real estate agent’s client. I explained that the arbitration must have arisen out of an agreement to arbitrate. Members of the group seemed surprised to learn that no law compelled them to enter into an agreement to mediate or arbitrate a dispute. My presentation showed how law was frequently made by one of our 3 branches of government (legislative, executive or judicial). But even more “law” was made by mutual agreement between individuals or business entities. We call these agreements contracts. In effect, a contract makes law between the parties to the agreement. That law is enforceable in court just as any statute passed by the legislature or any rule properly made by an administrative agency. But it can be enforced only by or against the parties to contract, or by designated beneficiaries of the agreement. Therefore, the procedure and outcome of the real estate arbitration in question depended on the terms of the agreement to arbitrate.

Near the end of my presentation, one of the group members asked whether I recommended that all of their business agreements contain an aribtration or mediation clause. Again, I think my answer surprised them. I told them that I did not recommend inserting an arbitration or mediation clause into every business contract without considering the costs of those proceedings, the nature and goals of their business, and the types of disputes likely to arise. I also explained that such clauses do not have to be agreed to before any dispute arises. Arbitration and mediation agreements can, and frequently are, entered into after a dispute arises. Of course, even if you do have a mediation or arbitration agreement in your contract, you can waive the right to enforce it by mutual consent or conduct inconsistent with enforcement.

The beauty of any agreement to arbitrate or mediate is that you are being proactive in addressing your dispute. Too many people leave dispute resolution to their attorneys or the courts, leaving the details to lawyers. Mediation and arbitration are much more hands on for the real parties. By tailoring the procedure to your dispute, you increase your chances of an acceptable, timely and economical resolution. There may be times when you want to set a public precedent or change existing law, which requires litigation in court and maybe an appeal. In other situations, you may be more concerned about confidentiality or putting the dispute behind you as soon as possible. Whatever your goal may be, it is always better to have options and to think about them before making a choice.

It is important to remember that, when entering into any kind of contract, you are making law. That is an awesome responsibility. Exercise it wisely.

Opening day

I admit it. I’m a homer. I like my hometown professional baseball team, the Milwaukee Brewers. Today is the opening game of the 2012 season. After a first place finish in our division last year, hopes are high for another exciting and successful season. But even if they don’t win it all (and the Brewers never have), it is still good clean entertainment, usually outdoors.

What does this have to do with dispute resolution? I have written about conflict in sports before, (at least twice). It can be a good model for how we should handle conflict in the workplace and society in general. During the off season, we saw the controversy about Ryan Braun’s positive blood test for steroids. It was finally resolved through arbitration. Agree with the decision or not, it has the benefits of finality and closure. And it showed the importance of having some kind of relatively quick decision making procedure to resolve the dispute.

Conflict can be constructive. Even if we don’t get everything we want or hope for, engaging in a civilized discussion or game with your opponent ultimately puts the dispute behind you and lets you get on with your life. If we don’t win today’s game, there are 161 more to go. And then there is next season. In the meantime, enjoy the game and the opportunity for growth that civilized conflict provides. Baseball is one of the most civilized sports. No slap shots, slam dunks, sacks or kicks. Just some base hits and the opportunity to make it “home.” So enjoy the game and play ball!

Class Dismissed?

The school year still has more than a month to go, but class actions in consumer cases may be near an end under yesterday’s U.S. Supreme Court ruling in AT&T Mobility LLC v. Concepcion.  The five member conservative majority of the Court struck down California’s law barring arbitration clauses that contained waivers of class action rights in consumer cases because it is preempted by the Federal Arbitration Act (FAA).  The four liberal justices dissented.  Consumer advocates claim this case will immunize corporations from liability to consumers for unfair trade practices because it is too expensive for individual consumers to pursue such cases alone, even in arbitration. 

But a closer look at the decision reveals that such immunity does not come without price.  In this case, AT&T Mobility’s cellular phone sale and servicing agreement provided that customers could initiate dispute proceedings by completing a one-page Notice of Dispute form available on AT&T’s Web site.  If the dispute is not resolved within 30 days, the customer can invoke arbitration by filing a separate Demand for Arbitration, also available on AT&T’s Web site.  In the event the parties proceed to arbitration, the agreement specifies that AT&T must pay all costs for nonfrivolous claims; that arbitration must take place in the county in which the customer is billed; that, for claims of $10,000 or less, the customer may choose whether the arbitration proceeds in person, by telephone, or based only on submissions; that either party may bring a claim in small claims court in lieu of arbitration; and that the arbitrator may award any form of individual relief, including injunctions and presumably punitive damages.  The agreement, moreover, denies AT&T any ability to seek reimbursement of its attorney’s fees, and, in the event that a customer receives an arbitration award greater than AT&T’s last written settlement offer, requires AT&T to pay a $7,500 minimum recovery and twice the amount of the claimant’s attorney’s fees.

It would have been nice if AT&T gave its customers a choice to opt in or out of the arbitration clause, but I suspect many if not most consumers would opt in.  In this case, the lead plaintiff’s claim was that AT&T improperly charged him about $30 sales tax for a free phone.  How many consumers in such a situation would not opt for a dispute resolution mechanism that is free (to the consumer) and relatively simple?  AT&T built into the agreement adequate incentive for it to pay or settle most claims.  Class action litigation, either in court or in arbitration, usually ends in a settlement, but only after the consumption of large amounts of attorney fees, costs and time.  The policy question that remains after the Supreme Court’s decision in this case is whether the additional deterrent effect of a possible class action is worth the expenditure of those fees, costs and time. 

I am not a fan of arbitration clauses imposed on unsophisticated parties in contracts of adhesion.  But the arbitration clause and class action waiver in this case were hardly one-sided.  They provide incentives and benefits, as well as detriments, to both parties.  Neither the parties nor the Court addressed this aspect of the unconscionability issue in this case, but it may still be possible to argue that some arbitration and class-action waiver clauses are so one-sided as to be unenforceable, even under the FAA.  So, as long as this decision is not used to validate every arbitration clause and class action waiver in all consumer contracts, it may not mean the end of consumer class actions in all cases. 

The law isn't justice

The title of this blog, Law Rules, has two meanings. First, the law is composed of rules about what we must and must not do in our daily and business lives as citizens of a civilized society. The rules also define how we resolve disputes about who has complied with the law and who has not. Second, it is often said that no one is above the law, and we are governed by laws, not by men. Of course, people make the laws. So the law, like people, can never be perfect.

Recently, I ran across the following quote by Raymond Chandler, author of private detective novels:

The law isn’t justice. It’s a very imperfect mechanism. If you press exactly the right buttons and are also lucky, justice may show up in the answer. A mechanism is all the law was ever intended to be.

Those of you who have read any of my previous posts have probably figured out that I agree with this thought completely. Litigation and arbitration are win-lose propositions. They are designed to search for the truth and put an end to the dispute. The dispute ultimately ends. Sometimes, truth and justice prevail. Justice requires that people treat each other fairly. The law can be one mechanism that occasionally helps us achieve justice, but it is not the only one. To achieve justice more frequently, our tool box must be much broader.