Collaborate, don’t litigate those business disputes

BY CAROLYN LAREDO and MARK BASS

Collaborative law is an alternative to resolving your business disputes in court. Traditional methods of resolving conflict through litigation are not always best.

Protracted litigation depletes financial resources, disrupts lives and destroys relationships. This is usually the case when individuals believe that only they are right or that the most important issue is to “win.” This mindset has been changing as more business people are turning to attorneys who are trained in the collaborative law process to assist them in resolving their differences.

Rather than battling in court and having a court impose its decision, the business owners resolve their differences together. The motivation for businesspeople to use the collaborative law process is to effectively utilize finances, keep their issues private, preserve business and personal relationships and protect reputations, while allowing both parties to “win.”

The collaborative law process encourages parties to resolve their legal, business and personal disputes with less conflict and without court intervention. It allows them to make decisions in a confidential meeting rather than in open court.

In the instance of a business partnership, each partner retains a collaboratively trained attorney to advise and provide legal counsel. The partners and their collaboratively trained attorneys work closely with a team, which includes a neutral financial professional with an expertise in taxes and/or business valuation and a communications facilitator who assists the parties in expressing their concerns and in being heard. The collaborative team will assist the parties in making informed decisions in a safe and confidential environment.

A goal of the collaborative law process is to assist disputing parties to resolve their differences and to structure an agreement that represents each party”™s interests. Many businesspeople prefer this because it is the parties themselves and not the court or a third party, who are the decision makers.

Benefits of collaboration

The benefits of an agreement created by the parties in the Collaborative Law process rather than through litigation include:

Ӣ Creating a more durable agreement that addresses the needs and realities of the parties in the context of their business and personal lives;

Ӣ Allowing for business and personal relationships to be preserved;

Ӣ Providing the potential to minimize the economic and emotional costs;

Ӣ Cutting costs by agreeing to neutral experts rather than each party retaining an expert to represent each of their separate interests;

Ӣ Scheduling that is flexible and takes into consideration participantsӪ schedules as opposed to court appearances and hearing dates that are dictated by the courtӪs calendar;

Ӣ Decreasing the chance of disruption to the business because it encourages ongoing constructive communication so that the business can keep running;

Ӣ Protects reputations by avoiding negative publicity and maintaining privacy; and

Ӣ Allowing you to be involved in defining the terms of your agreement and avoiding the uncertainty of having the court decide for you.

The dissolution of a business can be as stressful as a divorce and in many cases is quite similar. Most small businesses do not have a written business agreement, leaving their disputes to be settled by state laws. When establishing a business many individuals avoid these discussions, fearing that any disagreements may end up delaying or hindering the formation of the business. If business partners do not specifically outline each of their rights and responsibilities, they will not be equipped to settle conflicts when they arise and misunderstandings may erupt into full-blown disputes.

Making a case for collaboration

Take the case of Jerry and Paul. They had been friends for a little over two years, having met each other at various business networking functions and mixers. After a while they, with their spouses and children, began to meet socially. Everyone got along so well that Paul and Jerry decided to join forces and join their businesses.

They had heard from others that having a business partnership agreement would be a good idea since they were combining their separate businesses. But Jerry and Paul agreed that they could just sit down and discuss whatever issues might come up at the time. A business was formed without a partnership agreement.

Everything went well for about 10 years until Paul began experiencing marital problems. Paul”™s work suffered and Jerry did his best to support his partner. However, things got worse when Paul”™s wife asked for a divorce and wanted her marital interest in the business.

Jerry tried to sit down to discuss the impact of Paul”™s personal life on the business but discussions always ended in arguments. Jerry decided that there were two options. Either they address the potential impact of Paul”™s divorce on the business, discuss each partner”™s work responsibilities and develop a business partnership agreement to try to keep things together, or they discuss the breakup of the partnership and determine how to divide clients and equipment, how to share the profits or losses and how bank accounts and tax matters will be handled.

Jerry and Paul both agreed that they did not want to waste time and money or increase their stress. Nor did they want their customers impacted by their dispute, fearing that they would take their business elsewhere.

Paul and Jerry each met with a collaborative attorney to discuss their situation. After those meetings, they each agreed to retain a collaborative team to address their concerns and assist them in moving forward.

Steps to take

If you are faced with a business or partnership dispute, the dissolution of your business or are in the formation stages of your business, you and your partner or partners should consider using collaboratively trained professionals. Steps to take include:

1. You and your partner should each meet with a collaboratively trained attorney to see if the collaborative law process is right for you. All parties must then agree to take part in that process.

2. Once collaborative attorneys are selected, there will be an analysis of what other professionals will be part of the process and will join the team. As discussed, the team is generally comprised of a neutral financial expert and communications facilitator in addition to the collaborative attorneys.

3. The business partners will be required to sign a participation agreement that specifies the rights, expectations and obligations of all parties. It includes a provision that your collaborative attorneys and other collaborative professionals cannot represent you if you or your partner decide to litigate your differences. This provision is key to the process as it allows for open and candid negotiations and avoids threats of going to court.

During the collaborative law process you will examine the issues, discuss interests and concerns, look at options and begin negotiations. Discussions may include topics such as relevant areas of law, tax ramifications of proposals, business valuation and personal interests and concerns. When the parties reach a resolution that addresses their interests, a settlement agreement or business partnership agreement is drafted.

Picking your team

When selecting collaborative professionals, ensure that all of them have received training in the collaborative law process, as this safeguards that they are of the same mindset during negotiations.

Verify that all professionals are agreeable to withdrawing from the case if the case leaves the collaborative law process. Without this provision, negotiations may not be open and candid and there may be an underlying threat of going to court.

If any of the professionals are not willing to fully participate in the collaborative law process, you should consider selecting a different professional who is committed to successfully resolving your matter collaboratively.

A business dispute does not have to end the business, your ongoing ability to earn a living or your relationships. If you are forming a business, having the proper agreement in place that is negotiated in an open and thoughtful manner can strengthen the success of your business now and in the future.

To learn more about collaborative law, contact a collaborative professional in your area. Information is also available at nycivcollab.com and collaborativepractice.com.

Carolyn Laredo and Mark Bass practice collaborative law and mediation in New York City and in the Hudson Valley. They are on the board of the New York Civil Collaborative Group. Laredo is a partner at Law & Mediation P.L.L.C. in New City. Her website is mediationgroup.com. Bass is a partner at Bass & Abrams P.C. in Croton-on-Hudson. His website is BassAbramsLaw.com.