Closely Held Enterprise Disputes Rarely Fit Litigation
Over four decades, I’ve represented various family enterprises that were in turmoil for one reason or another. For some, litigation seemed the only solution, but inevitably, litigation often injured the underlying enterprise either with customers, employees, or family relationships. Litigation lacks the flexibility and options that a careful, creative, and well-structured dispute resolution process can supply.
These are 10 suggestions for making dispute resolution work as the better choice for resolution of closely held enterprise disputes:
Initially, properly structure your representation. Often the entity itself is not the client and should not be. Your relationship will likely be representing the principal. If the principal you represent is also in control of the enterprise, he may want to compensate you through the corporation. That presents serious conflict problems and should be avoided. Mistakes there can develop into collateral disputes involving counsel and professional compensation.
If you represent an interest group within the entity, make sure they do have common interests and that your engagement letter spells out the consequences if, as and when somebody in the group develops separate interests.
After extensive debriefing with your own client and your client’s agreement to a dispute resolution plan, make the necessary proposals to opposing counsel and confirm to him your client’s support for a dispute resolution process. Since these early discussions are in the nature of settlement, they should be embodied in a preliminary confidentiality agreement which covers future and similar discussions and can be expanded and extended in a mediation agreement. See suggestion 7.
This collaboration with opposing counsel should include a discussion of the possible necessity of bringing in neutral third-party accountants or business valuators to review existing and disputed conditions within the company or simply to provide necessary current business information to all the parties.
A schedule with a tentative or confirmed date for a mediation should be developed, and should include necessary informal document production and/ or limited depositions respecting critical facts that may only be clarified through testimony of officers or employees.
There should be early sharing of nominees for service as neutrals and an early recruitment of an acceptable choice who can, if necessary, be available to assist in the resolution of issues associated with a planned mediation.
Include a stipulation and/or mediation agreement which, first, confirms document production and exchange agreements or limited depositions, and second, identifies whether and which aspects of such discovery might survive an unsuccessful mediation process and could be appropriate for use in litigation.
Counsel should prepare and file pre-mediation submissions, whether confidentially to the mediator or for exchange, and assure that the mediator has preliminary familiarity with the disputes. Similarly, counsel should positively consider delivering constructive openings at mediation that outline for the parties the legal issues and critical factual contentions at play in the mediation.
Mediations sometimes fail, but an early failure is not necessarily justification to give up on dispute resolution. Mediators are skilled at searching and finding common grounds to warrant further efforts. If a particular mediator has not been effective in counsels’ judgment, a replacement should be considered. In connection with further mediation efforts, counsel should endeavor to catalog those points which have generally been agreed upon in the first session.
If the onset of an enterprise dispute is marked by the commencement of litigation, these points may nevertheless be applicable. Counsel for the parties will need to submit an agreed upon mediation plan to the Court which reflects these various components as well as an executed mediation agreement. The Court is unlikely to approve a prolonged detour from litigation scheduling. However, the parties are always free to dismiss litigation without prejudice, enabling undistracted attention to and reduced expense for a dispute resolution process.
Family enterprise controversies are always emotion-laden. Principals often become absorbed by the litigation process and its impacts. Settlement options can seem unreachable, and an intensely adversarial process can be like gasoline on a fire. But if the parties and counsel are able to navigate an alternative dispute resolution, it can be a best case scenario for everyone involved.
Look at Middlesex Mediation’s services to see if one of our ADR options might work for you.