B. Business Disputes That Can Be Mediated
Many disputes typically faced by businesses are good candidates for mediation. Some examples are discussed below.
1. Disputes With Another Business
Many business disputes involve contracts between two or more busi- nesses—written or oral agreements you have with your suppliers, vendors, or customers, for example.
Typically, contract disputes are about the quality of goods or services, responsibilities of the parties, late delivery, or payments due.But business disputes can go well beyond contracts. Any issue that a business might work with another business on—or sue another business over—could turn into a dispute. These issues include intellectual property (trademarks, copyright, and patents), leases, advertising, customer sharing, and much more.
EXAMPLE: The owner of a pizza franchise rented space in a shopping plaza for a new restaurant. Unfortunately, asbestos was discovered in the ceiling, and the space was unusable for a year while the asbestos was removed. The restaurant owner demanded $70,000 in damages from the plaza, based on his estimates of lost profits. The plaza manager refused, saying the space had been rented “as is,” and that, in any case, it was unlikely that a new restaurant would have cleared a $70,000 profit. As a complicating factor, the restaurant owner also had a contract with the franchiser, which required the restaurant to be open by a certain date and charged the restaurant owner a monthly fee regardless of income.
After weeks of acrimonious negotiation, the restaurant owner suggested that they try mediation as an alternative to his filing a lawsuit. Both the plaza owner and the franchiser agreed to participate.
The mediation lasted two full days. On the afternoon of the second day, during private caucuses between the mediator and each party, the general outline of a three-way agreement took shape.
Under this plan, the plaza agreed to pay the restaurant $20,000for lost profits and to pay the franchiser one-third of the restaurant’s franchise fee for the months during which opening was delayed.The franchiser agreed to forego one-third of the fee, and to look to the restaurant owner for the balance. But instead of paying this in cash, the restaurant owner agreed to reduce the size of his exclusive franchise territory, which would allow the franchiser to make up the lost income by selling another franchise in a nearby town. In addition, once the restaurant finally opened, the restaurant owner agreed to give the plaza manager $10,000 in gift certificates, which the manager could distribute to other tenants and their customers to build good will and help ensure the restaurant would succeed.
2. Customer Complaints
Some of the most expensive and publicly embarrassing lawsuits a business faces are those brought by irate customers. These can include allegations of defective products or substandard services, misleading advertising, and/or illegal collection practices. Some grievances are relatively small, while others are much more serious, as might be the case if an organized group of customers claims your advertising has intentionally misled or defrauded them. Either way, mediation gives your customers a confidential way to vent their anger and lets your company settle privately without risking an adverse court decision that might encourage similar claims. Hopefully, it also results in a happier customer—who won’t badmouth your business until the end of time.
EXAMPLE: A couple who had requested a smoke-free hotel room complained that the room they were given was instead contaminated by chemical cleaning agents. They demanded their money back, plus an unspecified amount for what they claimed was false advertising (the hotel emphasized “clean, smoke- free air”), and unspecified damages for inhalation of the chemicals. When they threatened to get a lawyer and bring a class action on behalf of themselves and other former hotel guests who had experienced the same problem, the hotel invited them to mediate, offering to pay all fees.
In mediation, the health risks claimed by the couple were discussed at length in the presence of both parties and in private caucuses between the couple and the mediator. Although the couple continued to claim that they had both gotten headaches and felt nauseated during their stay, they reluctantly concluded that they probably wouldn’t be able to prove significant long-term injuries from inhaling the cleaning agents. The hotel manager also explained that the hotel had some unusual difficulties on the day in question, because the assistant manager abruptly quit, and a small business meeting had suddenly demanded 20 additional rooms. The couple eventually settled with the hotel for an apology, a cash payment equal to three times what they paid for their room, and free passes to several restaurants and movie theaters owned by the hotel’s parent corporation. In addition, the couple agreed in writing not to bring any lawsuit on their own behalf or on behalf of other former hotel guests.
3. Construction Disputes
Construction disputes are particularly well-suited to mediation. Not only do they often involve many parties (owner-developer, architect, engineer, primary contractor, and subcontractors), but they also tend to involve technical issues that might be costly and difficult to explain to a judge or jury. In addition, because construction often halts while a dispute is being resolved, time may be a critical factor. In fact, the cost of having a job shut down sometimes eclipses the value of the underlying dispute.
EXAMPLE: The construction of a retail store was interrupted when cracks appeared in the concrete slab floor. The owner, who had to pay to have the floor ripped out and redone, sued seven parties for a total of $2 million in money damages on claims of breach of contract, negligence, and breach of warranty. The defendants included the architecture firm that designed the building, the engineering firm that supervised construction, the primary contractor, the concrete manufacturer, the subcontractor who mixed and poured the concrete, and the subcontractor who finished the concrete floor.
After initial depositions in the case were completed, the owner contacted a private dispute resolution company for help convincing the other parties to mediate. Everyone agreed to participate. The mediation service arranged for a co-mediation team consisting of an attorney-mediator who had experience as both a construction litigator and a mediator of multiparty disputes, and a second mediator with a background in civil engineering and a specialty in soils, foundations, and concrete technology. During the first full day of mediation, much of the discussion concerned proper and improper ways to pour concrete. Once this issue was hashed out (about halfway through the second day), the defendants met privately among themselves and proposed to pay the owner $1.2 million, to be split among them according to a formula they themselves had worked out. By the end of the day, the owner accepted the offer and the case settled.4. Ownership Disputes
Disputes among business owners—partners, stockholders, or members—can destroy a business and, in the case of family-owned businesses, sometimes tear a family apart. For these disputes, mediation offers a protected forum where the parties can safely work out a private settlement.
EXAMPLE: The widows of two brothers who together had founded a large chain of auto service centers, were shocked when a nephew revealed that one of the brothers had used corporate funds to develop a private real estate business on the side. This disclosure, coupled with a demand that the money be repaid to the company immediately, threatened to tear apart the extended family of siblings and cousins, all of whom owned shares in the auto business. To avoid a wrenching, public battle, the two women retained a private dispute resolution firm. After several months of mediation, the family agreed on a restructuring plan. The children of the brother who had set up the real estate venture agreed to pay the other brother’s children the present value of the approximate amount their father had siphoned from the company. Everyone agreed that these payments could be made over ten years. This solution kept the real estate business on one side of the family, while at the same time dealing with the improper diversion of cash from the business.
C.