By Phil Dabney, Partner, Holland & Hart
Small business owners deal with a variety of challenges every day, including legal disputes that often arise out of the normal course of business. In order to successfully meet these challenges, small business owners should familiarize themselves with the different dispute resolution processes available to them, including court, arbitration, small claims court and mediation.
The most common dispute resolution process is court. While court fees are relatively inexpensive, the overall cost of going to court is usually more expensive than other forms of dispute resolution, because it often takes several years before the dispute reaches a trial. Before trial begins, both parties have time to gather evidence and investigate facts, a process known as discovery, which can be burdensome and costly. The cost of discovery and trial can be further increased by a party’s need to pay for expert witnesses to prepare for and present complex issues to a judge or jury who may lack the necessary expertise to resolve the dispute. Once the dispute is finally presented in court by following strict evidentiary rules, the dispute becomes public information and the parties increasingly lose control of the potential outcome. While the parties can present their cases and ask for a specific award, the judge or jury will make the ultimate decision, and the resolution will usually be confined to a rigid set of possible solutions. Once the trial is over, often either party can further lengthen the process and time of uncertainty by appealing the decision to a higher court.
Arbitration is another dispute resolution option. In arbitration the parties select a neutral third party to listen to their dispute and render an ultimate decision. Parties in arbitration can retain more control over the process by prior contract or current agreement, which can allow a quicker and less expensive resolution. The parties can increase efficiency by limiting the scope and time allowed for discovery. The more terms the parties agree to up front and in writing, the more certainty they will have in assuring a process that is fair and inexpensive for their dispute. The parties may also increase efficiency by selecting an arbitrator with expertise or specialized knowledge in the disputed area, which reduces the need to pay for expert witnesses. However, arbitration can become very expensive if the dispute is relatively minor but must be resolved by an arbitrator or panel of arbitrators with expertise in an area. Finally, arbitration often increases efficiency because it is often more final than a judicial decision and can only be appealed for a narrow set of reasons. While efficiency is increased, the added finality of arbitration increases the importance of choosing a qualified arbitrator who will render a fair and just decision.
For legal disputes involving a relatively small amount of money, a party may consider resolving the dispute in small claims court. Small claims court attempts to simplify the regular court proceedings to provide disputants with increased efficiency in resolving disputes. InClarkCounty, small claims court is limited to disputes of $7,500 or less and the disputant can only seek monetary damages. Furthermore, inClarkCounty, all claims in small court are required to participate in a mandatory mediation before receiving a court hearing. The mandatory mediation is free for the disputants and is provided by trained mediators at theNeighborhood JusticeCenter. WashoeCountyhas a similar small claims process.
Mediation is a dispute resolution process that involves a neutral third person, called a mediator, who assists the parties in negotiating a settlement. Unlike an arbitrator or judge, a mediator does not make an ultimate decision for the parties and the dispute is only resolved through mediation if both parties mutually agree to a solution. This control of the outcome allows parties to creatively address the issues in ways satisfactory to both parties and to maintain confidentiality of the dispute. Mediation can often resolve disputes quickly, at a relatively low cost, and with little or no discovery. On the other hand, mediation can only work if both parties are willing to negotiate and reach an agreement. A party with no intention to settle may use mediation merely as a way to gather information in preparation for trial. However, if both parties have sufficient incentive and desire to settle the dispute, an effective mediator can assist the parties in overcoming the various obstacles of reaching an agreement.
If you are interested in using alternative dispute resolution, you can visit several sites to help you find an arbitrator or mediator, such as The Nevada State Bar (https://www.nvbar.org/lawyerreferral), The American Arbitration Association (www.adr.org) or JAMS (www.jamsadr.com).
For most business owners, it is not a matter of if, but when, they will face a dispute, either from within or directed towards their company. It is important to weigh all available options before deciding on the best method for addressing the dispute. Whether litigation, small claims court, arbitration or mediation, it is best to consult with an attorney familiar and trained in these options who can help guide you through the process.
As a member of the Las Vegas office of Holland & Hart, Phil Dabney concentrates in construction litigation and alternative dispute resolution. He has experience with cases involving commercial construction contract and pay disputes, construction claims, construction defect disputes, real estate, administrative law, general commercial and personal injury. The opinions expressed in this article are Mr. Dabney’s and not necessarily those of Nevada State Bank.