September 13, 2019

Prepping Clients in Corporate Divorce & Complex Ownership Disputes for Mediation and Arbitration

Successful outcome of business disputes come about through thorough preparation.  Benjamin Franklin said: “By failing to prepare, you are preparing to fail”.  That is true in dispute resolution too. The parties need to invest in preparation to have a better chance at a successful outcome.  Preparation is as significant to mediation and arbitration of corporate divorce as it is to other fields of endeavor.   Consider a professional football team.  The team will spend months upon months preparing for a one hour opening game.

Corporate divorces often arise from a history of grievances and long seated difficult relations between partners in a business or even multiple businesses.  Sometimes these disputes involve very successful families and inter-generational issues.  Founders against children, siblings versus siblings (some of whom are in the business, others who have chosen careers or lives outside of the businesses), second generation versus third generation and even management versus ownership.  Ownership and management structures that might have made sense decades ago with the prior generation, now with the passage of time, the arcs of lives moving in different directions, and the insertion of emotions and grudges, may make little or no sense.  These structural issues can give rise to manifold types of disputes.

Only a holistic approach can gainsay an understanding of all of the issues.  And that can only come about through preparation by both counsel and the client.  Properly advising the client in a Business Divorce requires a holistic understanding of the business realities, the limits of the tools you have at hand and the limits to which your client will go.  What is required is a holistic analysis to understanding the root causes of the problems, the emotional hurts, the real monetary and power issues. 

Much time will be spent in gaining an understanding of the players, their needs and desires, the power structure, the levers of power, the businesses, the ownership and management structures and any threats to the business.  Of course, never forget to identify any sensitive issues that may lurk just beneath the surface; where the landmines are buried.   Understanding these can be as important as being able to read the balance sheet. 

Once the practitioner understands the situation, then the practitioner can begin the process of educating the client on the process for the mediation or arbitration.  This process can be straightforward with well drafted clauses, but can be a difficult one if the clauses are ambiguous or poorly written. Indeed, some agreements even refer to the process as “binding mediation”.   Thus, the practitioner must identify the agreements with dispute resolution clauses and then determine whether there are existing ADR clauses and what they require or even if there are multiple conflicting dispute resolution clauses.

Mediation versus arbitration.  Clients often have a misperception as to mediation and sometimes think that a mediation will result in a binding award rendered by the mediator at the end.  

Mediation and arbitration can play a dynamic and important role in solving the problems. Indeed, mediation and arbitration can be very useful tools to find experienced neutrals with relevant business experience; whether in running businesses, serving on the bench and having heard dozens of business disputes, or in mediating or arbitrating shareholder oppression issues. 

In this session we will start with a hypothetical business founded over 100 years ago, the Earp-Clanton Emporium, Ltd., with multiple agreements between the parties and some formal and informal documentation with which to contend.  With all sides having historically used ‘self-help’ in the past to resolve disputes, the importance of a successful resolution to the problems of today is of paramount concern to everyone. 

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