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May 29, 2024

Early Dispute Resolution Clauses: Tips to Save Time, Reduce Expense and Preserve Relationships

Shannon C. Lamb, Esquire
NicolasMcComber via Getty Images

NicolasMcComber via Getty Images

A logjam of litigation exists across the nation. All the while, lawsuit costs are skyrocketing. Litigants yearn for their “day in court,” but a civil lawsuit can take several years to try from the date of filing. This is coupled with an average hourly rate of $325 for a civil litigation attorney.  Moreover, settlement is nearly inevitable before trial since it is so costly and time consuming, with an estimated 90% of litigated cases resolving before a final adjudication.

To avoid this morass, and before any contract is signed, it is imperative to understand the risks involved with the agreement and to have an idea of how potential problems would be handled. Flaws, assumptions, faulty reasoning, and misunderstandings should be evaluated by the parties while focusing on the reinforcement of healthy relationships and encouragement of good business.

One way to save time, reduce fees and costs, and preserve friendships is to include an Early Dispute Resolution (EDR) clause in the contract that gets to the heart of the deal, especially for those agreements that also have an attorneys’ fee provision. EDR clauses promote efficient resolution by mandating the parties take certain steps to resolve problems before they resort to the courthouse.

Some matters have industry-specific guidelines for dispute resolution, including EDR (i.e., construction contracts, attorney fee agreements, and homeowners’ association cases). However, most EDR clauses are not standard, off-the-rack provisions. For each step delineated in the EDR process, thought should be given as to whether it is appropriate for the situation at hand. This enables the most efficient and effective resolution of pre-lawsuit controversies.

The nature, history and strength of the relationships; desired outcomes; the number of parties; ability to cure; notice periods; need for mediation; venue; money at stake; sophistication of the parties and the industry (including professional guidelines); desire for expert witness opinions; and urgency are just some of the many factors to be considered.   Some EDR processes can be multi-staged, while others involve a simple notice to cure.

One frequently used tool in EDR is mediation, the scope (and cost) of which is dependent on the size of the deal. Used effectively, submitting a dispute to mediation can reduce overall risk and expense. It is a voluntary negotiation facilitated by a neutral third party, or mediator. Each mediation is structured differently, with most occurring virtually, of late. Sometimes the parties are engaged in mediation all day, sometimes only for a couple of hours and some cases require multiple days of mediation. It is usually non-binding, meaning the parties can feel free to take it or leave it.

Keep in mind that, unlike garden-variety litigation where the costs of a case (and the judge’s time) are primarily paid for by the government, participating in mediation costs money. Expect to spend several thousands of dollars for a half-day session, with the costs usually to be split between the parties. As such, the process should be approached thoughtfully, with an understanding of where it fits within the overall case strategy.

EDR language should also be considered that directs those involved to communicate, in good faith, with the other side, before the filing of any lawsuit.  These discussions should certainly take place with ample time before any planned mediation session. This is a great opportunity to resolve factual and legal issues, highlight any areas of agreement, and to stipulate to as many facts as possible.  Informal sharing of information, key agreements, medical bills and records, correspondence, photos, and testimony can also save many hours of aggravation later by allowing participants to focus on legitimate controversies.

In any case, no matter how complex, the EDR process should be employed ethically, professionally, and civilly to promote expediency and eschew delays. Discovery requirements in litigation should also be considered – if a resolution is not reached and a complaint is filed, the parties will have to engage in this process, anyway. Similarly, even if the use of EDR does not result in pre-lawsuit settlement, an early attempt to work it out streamlines litigation by focusing the parties on salient issues. After submitting to EDR, the parties should be able to readily identify pertinent issues and defenses, assess value, and determine the appropriate range of settlement relative to the cost of litigation. It should permit the parties to make the most informed decision possible about risks and outcomes of potential disputes.

Contracts including provisions for EDR provide a structure to preserve relationships and prevent further disintegration of the agreement. They promote efficiency, expediency, and common sense. Even parties without such a clause would do well to consider participation in EDR when a contractual dispute arises. Attention focused on the proactive resolution of disputes will inevitably save resources otherwise destined to be wasted in the courtroom.

    Shannon C. Lamb, Esq.

    Litigator

    Shannon C. Lamb, Esq. litigates in the state and federal courts of California. She also helps people avoid the courthouse by thoughtfully crafting tailored agreements and contracts.

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