When your business enters the stream of commerce, the risk of litigation becomes a reality of doing business. Steps can be taken to minimize the risk of expensive litigation. Using strategic contractual provisions is one method to minimize or avoid litigation.
One contractual provision is a mandatory mediation requirement. A mediation clause requires the parties to attempt to resolve a brewing dispute through mandatory mediation as a prerequisite to filing a lawsuit. File a lawsuit prior to mediation and it is grounds for automatic dismissal. At mediation, the parties will have the opportunity to have a neutral party evaluate the circumstances and merits of the dispute, provide feedback from a neutral party’s perspective, and assist the parties in negotiating a resolution. Another advantage of mediation is complete privacy. This typically benefits both sides since both sides usually have the information they want to keep private. Mediation has a high success rate. It cuts through the emotional arguments and allows the parties to understand pragmatic considerations beyond the wrongs the parties believe they have suffered. Note, to be enforceable a mandatory mediation requirement must be contained in a valid contract.
Another contractual provision is mandatory binding arbitration. If the parties continue to insist on a lawsuit, arbitration is a smart alternative to the traditional district court trial. Usually, arbitration will be administered by American Arbitration Association and a qualified arbitrator. There are numerous advantages to arbitration. These advantages vastly outweigh a full-blown litigation. Arbitration is less formal than the district court process. This benefits the parties by reducing discovery, pre-trial motions and hearings, and jury trial that can rack up huge attorney fees for both sides. The arbitration process is quicker, in some cases years quicker than the district court process. An arbitration under the American Arbitration Association’s expedited rules can have the dispute resolved from start to finished in a few months. Contrast that to the year or longer a typical district court litigation will take, an arbitration wins hands down when it comes to speed of resolution. Arbitration is also a private action. The mere filing of a lawsuit which becomes permanent on the public record can have a ripple effect for years to come for one or both of the parties. Arbitration is complete private until a judgment is reached. Finally, an arbitration award is difficult, if not impossible, to appeal. This saves the parties years additional litigation as well as massive attorney fees through endless rounds of appeals. Note, like a mandatory arbitration requirement, to be enforceable an arbitration requirement must be contained in a valid contract.
Other provisions that minimize litigation are warranty disclaimers, damage waivers clauses, choice of law, and choice of venue clauses. Choice of venue clauses are especially important as they avoid a party being sued in a distant state when the primary operations of the business are in Utah.
Advance contractual drafting seeks to resolve issues to avoid or minimize litigation down the road. Including key provisions can be the difference between a quick resolution to a dispute versus a multiple six to seven figure attorney fees lawsuit in a distant state. One of the profound risks of DIY legal, or buying an inexpensive boilerplate form online, is missing on key provisions that are the very best benefits of using a contract. Remember, good attorneys solve problems, great attorneys help you avoid problems altogether.
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