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Bar News - October 15, 2014


Alternative Dispute Resolution: Using Collaborative Law in a Business Setting

By:

If the multigenerational history of tensions within the Demoulas family wasn’t already apparent, this summer’s Market Basket worker strike and resulting board reversal served as a reminder of the very personal nature of business relationships.

As it has for more than 10 years in family law practice, the Collaborative Law (CL) process represents a useful tool for efficiently reaching a lasting resolution in sensitive business disputes.

What Is CL?

In the CL process, parties agree to resolve their differences by working with separate lawyers and other neutral professionals (financial, organizational change professionals, etc.) as a team.

The attorney and neutral professionals agree to limit their work with the parties to the matter at hand, and the “disqualifying rule” limits the threat of litigation – parties agree that their CL lawyers, and other members of the CL team, will not represent them in litigation should the process fail. These rules serve to maintain a focus on settlement, because no one wants to start over with new counsel. Efficiency is leveraged with a direct benefit to reputation and relationship preservation.

In the CL process, discovery happens at the start of the process and is transparent, confidential (no court filings) and voluntary. Information is used to obtain a mutually satisfying result in an efficient and cost-conscious manner.

Unlike in litigation, there is no fight to the death, but a look toward restructuring the business, much like a divorce restructures the family. CL centers the resolution efforts on reputation, relationship (between partners, customers, and within the organization), and efficiency (rather than a cat-and-mouse game).

A Hypothetical Case Study

What might a CL case look like? Here’s a hypothetical: Two partners – we’ll call them Joe and Barbara – in ABC, LLC are moving toward the next chapter of their lives. They started making widgets about 10 years ago. The business thrived and is moderately profitable. Both of them have derived comfortable incomes from the business.

The older partner, Barbara, wants to take the business in a new direction and is confident she can double the gross income. However, it will take a large infusion of capital to upgrade the production line. The younger partner, Joe, is raising a family and can’t afford to contribute more capital, nor does he want to risk his personal credit on this venture. There are two parties, two visions of the future, and two reasonable demands that are not mutually compatible.

Neither Joe nor Barbara wish to sell to the other. They each believe the other’s offer is less than the perceived value of the business. They are both emotionally attached to the business. Each wants “custody,” and neither is willing to give up control. If litigation ensues, they risk the loss of their respected status in the marketplace. They fear their customers will seek widgets elsewhere. Additionally, both partners appreciate the cost of lawyers and the delays in litigation – and the potential harm to their 10-year relationship.

Contacted by Barbara and Joe, two CL-trained attorneys gather the facts and discuss the interests of both parties and how they might address the needs of their clients. Given the emotional nature of any business dispute, often cited as greater than the stress of divorce, the attorneys jointly recommend using a CL “coach.”

The Role of the Coach

The coach in civil CL is a licensed mental health professional, often a psychologist, who has knowledge of business and organizational processes and has been specially trained in CL. The coach meets with each party individually, then jointly, to gain an understanding of the emotional needs and abilities of the parties to actively engage in discussion and exploration of options to settle their differences.

The coach is not a therapist to either party. Rather, the coach is charged with identifying opportunities and challenges that impact resolution. The coach serves as a resource to assist the parties in managing stress that can negatively affect decision-making. He or she also serves as a communication expert, making sure that what is said is heard and what is heard is understood.

In our hypothetical scenario, the coach helps Joe understand that his concerns were based on his current need to access cash, and that his style tended to be risk-averse. The coach helps Barbara identify ways in which her “big picture” pitch neglected the fine details that might have satisfied Joe’s concerns about liquidity and leveraged debt.

The coach then advises the attorneys on various “hot buttons” revealed in the meeting. Serving as facilitator, the coach convenes group meetings where the problems are clearly defined, the options are explored, and the parties, with counsel and coach, engage in open discussion to identify the best solution with the resources available.

Because neither the coach nor the attorneys are experts in finance, the team makes use of qualified financial experts to assist the parties in their deliberations. The financial expert, who is also trained in CL, understands how to gather financial information from the parties and helps them value the business and/or sub-components of the business.

In civil CL, financial neutrals serve many roles, ranging from business valuation expert to tax advisor. CL attorneys work together to identify what needs exist and pull in neutral advisors jointly as a given case requires.

There are many benefits to using CL to settle a business dispute.

While hiring several professionals may seem complicated and expensive, clients often realize a cost savings when compared to litigation. The billing rates for the services of the coach and financial neutral are generally less than the hourly rates of CL counsel.

For the lawyers, CL often returns the attorney to the role they most value and saves them from the work they often disdain. Lawyers in CL don’t get embedded with their client’s emotional outbursts. And, they don’t have to spend dozens of hours reviewing balance sheets. The parties, in cooperation with the financial neutral, develop and “own” the numbers.

As one might imagine, the tone and nature of a CL meeting is quite different than that of litigation. Joe and Barbara enjoy positive interaction with each other and with both attorneys. There is no “back room dealing,” because all discussions are held with the parties in the room.

CL is finely attuned to the needs of a business schedule and cycles. Because there are no court-imposed deadlines or discovery schedules, the parties are in control of the timing of the process. It may be delayed to meet the personal needs of the parties, without the fear of missing a deadline or losing some litigation advantage.

The Drawbacks

There are some negative aspects of Collaborative Law in the business dispute context that need to be acknowledged. First, litigation is off the table. If the CL process fails, the parties need to start over with new counsel.

Second, some parties with compromised mental health or addiction issues may not be as able to participate in the process. The coach and attorneys evaluate these concerns before the process proceeds.

Despite these drawbacks, Collaborative Law may well present an attractive alternative for an attorney handling a challenging business dispute. He or she has the option of referring his or her client to a Collaborative Law professional for a case review. In New Hampshire, several members of the Collaborative Law Alliance are trained in handling business disputes. Find out more at www.collaborativelawnh.org.



Bruce L. Dorner

Loretta L.C. Brady
Bruce L. Dorner practices Collaborative Law in Londonderry. He is a law practice management consultant and an adjunct professor at the UNH School of Law. Reach him at Bruce@BruceDorner.com.

Loretta L. C. Brady is a collaborative law coach facilitator and licensed psychologist. She is president of BDS Insight and associate professor of psychology at Saint Anselm College.

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