In today's complex and multifaceted business environment, conflict between businesses is inevitable. Economic competition is fierce, and change is occurring at a faster rate than ever before. Given these facts, many progressive businesspeople realize that emphasis needs to be placed on resolving conflict, as conflict cannot be completely avoided.

This article focuses on four different ways of resolving conflict between business organizations--negotiation, mediation, arbitration and litigation. As one moves up this ladder from negotiation, conflict resolution becomes more complex, and more outside agents are needed to assist in resolving the conflict. For example, a business may be able to resolve a conflict by simple negotiation, and this happens regularly. However, once a dispute reaches mediation or arbitration, a neutral third party, and likely a lawyer, are necessary. For the most complex step on this ladder, litigation, the assistance of the court system and lawyers are essential.

This article provides practical information for the businessman or businesswoman on the basics of these four methods of dispute resolution, and some helpful hints on practical strategies for resolving disputes.


Most business disputes are resolved by negotiation between the parties to the dispute. Successful negotiators realize that they must stay focused on their goals, be well-prepared for the negotiation, and know the parameters of what might be accomplished in negotiation by understanding the organization's goals, its relationship with the other negotiating party, and the alternatives if no agreement is reached. Most business negotiations are undertaken without the assistance of lawyers or other third parties. However, when negotiations become complex or resort to legal processes seems likely, those involved may want to consider hiring a lawyer.

What might a lawyer add to the negotiation process? First, a fresh set of eyes on the problem is normally helpful, especially because lawyers negotiate all the time. Second, lawyers will be able to give the businessperson a good idea of the legal landscape surrounding the dispute, and the consequences that might ensue if the negotiation does not result in an agreement. Third, lawyers are creative, and may be able to come up with strategies for structuring a settlement that had not occurred to the parties. Finally, a lawyer may be able to assist by writing a demand letter or even by preparing a complaint (drafted for possible use in court) to be given to the other side, which may cause the opposing party to change its calculus of the negotiation and potential outcomes.

What are some signals that would indicate that it is time to have a lawyer become involved in an ongoing negotiation? If the other side uses a lawyer, or makes threats involving a lawyer or legal action, it is time for you to consult a lawyer. Certainly, if the other side sends a demand letter, files legal action, or you 

receive legal papers, you should hire a lawyer without delay. If you feel that the negotiation is entering an area which is outside of your expertise, is taking too much of your time, or the dispute is festering without resolution, a lawyer should be considered. Finally, if the stakes are high or particularly important to the business, you should consult a lawyer because it is a good bet that the other side has or shortly will.


Mediation is a process by which the disputing parties hire a neutral third person to assist them in resolving their dispute. The key to understanding mediation is that, while the mediator assists the parties in attempting to reach a negotiated settlement, the decision to settle is up to the parties and cannot be imposed by the mediator. Keeping this in mind will help distinguish between mediation and arbitration, which is discussed below.

Mediators are skilled professionals who work with the parties and their lawyers to take them through a process which is designed to lead to a resolution of the dispute. The mediation itself may take from several hours to several weeks or longer, and the mediator generally keeps the parties working toward a settlement until the mediator determines that further efforts will not be fruitful, or until one of the parties decides not to continue. If you are considering mediation, it is best to look for a mediator with special mediation training, who has experience and a good track record in successfully mediating disputes.

Mediators are generally paid for their services, with the calculus being that the cost of the mediation will likely be less than the cost of continuing the dispute. Depending on the preference of the mediator, the parties may or may not be asked to prepare a written statement prior to the mediation. Prior to the date of the mediation, the party representatives should meet with their attorney to plan a strategy for the mediation, and to discuss possible settlement options.

On the day of the mediation, the parties will meet at a pre-arranged location with appropriate facilities for mediation, and the mediator takes the parties through a process, designed to some degree ahead of time but with enough flexibility so that it can be changed to fit the circumstances. The process usually involves having the parties speak together under the supervision of the mediator for some period of time, as appropriate, and then break up into separate meetings, with the mediator shuttling between the parties, discussing the dispute, its merits, and possible resolution strategies. While every mediation is unique, most share the caucus format with the mediator speaking in turn to the parties, who are in separate rooms.

Mediators normally require that a person with the authority to resolve the dispute be present at the mediation. Other persons may also be present, including other representatives of the parties and the parties' respective attorneys. The attorneys are generally at the mediation to advise the parties as to their legal rights, and possible settlements, because the mediator is not in a position to offer the parties legal advice. The presence of attorneys is also useful because if a settlement is reached, the lawyers are normally charged with documenting the settlement, which may be drawn up at the mediation, or shortly thereafter.

Mediation proceedings are generally confidential, in order to encourage a frank exchange of information and settlement proposals. If you are involved in a mediation, you should make sure of the ground rules about confidentiality prior to the mediation. While what is discussed in the mediation generally cannot be used later by one party against the other, if there is something in the context of the mediation that you would prefer the other side not know at all, for tactical or other reasons, you should make sure to instruct the mediator that he or she should not share those particular facts with the other side when he or she meets with them during the caucus process.

If there is no successful outcome in mediation, the parties are free to continue the dispute resolution process on their own, through negotiation, or utilizing arbitration or litigation. If the mediation is not successful at first, there is no reason the parties cannot agree to mediate on another occasion, or mediate a portion of their dispute, using the same or a different mediator.


Arbitration, like mediation, utilizes the services of one or more neutral third parties. That is pretty much where the similarities between arbitration and mediation end. In arbitration, unlike in mediation, the arbitrator or arbitrators will listen to the presentation of the lawyers for each side of the dispute, and then render a binding decision which normally can be taken to court and enforced like a court judgment. In addition to the traditional type of arbitration discussed here, there are many other types of alternative dispute resolution, including mock trials, the use of advisory juries or judges, non-binding arbitration, high-low arbitration, or a form specifically designed by the parties.

An arbitration looks much like a court proceeding, with the primary differences being that arbitration is done in a private setting with rules that are generally less formal than the rules that govern civil litigation. While the rules that govern arbitration may differ slightly depending on the organization that is conducting the arbitration, arbitration is generally speedier and less costly than going through a court trial. In arbitration, discovery is generally more limited than in civil litigation, and the presentation of evidence at the arbitration hearing is less formal. Depending on the complexity of the dispute, an arbitration may be heard by one, three or more arbitrators. The arbitrators are compensated for their time by the parties pursuant to the arbitration rules or agreement.

Once a decision has been reached in arbitration, no appeal is generally allowed unless there has been some type of fundamental unfairness that goes to the heart of the arbitration process. Examples of the kind of serious unfairness that would have to be necessary to justify an appeal would be an arbitrator not revealing that he was related to one of the parties, or an arbitrator being unduly influenced through unauthorized contact, or the like. Generally, once the arbitration is over, the winning party takes the arbitration award to a court with jurisdiction and converts that arbitration award into a validly enforceable judgment, and there is no appeal.

Attorneys play a leading role in the arbitration proceeding, as evidence is gathered and presented through documents and witnesses much as it would be in a court trial. The rules of arbitration, while generally less complex than civil litigation rules, are still intricate, and the substantive rules of law that will govern the outcome are the same. Unlike mediation, arbitration will lead to a dispute resolution in which one of the parties emerges with a decision in its favor.


Litigation refers to the resolution of a conflict between parties through use of a municipal, state or federal court to render a decision on the dispute. Although litigation is sometimes necessary, many view it as a last resort because it is both expensive and time- consuming. For business organizations, an attorney is necessary for litigation because many state and federal courts require that a business organization appear through an attorney, except in small disputes in small claims courts.

The first step in the civil litigation process is to meet with your attorney and review the facts, documents and witnesses that would be involved in civil litigation. If the attorney has assisted in one of the other dispute resolution procedures described above, this process may be expedited. At this stage, if it has not been done already, the attorney may write a pre-complaint demand letter to the other side in a last attempt to settle the matter before resorting to court action. At this stage, with an attorney involved, the mere threat of litigation may cause the other side to reconsider its position.

In general, the civil litigation process goes through several stages, consisting of the complaint and answer, disclosure and discovery, pretrial motions, trial, and possibly one or more appeals. The length of time and the expense involved are likely to be considerable, but will vary depending on the complexity of the case, the number of documents, the number of witnesses, the number of adverse parties, and whether the matter might be able to be resolved by motion or settlement prior to trial. Each of these phases is discussed below.

The complaint is the document that initiates the litigation through its filing with the court. Most civil litigation rules provide that the complaint is supposed to be a plain and direct statement of the underlying facts, the allegations about how the complaining party has been wronged and the relief sought. There may be changes coming in this area because the U.S. Supreme Court has recently decided a case which may require more detail in the complaint under certain circumstances. Once the complaint has been filed and the various filing fees paid, the complaint is then served on the defendants, who are then given a relatively short period of time, normally between 20 and 60 days (depending on the circumstances), to file their answer, which responds to the allegations of the complaint. It is at this point if a defendant has a claim back against the plaintiff, that the defendant may consider filing a counterclaim against the plaintiff as part of the answer process.

Once the complaint, answer and any counterclaims are on file, the case moves to a stage known as disclosure and discovery. Most civil litigation rules now require a mandatory disclosure of basic information about the case by each party within a month or two of the filing of the last answer. The amount of disclosure, and the detail necessary, are governed by the applicable state or federal rules, and may vary widely. At the same time, the parties may engage in their own discovery, which consists of asking the opponents for admissions, documents or to answer questions under oath in a deposition. The discovery process tends to take up a good deal of time, and can be expensive both from an attorney's fee viewpoint and because of the time that must be invested by the principals of the business. Discovery may also be directed to email and other electronically stored information, which adds a level of complexity and expense that has recently been addressed for the first time in the federal and Arizona rules governing disclosure and discovery.

Once the discovery and disclosure phase is over, the parties may file a motion with the court asking that it resolve the case without a trial. In general, these motions will make the point that the party filing the motion should win the case because there are no disputed facts which make a court trial or jury trial necessary, and that the party filing the motion is entitled to a decision in its favor on the existing undisputed facts. If any of these motions are successful, that may end the case or reduce the issues for trial.

The most intense, complex and expensive part of civil litigation is the trial, which, depending upon the issues and the preferences of the parties, may be a trial to the judge or to a jury. Depending on the complexity of the case, a trial may take from less than one day to several months. Unless there is a mistrial, the decision-maker at trial, whether that is the judge or the jury, will render a decision at the end of the trial which determines the outcome, which decision may be in favor of one party or the other, or it may be a mixed verdict which grants some relief but denies other relief. Once the trial is over, attorneys may file post-trial motions to clarify the verdict or to ask for a new trial. If these motions are successful, the trial may start over. If these motions are not successful, the case proceeds to the stage in which one party or the other may file an appeal.

In most jurisdictions in the United States, so long as the time frames are observed and the proper documents are filed, the losing party at trial is entitled to one appeal as of right. This is commenced by filing a notice of appeal. The parties are then given several months to make submissions in writing to the appeals court arguing either to overturn the trial decision or to uphold it, depending on the party's viewpoint. Many times, but not always, there will be an oral argument before a panel of several appellate judges, who listen to the arguments of the attorneys before making a decision. The decision of the first appeals court may uphold the trial result, may reverse the trial result, or may send the case back to the trial court for further proceedings to clarify the issues. Once the decision of the appeals court is made, there may be another level of appeal to a higher court, but generally this appeal is taken only on important issues, in discretion of the court. If another appeal is not accepted by the higher appeals court, the opinion of the first appeals court stands.

As one may see from this description, the civil litigation process can be both time-consuming and expensive, as the filing fees, discovery costs, and attorney's fees over time may add up to a significant amount. This is why we almost always recommend that the parties engage in some type of alternative dispute resolution, such as mediation or arbitration, before a lawsuit is sent to trial.

Dispute Resolution Agreements

One way to exercise some control over the dispute resolution process is to insert a pre-dispute resolution clause into any contract that the business may execute. These pre-dispute clauses, which are generally enforceable, may specify mediation, arbitration, or some other dispute resolution mechanism prior to either side invoking court action. In this way, a business may be able to avoid the expense of litigation while designing in the pre-dispute clause a method for resolving any disputes that may arise.

In a pre-dispute clause, it is generally beneficial for the parties to be as specific as possible about the process, the mediation or arbitration service that will provide the services, the number and selection of any third party neutrals, the rules to be used, the location, and the governing law. Some parties even specify that a mediation take place first, and if the mediation is not successful, that only then will the parties proceed to arbitration. Your attorney will be able to help you in considering the various options and in drafting a pre-dispute resolution clause.

We hope this article has been helpful in sorting through some of the ways that disputes are handled by business entities. It is sometimes necessary for the parties to a dispute to employ outside agents such as mediators or arbitrators, as well as attorneys, in assisting to satisfactorily resolve a dispute. The roles and degree of involvement of the outside parties depends on the complexity of the dispute and the form of dispute resolution that is selected. The key to resolving disputes is to do so satisfactorily, and as quickly and as inexpensively as the circumstances permit.

Jennings, Strouss & Salmon stands ready to assist you in evaluating the various options, or in assisting you with negotiation, mediation, arbitration or litigation.